Corning’s LCD Prices Get Lift from Higher Demand in Emerging Markets

The average price of Corning’s (NYSE:GLW) LCD glass per shipment has declined from an estimated $64 in 2007 to $34.50 in 2010 resulting from continuous innovation in LCD technology, manufacturing over-capacity and aggressive pricing from competitors like Asahi Glass (TYO:5201), Nippon Electric Glass (TYO:5214), and Avan Strate. Management had warned that demand for LCD will be lower in the second half of 2011, something that we discussed in our note titled Corning Warns of Slowing LCD Demand in Second Half Amid Economic Malaise.

Despite the macro-economic headwinds, Corning registered net income of $811 million in Q3 2011, up 3% y-o-y while net sales increased 30% y-o-y to $2.07 billion driven by strong performance from its telecommunication segment and gains from a stronger Yen.  However, its volumes from its joint venture with South Korea’s Samsung Electronics declined 20% sequentially, in line with the revised guidance by the company in September. ^[1] But Corning is optimistic that the panel production from its Korean partners Samsung and LG will pick up in the next quarter and that retail demand for TVs will improve, which should boost panel prices. In the longer term, we expect stronger demand from emerging economies can reduce the average price decline for Corning’s LCD glass business.

See our complete analysis for Corning’s stock.

Corning Expects Stronger LCD Demand in Q4, Analysts Think Otherwise

After seeing a 20% sequential decline in volumes from its most profitable division – Samsung Corning Precision – in Q3, Corning expects retail demand for LCD TVs to pick up in the upcoming holiday quarter and higher production from the Korean affiliates – Samsung and LG. It expects glass volume from Samsung-Corning Precision to “increase at least 20% sequentially due primarily to the business regaining share lost in the previous quarter and higher panel maker utilization rates.” ^[1]

Analysts, however, think that global TV sales as well as demand for flat panels will not see a rebound anytime soon, with many TV manufacturers slashing their TV sales forecast. ^[2]

Emerging Markets Can Help Improve Corning’s Avg. LCD Price

In the longer term, as the global economy improves, Corning could benefit from greater demand and penetration of LCD TVs and large screen displays. According to recent research report by GIA, “technological advancements, mounting demand for display applications and government stimulus programs will provide impetus to the LCD industry and consequently drive growth in the market for LCD glass substrates” with projected LCD glass substrates market to cross 467.2 million square meters by 2017. ^[3]

The report further explains that the LCD TV penetration rate is significantly low in many countries globally, particularly in developing countries in Asia, Latin America and Middle East, and this presents tremendous growth opportunities. As Corning’s volumes pick up in the coming years with higher demand, sales growth in these emerging countries should compensate for lower panel prices.

While we estimate Corning’s average LCD price per shipment will decrease from $31 in 2012 to $23 by the end of our forecast period, Trefis members project a smaller decrease from $37 to $33 during the same period. The member estimates imply an upside of 21% to the Trefis price estimate for Corning’s stock.

We currently have a Trefis price estimate of $18.23 for Corning’s stock, about 25% above the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Corning Announces Third-Quarter Results, Press Release, Oct 26, 2011 [↩] [↩]
2. UPDATE 3-Corning’s profit up but doubts mount on demand, Reuters, Oct 26, 2011 [↩]
3. Global Market for LCD Glass Substrates to Cross 467.2 Million Square Meters by 2017, PRWeb, Oct 24, 2011 [↩]