Corning Warns of Slowing LCD Demand in Second Half Amid Economic Malaise
Source: Corning.com
Corning (NYSE:GLW) recently announced that it expects its display technologies division to hit a rough patch in the second half this year due to concerns about a drop in customer demand for LCDs. [1] Corning’s display technologies division manufactures glass substrates for LCDs that are used primarily in notebook computers, flat panel desktop monitors, and LCD televisions. In the LCD market, Corning mainly competes with Asahi Glass (TYO:5201), Nippon Electric Glass (TYO:5214), and Avan Strate, Inc.
We currently have a $18.25 Trefis price estimate for Corning, and our price estimate is about 36% ahead of the market price.
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Industry Expectations of a Slowdown Could Surface in Second Half
Even though the industry is expecting that the retail demand for LCDs will decline as a result of the deteriorating economic environment, demand earlier this year seemed to defy these expectations. In the first half of 2011, worldwide retail demand for LCD TVs increased 18% year over year and Corning has noted that the recent data indicates that sales remain strong in most regions.
Nonetheless, lower panel maker utilization rates will lead to a contraction of LCD inventory in the coming months. Corning also expects volumes at its wholly owned display technologies division to stay flat in the third quarter. So based upon lowered expectations of retail demand for LCDs and a deterioration of the global economic environment, we believe that the total number of LCD shipments is likely to trend lower in the short to medium term.
Corning Saves on Investment
Corning expects its overall capital expenditures in 2012 to stand at around $1.9-2 billion, lower from the $2.4 billion in 2011. After 2012, a migration to thin glass will help reduce the need for new and large capacity additions thereby leading to a lower capital expenditures in the display technologies division. This can accelerate the decline in capex as a percentage of EBITDA compared to our current projected decline over the mid-term.
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