Corning Raises Questions for Long-Side Investors

In looking at last week's short idea, it only seemed logical to think about the No. 1 supplier of LCD glass in the world, Corning (GLW - commentary - Cramer's Take). Since I wrote about Himax (HIMX - commentary - Cramer's Take) last week, I've seen comments in industry trade papers that Chi Mei is cutting production by 10% in hopes of mitigating the price pressure on LCD panels.

While nothing is official at this point, The Korea Times reported that production cuts are under consideration at Samsung, LG and AU Optronics (AUO - commentary - Cramer's Take) in an attempt to stem the inventory build and firm up prices. Samsung told the paper that it expects pricing to continue to be weak into August, and an LG official suggested that the LCD business could turn if TV demand is healthy.

But on that note, Amtran, the No. 3 supplier of LCD TVs into the U.S. indicated that its outlook for U.S. demand this year has declined from more than four million units to something in the 3.2-3.5 million range. Amtran (i.e., the Vizio brand), Sony (SNE - commentary - Cramer's Take) and Samsung are the top three U.S. suppliers and are only separated by 0.3 points of market share. In total, they represent about 40% of the U.S. market.

OK, we know LCD panels have been weak, but isn't this in Corning's stock already? Maybe not, when you look at the data.

Corning's unusual, in that it's quite unbalanced. In the first quarter, 51% of its revenue came from the display operations, but that same business contributed virtually 100% of the operating profit. Any slowdown on the display side will obviously have a disproportionate impact on the bottom line. Add to that any slowing of capex among some of the telecom carriers with an interest in fiber, and add to THAT the likely macroeconomic impact on the truck industry for their environmental products.

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At time of publication, Faulkner had no position in the stocks mentioned, although positions may change at any time.

Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.

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