Crystal Clouds Over at Corning

The post-holiday blues got here early for Corning (GLW Quote).

Investors who have been thrilled by the growth of Corning's liquid crystal display business are now bracing for an inventory pileup. Shares of the Corning, N.Y., glassmaker have fallen 8% in the past week on worries that LCD screen supply may surpass actual gift-buying demand. On Wednesday, Corning fell 17 cents to $19.66.

It seems that mixed in with the recent retail reports of gangbuster sales of flat-panel TVs, Wall Street also has seen some signs of caution on the computer monitor side.

In the bullish category, Circuit City (CC Quote) this week reported triple-digit sales growth in flat-panel displays. But on the same day, LCD component maker O2Micro (OIIM Quote) cut guidance after big buyer Dell (DELL Quote) canceled an order. O2Micro says Dell's LCD monitor inventory is running double its normal levels.

"People got scared when they saw that Dell had too many monitors," says one mutual fund manager who owns Corning. "But about 50% of the LCD industry volume is monitors, the other half is TVs, and TV panels are doing fine."

Industry observers agree.

"This will be a very, very good holiday season," says Insight Media analyst Ken Werner. "It will be better than people predicted at the first half and middle of the year."

About 8.8 million LCD TVs were shipped in 2004, and trade bean-counter Display Search expects sales to more than double to 18.9 million units this year. Werner is more optimistic though. He expects 20 million units to be shipped, or about 125% growth over last year.

Surging TV sales won't necessarily slow down after December, says Werner. Two factors suggest the hot TV trend won't cool off immediately: price cuts and the Super Bowl. Presumably, football fans will take advantage of lower prices just in time to get a high-definition view of the annual pro football hypefest.

Werner says he's seen some prices on 32-inch LCD TVs from second-tier makers fall below the all-important $1,000 level. Falling prices put LCD TVs in nearer reach of the mass market, says Werner.

And while LCD TV growth might help offset a slowdown in sales of LCD computer monitors this year and maybe next, even the bulls expect another treat further out.

Though Corning is the dominant supplier of LCD glass today, challengers like Japan's Asahi Glass and German giant Schott Glass have targeted Corning's market. The increase in competition is expected to bring prices down.

But for now, fans are cheering the flat-panel TV success.

"People continue to underestimate the strength of demand for TVs," says the money manager.

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