Worries Simmer at Corning

A tough TV market smudges the outlook for Corning's (GLW) display-glass business.

With two major liquid-crystal-display-panel makers, AU Optronics (AUO) and LG.Philips (LPL), warning that high inventories and low prices will spoil their second-quarter performances, investors have been bracing for a foul forecast from Corning.

The giant glassmaker already cut its sales projections once, saying last month that LCD volume could fall as much as 5% sequentially in the second quarter ending this month. But suppliers like Corning are far down the chain and usually the last link to get hit in an inventory pileup.

Judging by Corning's stock price, which is down 28% from its April high, investors aren't banking on an upside sales surprise.

But TV industry watchers say this is a familiar pattern.

The second quarter is usually a bit challenging. Old TV models are supposed to be swept out to make way for the new-model introductions, says David Naranjo, an analyst with DisplaySearch. Lower seasonal demand in spring, combined with a new crop of TVs, can occasionally create surplus inventory that drags prices down, says Naranjo.

"We don't think the current condition is going to be with us for the long term," says Naranjo. New models, excess supply and lower prices tend to stimulate sales and fuel volume growth in the months to come, say observers.

At the retail level, says Naranjo, "we should be seeing a rebound. The appetite for TVs is very high. We are not changing our forecast."

Naranjo's firm DisplaySearch, a unit of NPD Group, expects 42 million LCD TVs will be sold worldwide this year. That number represents a 97% growth rate over 2005 levels.

If need be, LCD glassmakers and panel suppliers also have the flexibility to shift production if one segment of the business is in a slowdown, say analysts. If TVs aren't moving, outfits like Corning and LG.Philips can adjust output to serve healthier sales of computer monitors and laptop screens.

Corning shares rose 12 cents Tuesday to $21.

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