Seeking to sidestep another margin-crushing inventory pileup this year, Corning
vowed in January to hold price cuts on its liquid crystal display glass to about 2%. The company had cut prices as much as 9% last year as competition picked up amid an industrywide push to churn out big-screen TVs.
Now, halfway through the year, it looks like Corning may have succeeded in holding the line. That's good news for investors who are betting that strong growth in sales of big TVs and computer screens will bolster shares of Corning and others in the LCD sector.
"From pricing standpoint, this year is much healthier than last year," says DisplaySearch analyst Paul Gagnon, referring to the flat TV makers. They have been "balancing the supply and demand better."
Perhaps reflecting its dominance as a big supplier of liquid crystal display glass to the world's leading computer monitor manufacturers and TV makers, Corning's gamble has paid off so far. The big glassmaker bet that its customers wouldn't flee to more cooperative suppliers and would instead use more discipline with their own costs, production and pricing.
After a strong first quarter, LCD TV sales softened, says Gagnon. This slightly lower-volume pattern has so far stuck to its predicted path and there are no obvious detour signs ahead, he says.
"Looking forward, 2007 is pretty much in line with our forecast," says Gagnon, who predicts that 72 million LCD TVs will be sold this year. That's 57% more than last year.
The best recent example of this surer-footed rebound is the big second-quarter swing to profit by
Tuesday. The LCD panel maker emerged from more than a year of red ink by posting an unadjusted profit of $247 million on $3.6 billion in revenue. That number compares with a $183 million loss in the prior quarter and a $349 million loss in the year-ago period.
Shares of LG Philips, a joint venture of consumer electronics giants LG and Philips, have been trading near a one-year high. And Taiwanese LCD rival panel maker
has also attracted some investor enthusiasm. AUO shares hit a three-year high of $18.18 this week.
Corning has seen a brightening of its display business and has twice
raised its LCD growth projections this year.
Corning shares are up 38% so far this year as investors cheer the flat screen fashion trend that keeps fueling the growth.
"With Corning's dominance, it appears there hasn't been much pressure to keep up with the manufacturers' requests for price reductions," says Gagnon.
But that may not last if the TV makers have run out of places to cut costs. "They might look at Corning's margins," says Gagnon, and see an opportunity to get a price break.