Monday, December 13, 2010

Corning's Winning App for the iPad

Corning shares have been almost as flat as its TV screens over the last few years.

Keeping Corning's share price (ticker: GLW) near last Thursday's 19 since late 2005 have been a variety of investor worries. The high-tech glass maker had to turn itself into a producer of liquid-crystal displays, or LCDs, for TVs once its fiberoptic business collapsed. But wasn't any venture tied to TV sales bound to be cyclical, with volatile profitability? That seemed to be true recently, as cash-strapped couch potatoes were less willing to get up and shell out hundreds of dollars for more dazzling video hardware.

The newest worries are "valid but overstated," says Nikos Theodosopoulos, an analyst with UBS. There's no doubt that Corning depends on its LCD business, which now kicks in 45% of estimated 2010 operating revenues and all of its profit; its market share is 55%. Still feeling the effects of recession, LCD inventories recently rose to 17 weeks, about three weeks longer than usual. And Corning's earnings growth has flattened.

But charting Corning's course based solely on month-to-month flat-screen TV sales misses the big picture, says the UBS analyst, who thinks the stock could rise to 25 in 2011. First, the LCD TV business is gradually loosening up. Black Friday sales and other discounts have brought TV prices down 20%-30%, helping cut LCD inventories a bit, to 16½ weeks. It's expected to gradually decline from there. More important, the economics of the LCD TV business differ from the old days: ultra-thin TVs will show up in more rooms in middle-class homes, and replacement cycles will significantly shorten from the old nine- or 10-year benchmark. Consumers will buy more often to get better picture quality, reduce power requirements and enable more sophisticated videogames. The LCD already has also found new applications: the revolving, framed picture gallery of grandchildren is one example. And LCD TVs haven't caught on in China and India the way cellphones and computers already have, so there's still room for growth. (more)

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