Shares cracked, Corning hopes TV sales hold up

NEW YORK (Fortune) -- Fears of an inventory pile up in flat-panel TVs have shattered Corning's (GLW, Fortune 500) share price this summer. Come Wednesday, we'll see if the panic was warranted.

Corning puts its second quarter results on display before the market opens, and tech trend watchers will be looking to see what adjustments if any the glass maker has made on its business outlook.

Signs of trouble in the LCD market have been popping up since June. Jumbo TVs started looking like the next luxury item to be hit by the U.S. consumer's new-found frugality.

As Fortune.com reported, TV sales volumes remained solid, but the average screen size was shrinking as people looked to spend less. Then this month, three of the biggest LCD panel and display makers AU Optronics, Chi Mei Optoelectronics and LG Display announced production cuts for the third quarter as second quarter inventories rose.

The slowdown concerns have knocked 22% off Corning's share price in the past six weeks. The worry is that even if Corning hit second quarter earnings targets of 49 cents a share on $1.72 billion in sales, the company may have to temper its outlook for the future.

Even still, the damage done to the stock price in recent weeks may be overdone, says Lehman analyst C.J. Muse, who warned of possible problems for Corning in early June.

With the "weaker than expected China TV demand, and reduced average TV size in U.S., sentiment on the LCD foodchain is decidedly negative," Muse wrote in a Corning preview Monday. "But with TV demand more of a second half phenomenon," he says it is "still too early to assume LCD TV demand will be as weak as current LCD share prices project."

Corning reiterated last month that it saw no evidence that a weak economy is hurting big-screen sales in the U.S. And LCD giant Samsung said last week that it is not considering a cut in panel production.

The big question, says Lehman's Muse, is whether a new round of price cuts-Sony (SNE) and Samsung are expected to start selling 42-inch and 46-inch TVs for around $1,000-can reignite demand. "If it does, all is well," says Muse. "If no, then concerns will persist."