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Corning sees no slowdown in the big picture

LCD growth targets reaffirmed despite signs of caution

By Scott Moritz, writer
July 30, 2008: 1:54 PM EDT

NEW YORK (Fortune) -- Corning's guesswork fails to keep people confident about its glassworks.

The big glassmaker posted inline adjusted profits on slightly weaker-than-expected sales Wednesday. And though unfavorable foreign exchange rates will cut top line guidance below Wall Street targets, the company says LCD TV sales are humming along just fine, thanks.

But Corning (GLW, Fortune 500) shares fell 4% as worries about the sinking economy and rising TV inventories outweighed the company's attempts to convince analysts that a robust LCD market will prevail. Corning reiterated that it expects LCD TV growth to be 25% to 30% this year.

"In the investors' view, the glass is half empty, and nothing Corning can say will sway that," says Lehman analyst C.J. Muse.

So what does Corning see that others don't?

For starters, while overall TV sales are growing at a 4% clip, the LCD segment that Corning supplies is growing at a 35% rate. And within that sweetspot, Corning says that top tier players like Samsung, a big customer and partner, are gaining market share. There's also a huge holiday sales season ahead and with it, the promise of big price cuts that help move TV's out the door.

One big problem with forecasts however, is that they are forward-looking assumptions grounded in backward-looking trends.

It's not that Corning isn't aware that there is some strains showing with the economy -- it's just that those cracks haven't reached the flat-screen TV market in any sizeable way, by Corning's estimates.

"We still have half a year left and maybe there will be an impact," CEO Wendell Weeks told analysts on an earnings conference call. "All we have is looking through the rearview mirror," he added. Looking back, as Corning sees it, TV sales through June have been strong and the plan is for that to continue.

"You have to spend your energy on what you do. As long as you are trying to figure out a longer-time period that logic will carry you through the short-term provocations," Weeks said.

Corning's big-picture focus seems to miss a few of the smaller details however. For one, TV market research analysts have noted that consumers have downsized their LCD appetites, so while the sets are still flying off the shelves the screen sizes are shrinking.

"Overall unit volume will probably be on target this year," says DisplaySearch analyst Paul Gagnon. But that will largely be a result of "a step-up in smaller screen sizes," he added.

By Corning's own math, a 32-inch screen TV is about half the total screen size of a 40-inch TV. To keep Corning on target, two 32-inch TVs need to be sold to make up for each 40-inch not sold.

Sounds like Corning could use another round of stimulus checks to make that happen. To top of page

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