Of course, Corning isn’t completely clueless, but according to some statements made by CFO Jim Flaws and CEO Wendell Weeks, Corning doesn’t seem to be taking into consideration current developments in the LCD supply chain when forecasting the rest of the year for LCD glass demand. Flaws was quite positive in his outlook for the rest of the year and said, “We expect some of the excess inventory has been built in anticipation of tight panel supplies in the second half. If retail strength continues as expected, we expect that excess inventory in the supply chain can be worked off.” Quite interesting and misses the main crux of recent developments. Potential tight panel supplies in the second half is resulting in excess inventory… of LCD TV sets? So brands such as Sony, Samsung, Sharp, LG, Panasonic, Toshiba, Vizio, etc. are double-booking LCD procurement in Q2’08 because they anticipate a LCD shortage in 2H’08? And that is why inventory has built up?
Let’s look at some recent developments in the LCD supply chain. At the LCD manufacturing level, LG Display, AU Optronics (AUO), Chi Mei Optoelectronics (CMO) and Chunghwa Picture Tubes (CPT) have recently announced they are temporarily reducing production by 10% or in other words reducing fab utilization by 10%. But the reason for such reductions were less-than-expected demand for LCD panels, and most likely an increase in LCD panel inventory. Compare this development to what Flaws has commented and you can definitely see a very serious flaw in his logic. LCD panel manufacturers are reducing production by 10% precisely because there is less demand for their panels. If there were double-booking of LCD panels by brands worried about a shortage of LCD panels in 2H’08, the LCD manufacturers would be experiencing a considerable increase in demand for their panels.
“This (economic) worry has been with us all year and each month we still see consumers buying televisions. We cannot guarantee they’ll continue to do so, but we are encouraged by the resiliency of television purchases in the United States,” commented Flaws. Well, how does Corning know that television purchases in the United States is resilient? There are few sources for sell-through information of televisions in the US. One major source is NPD, a market research firm that tracks point-of-sale (POS) information at retailers. However, like most market research firms, the information provided by NPD is not 100% perfect. For instance, as far as I am aware, NPD does not include POS information from CostCo and Wal-mart, where more buyers are purchasing their TVs than ever before. If there was a significant decrease in TV sales at these two gigantic retailers, NPD wouldn’t necessarily know about it. And companies like Corning would assume TV sales are resilient because maybe they indeed are at retailers such as Best Buy, where less cost conscious customers purchase their TVs.
CEO Wendell Weeks confirmed his optimism by stating, “We still feed good about being at the high-end of our 25 to 30 percent growth in the LCD glass for the year. So other than what we view as a supply chain correction… we see the year coming out largely the way in which we thought it would when we started the year, so we don’t see any reason for change our strategies.” If indeed the inventory buildup requires simply a supply chain correction, why are LCD panel prices decreasing at a rapid rate? To clear out inventory? Yes, but in addition to inventory, there is simply less-than-expected demand for LCD panels. To turbocharge demand to clear out inventory and generate top-level growth, you need to bring down prices for notebook PCs, LCD monitors and LCD TVs. To do that you need substantial price declines for major components such as LCD panels. And that’s what’s happening now. LCD panel price declines will result in set price declines in one to three months: just in time for the holiday buying season, but will there be that great surge in demand this time? Nobody knows for sure, but Corning seems to think everything is honky dory.
[tags]Corning, LCD Glass, Display Manufacturer, LCD Manufacturer, LCD Supply Chain, LG Display, Chi Mei Optoelectronics, CMO, Chunghwa Picture Tubes, CPT, AU Optronics, AUO, LCD TV, Notebook PC, LCD Monitor[/tags]