What may break Corning's claims for a good second-half?

Implications: Can Corning Glass best utilize its capacity in Asia to equalize profit versus quantity? undefined What if the sizes of 42 inch up to 65 in of LCD TV were not sold for the said 50% increase in quantity? What if the increase in unit sold comes from smaller-sizes of LCD TV, from 29 inch to 32 inch, instead of large sizes? What if desktop monitors grow in single digit rate throughout 2008? undefined

Analysis:

The key points behind what Corning claims could be:

1. Sizes above 42 up to 65 inch are the critical areas that deserve a close watch for Q3 and Q4. The Olympic 2008 Beijing should increase sales of TV in China from now till September. However, it is no obvious correlation for sales in North America as a result of Olympic.

2. Laptop computer is expected to grow by 17%-20% worldwide. Corning was traditionally secure in this market due to good ties with Taiwanese OEMs mainly through AUO. The diversification for use of touch-screen technology on LCD panel may bring some sales among those key brands of laptop.

3. The desktop monitor market tends to be flat, a single digit growth for 2008, due to a slower demand for desktop computers installed with Vista O.S. at less-than-expected performance.

4. Sales for small-size panel for mobile devices like cell phone and GPS is still strong in Asia and EC market while non-branded cell phone reportedly dropped by 50% due to the ban by the Chinese Government.

5. Digital photo frame as the gift market is growing in size of 6 inch up to 9 inch. However, the Q2 demand was

less-than expected in sale, according to a public remark by Chairman of AUO.

6. Those newly formed alliances and j.v. in Korea and Japan could have impacted purchases of Corning Glass as well as Asahi Glass. Asahi has no point to give up sales seats to Corning.

7. From mid-June through mid-August is generally a slow season at TV and monitor manufacturers. There is a time lag between glass delivery and TV shipment ex-factory.

8. A reasonable inventory level for TV in North America used to be 35 - 40 days. Reportedly, an increase of RMA rate in June could have increased inventory days.

Financially, Corning may simulate results based on assumed capacity utilization rates against pricing for bottom-lines between 70% and 90%. Corning could obviously and aggressively sign longer-term contracts with panel suppliers to secure demands for glass by offering an incentive (sort of discount by volume purchase). The outlook could be variable due to the mixed portfolio of different market segments. In my humble opinions, I do not see that Corning will be too bad in earning for the second half of 2008. However, it may not be as brilliant as Q1 result nor as it claimed in earning per share. Corning desires to appeal for a sustainable outlook because they know there are quite a few factors in the scenario to play with, yet the increased contracted glass supply based on discounted pricing scheme may not guarantee a sustained earning per share at the end of day. See what will happen in  above mentioned areas.