The Drag on Corning from JV Samsung Corning’s Slowing Demand
Corning (NYSE:GLW) recently announced that it expects an overall 35% year-over-year decline in equity earnings from its two main joint-ventures – Samsung Corning and Dow Corning in third quarter of 2011, primarily because of lower volumes at Samsung Corning due to the lower-than-expected LCD panel maker utilization rates. [1] Samsung Corning accounts for almost half of our estimated stock value for Corning and we will look at some of its drivers in more detail in this article. Samsung Corning Precision sells LCD glass to panel manufacturers in Korea and it mainly competes with Asahi Glass (TYO:5201), Nippon Electric Glass (TYO:5214), and Avan Strate, Inc.
We currently have a $18.25 Trefis price estimate for Corning. Our price estimate is about 30% ahead of the market price.
Samsung Corning impacted by softening customer demand for LCDs
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Samsung Corning’s sales are highly concentrated to two LCD panel makers located in South Korea that account for approximately 93% of its total sales. Thus demand for Samsung Corning’s products is highly dependent upon these major customers.
In the first half of 2011, worldwide retail demand for LCD TVs increased 18% year over year and Corning notes that recent data indicate that sales remain strong in most regions. But the industry is expecting the customer demand for LCDs will soften going forward. Thus LCD panel maker utilization rate is expected to drop this quarter, as the panel-makers try to match their production with demand.
Additionally, Corning reported that Samsung Corning has been losing some market share in Korea this quarter, which will further hurt volumes at the joint-venture.
While Corning expects a 30% decline in volumes at Samsung Corning in third quarter compared with the previous quarter, we believe that these trends can continue over the medium-term due to overall worsening of global economic environment, leading to downside from our estimated stock value for Corning. In the long-term we believe that LCD demand will increase substantially from its present levels due to higher penetration in emerging markets and high replacement rate in developed economies.
You can drag the trend lines in the modifiable charts above to see the impact of these trends on Corning’s stock value.
See our complete analysis of Corning.
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