Through The FLY's Eyes: Corning Incorporated
Inventory Overhang or Structural Price Weakness?
Corning (GLW) is down 10% this morning as it missed revenue targets. Management cited an inventory overhang for the revenue miss. Others believe that capacity additions will lead to a structural oversupply and an adverse pricing environment for the foreseeable future.
It is this Fly's perspective that this is an inventory blip that has mostly been worked through and investor's should use the current stock price weakness as an opportunity to profit from the strong holiday season.
Management painted a clear picture during its conference call that inventories began to build in January as flat panel display manufacturers’ forecasts were too optimistic. The penetration rate for flat panel monitors has reached 80% and the usual price cuts to spur demand did not work. Therefore, it took a while for the Taiwan manufacturers to work through their inventories.
However, the real growth area for the flat panel market is televisions which are in big demand during the 4Q's holiday season. The penetration rate for LCD TV's is still low and with recent price cuts, demand for Corning's glass should be strong. In addition, the inventory overhang for flat panel monitors appears to be over, as Taiwanese manufacturers are now buying again.
Corning's management communicated very clearly as to what happened in the inventory channel. If you believe their story, it should be a good buying opportunity as the demand for LCD TV's picks up as the holiday season approaches.