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Corning shares tumble on sales forecast

Shares plunge 10% after the glassmaker cuts outlook, citing a slowdown in demand from TV panel makers.

By Scott Moritz, writer
Last Updated: September 3, 2008: 4:24 PM EDT

NEW YORK (Fortune) -- Corning, the giant glassmaker, cut its third-quarter sales target by 5%, citing sluggish demand for the glass used to make flat-screen TVs.

The upstate New York-based company, which earlier this summer shrugged off signs that the slowing economy was curbing consumer appetite for big, flat-panel LCD TVs, now says the growth rate in LCD glass sales is slowing. The problem isn't that consumers are no longer buying TVs, it's that overly-ambitious set makers trying to cash in on the boom have built far too many.

Corning said Wednesday that adjusted earnings will be around 44 cents a share, down from the 49-cent range the company previously projected. Sales for the third quarter are now expected to be about $1.6 billion, below the previous $1.68 billion forecast.

A blurry crystal ball

Corning (GLW, Fortune 500) shares were off 10% in mid-day trading Wednesday and down 27% for the year as investors fret that a global economic cooldown will chill the scorching-

Looking ahead, Corning tempered its full-year growth forecast for LCD glass sales to about 27.5% from the 30% range it reaffirmed just five weeks ago. In June, CEO Wendell Weeks had said he saw "no evidence of an economic downturn impacting LCD TV sales in the U.S."

Corning has difficulty predicting when downturns will result in lower orders because of its place at the start of the TV supply chain.

For example, in November 2004 Corning reaffirmed its fourth-quarter sales growth range of between 3% and 10%, despite warning signs of an inventory glut. Two weeks later, two of Corning's biggest display-panel makers cancelled glass orders and the company cut its growth projection to 3% or lower.

Pricing cracks

To manage the wild fluctuations in supply and demand in LCD glass, Corning adopted two years ago a policy to limit price cuts on LCD glass. The plan is a rare instance of a supplier trying set the terms, and Corning so far has successfully resisted slashing prices - a problem that plagued the company in the past as it encouraged panel makers to increase supply, creating large inve

Some analysts, however, think Corning's pricing strategy is about to shatter.

Corning's Taiwan customers, which make TV and computer panels, are feeling "severe pricing pressure" due to high inventory among TV makers, Collins Stewart analyst Brian White wrote in a research note Wednesday.

As a result, says White, some panel makers are getting discounts. Given the pain felt by panel makers, he predicts that Corning too has had to lower prices.

"I'm sure they are feeling pressure," agreed DisplaySearch analyst Paul Gagnon. "Most panel makers have been looking for ways to save costs."

A Corning spokesperson did not respond to a call seeking comment.

While the suppliers are coming under varying degrees of pricing pressure, the overall market for LCD TV sales is still on track, according to Gagnon. LCD TV sales in the third quarter will be weaker than the surprisingly strong second quarter, but the fourth quarter looks solid as TV prices drop.

Gagnon expects the worldwide LCD TV market to sell 105 million units this year, a 32% increase over 2007. To top of page

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