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Corning: new competitors squeeze LCD prices

Corning Inc. is in a race to cut costs in its LCD business in order to stay profitable as glass prices fall sharply. The situation that Corning faces is highlighted in a recent research report on the …

Corning Inc. is in a race to cut costs in its LCD business in order to stay profitable as glass prices fall sharply. The situation that Corning faces is highlighted in a recent research report on the firm by the Goldman Sachs Group Inc. The problem for Corning is the entry of other glass producers into the most lucrative part of the market: Generation 6 and larger substrates. For a time in 2005, Corning Inc. had a nearly 60% share of the market for the specialty glass used in computer monitors and liquid crystal display televisions. But in 2006, Asahi of Japan began shipping significant quantities of the larger glass sizes and using price cuts to gain market share, Goldman Sachs said. “Corning is now only left with a strong price premium on the super-large glass (Gen 8) aimed at niche markets for 50-inch televisions”, wrote analysts Brantley Thompson, Natalle Hayday, Katherine Fogertey and Varun Marwah. That gives Corning Inc. strong pricing power on only 1.8% of total glass demand. “This is too little, in our view, to drive the price stability for 2007”, they said. Goldman Sachs said it expects glass prices to be further undermined by oversupply of liquid crystal display panels in the 1H of the year. “As panel inventory builds, manufacturers require less glass, resulting in excess glass capacity and inventory in the near term”, the report says. “This results in lower pricing power for the glass manufacturers”. So far, Corning Inc. has done well at cutting its expenses to offset sharp price declines for the products that use its LCD glass. In the last 10 years, it has cut its manufacturing costs in the display business an average of 14% a year, Goldman Sachs said. The potential for falling glass prices and oversupply in the 1H of 2007 could prevent Corning Inc. stock from outperforming the market over the next six to nine months, according to Goldman Sachs.

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