- The firm forecasted the supply chain would build 140 million square feet of new inventory in the first half and that is about 60 million more than the built in the first half of last year.
- The 140 million square feet in inventory built that the firm has projected is now 160 million, an increase of 20 million.
- The recent panel price changes reflect this war of balance between the two supply chain stages.
- The firm is now seeing Taiwanese panel makers lower utilization to low to mid-80% range for their large sized lines, which are typically 10, 5, and higher.
- These utilization cuts are part of the balancing between set assembly inventories and panel price declines.
All retail reports through June have been very positive and the June LCD TV sales in the United States were up 35% year over year according to NPD Group''s retail tracking service.
- LCD television sales have been up 30% each month, year over year.
- In China, despite the fears of the earthquake would have a lingering impact on consumer behavior, LCD television unit sales bounced back up in June to be 62% at year over year.
- The continued strength of LCD television sales as due in part to the continuing collapse of the CRT market.
Fiscal 2008 Outlook:
- Third quarter sales to be between $1.65 billion and $1.72 billion, an increase of 6% to 11% over last year’s sales of $1.55 billion.
- EPS is expected to be between 48 cents to 51 cents.
- Gross margins will remain at least 50% and SG&A is expected to be 15% of sales.
Key questions and answers from the second quarter earnings call conducted by Corning Inc. (GLW) on July 30, 2008.
Mark Sue (RBC Capital Markets):
Do you think there was some pre-buying related to the Olympics which caused set assembly makers to build inventory?
Jim Flaws: We believe that set assembly did build this year earlier than normal for two reasons. One would have been the Chinese Olympics and the other would have been that they expected tight supply capability in the back half of the year.
We have no hard data on macro change in retail environment for the month of July. We generally get that about three weeks after the end of the month.
Mark Sue (RBC Capital Markets):
Considering the new utilization by panel makers and higher set assembly inventories, what kind of glass seasonality should we assume in the holiday quarter?
Jim Flaws: We clearly have seen different seasonality every year, we have never expected that the third quarter going to the fourth quarter would be up very much because we thought the supply chain was building earlier and we have no reason to change that expectation right now.
Mark Sue (RBC Capital Markets):
With everything going on, do you re-assess your planned production increases or at least throttle it back a little bit?
Jim Flaws: We have failed to build any inventory on as what we have talked about with our manufacturing upset that actually shorted customers. So we are continuing to run full.
We are not changing our plans for capacity additions for next year. Clearly, we have the ability on a given tank repair or given tank start up to moderate at this time, but given what we continue to see in the end market and retail around the world, we do not see a reason to change our capacity additions at this point in time.
Brian White (Collins Stewart):
Have you actually had panel makers ask for a better pricing in the second half of the year?
Jim Flaws: Yes, we have, and we have had panel makers ask for lower prices even when they are raising their prices. There’s never been a meeting where they have not asked for a price reduction.
CJ Muse (Lehman Brothers):
How do you think about managing your capacity additions?
Jim Flaws: We do not think panel makers are at 6 to 8. The only place anybody is above, there maybe a couple of people, particularly in China, who are above 6 but the Taiwanese, which is the most important to us, are 5 and in Korea we are lower.
We do not intend to change our capacity plans. We love to actually rebuild some inventories so we have the ability to do better as a customer supplier, we are running very light and so we are not planning to make any changes at all.
Wendell Weeks: We do our best not to follow the panel makers to their cycles of putting in too much capacity. We say, what we believe is going to happen in that market demand and we build for that, and as long as we do that and glass supply should remain relatively in balance with demand which should in turn support our pricing strategy.
