* Corning cuts outlook as TV demand sputters
* Plans to mothball capacity
* Major customer will not honor contract
By Edwin Chan
Nov 29 Corning Inc slashed its
fourth-quarter profit outlook and warned that a major South
Korean client was reneging on its contract as LCD glass supply
outstrips demand, triggering an 11 percent share price plunge.
Corning, struggling to cope with a glut of display glass as
global TV sales sputter, now expects consolidated-equity
earnings to dive 30 percent quarter-on-quarter, compared with a
5 percent decline anticipated previously.
The U.S. company has tried, along with joint-venture
partner Samsung Electronics Co Ltd , to take back
market share in South Korea by cutting prices.
But in an abrupt move one analyst called "unheard of," an
unidentified customer told Corning recently it would not honor
its obligations through the rest of the year, meaning the joint
venture will miss volume targets this quarter.
Corning and partner Samsung now intend to mothball capacity
worldwide. The overall reduction - which encompasses delays in
the start-up of new capacity, as well as the postponement of
production resumptions - will translate into a loss of a
quarter of Corning's global capacity.
Executives said those manufacturing capabilities should be
restarted further down the road as demand comes back. Corning
will take a one-time charge of $25 million to $50 million
related to capacity shutdowns in South Korea.
Analysts say that scale-back was overdue in the face of
"Corning was simply kicking the can down the road and
ultimately would need to cut back capacity," Ticonderoga
Securities analyst Brian White said in a research note. "The
can became too heavy for Corning to kick down the road any
Corning shares closed at $13.19 after plunging as much as
14 percent to $12.64.
The U.S. company did not name the South Korean customer,
saying only the Asian company did "not expect to honor the
contract for the remainder of the quarter."
Samsung, Corning's partner, and LG Display Co Ltd are major screen manufacturers in that market.
"This has never happened before," senior vice president and
corporate controller Tony Tripeny told attendees at the Credit
Suisse Technology Conference on Tuesday.
"We will work over the next few weeks and the rest of this
year to see what we can do about it."
Corning also said it was reducing its forecast on sales of
Gorilla Glass, used in tablets and smartphones. It now saw a 25
percent sequential decline in sales this quarter, compared with
a previous expectation for a fall of 15 percent.
Corning blamed lower than expected global demand for tablet
Apple Inc's iPad currently controls more than
three quarters of the fledgling but booming market for tablet
computers. The industry has seen a number of high-profile
products fail or underperform this year, notably from Hewlett
Packard Co and Research in Motion Ltd .
Corning is sticking to its long-term target of hitting $10
billion in sales no later than 2014. Executives argued on
Tuesday that demand will bounce back as consumer move toward
larger screens. Corning sells glass by the square foot.
And analysts remain bullish tablets will continue to erode
market share now occupied by lower-end laptop computers, with
some seeing impact on more powerful PCs as well.
"We remain confident that demand will continue to grow over
the long term, that consumers who put off buying a new TV will
still eventually buy a new TV, and that Corning will remain the
premier vendor for high-end display glass," Morningstar analyst
Grady Burkett wrote.