Archive: Corning (GLW)

28 Stock Ideas from the Durable Goods Report

This article was originally published at RealMoney on September 26, 2007.

My article last week about mining the PPI report for stock ideas was so well received I thought I’d share another of my favorite taxpayer-provided idea generators, the durable goods report. Published by the U.S. Census Bureau, the report has a similar breakdown by industry of durable goods orders, shipments, inventories and backlog.  I came away with 28 potential ideas for further research.

In line with much of the recent economic data, the headline durable goods number was weaker than expected. To quote from the report, “New orders for manufactured durable goods in August decreased $11.3 billion or 4.9 percent to $219.5 billion, the U.S. Census Bureau announced today…. Shipments of manufactured durable goods in August, down two of the last three months, decreased $3.4 billion or 1.6 percent to $216.7 billion.”

But in this case, I think focusing on the forest means you could miss out on some of the more attractive trees. I gathered the data from the Census Bureau and created charts showing the year/year change in durable goods statistics for a variety of industries hoping to find some areas worth further consideration. Keep in mind, this is an initial screen for idea generation, not a full-fledged analysis of any of the names. You wouldn’t want to buy the stocks listed here without further research. That caveat aside, let’s look at some of the better performing industries.

First up is technology – computers and electronic products. Although 3.3% order growth year/year and essentially flat shipments may not be the type of growth investors typically look for from tech, it is a clear improvement from recent months. Inventories are starting to be drawn down and backlog remains strong.

computersandelectronics.jpg

But there are areas of strength and weakness within tech. Specifically, computers (and related products) themselves are starting to look strong, with backlog headed through the roof and inventories in check.

computersandrelated.jpg

The fairly obvious stock ideas from this industry include Apple (AAPL), IBM (IBM - Annual Report) and Hewlett Packard (HPQ - Annual Report). If things keep getting better (and the company figures out how to file its required regulatory reports) Dell (DELL) might even look interesting again. Stretching a bit further, Sun Microsystems (a href="http://stockmarketbeat.com/blog1/category/tech/sunw/">SUNW - Annual Report) and Lexmark (LXK) come to mind. And don’t forget the storage plays, which also showed up on the PPI hotlist. The names I mentioned then were Brocade (BRCD), EMC (EMC - Annual Report), Iomega (IOM), Hutchinson (HTCH), Quantum (QTM), SanDisk (SNDK - Annual Report), Seagate (STX - Annual Report) and Western Digital (WDC).

Communications equipment is also showing some signs of strength. Though the latest month was down, the trend seems to be up.

communicationsequipment.jpg

I have actually analyzed Motorola (MOT - Annual Report), so that would be a play to include here. Cisco (CSCO), Research in Motion (RIMM), 3Com (COMS), Nokia (NOK) and Corning (GLW - Annual Report) also come to mind.

And finally, turning away from technology, I hope you didn’t think the aircraft boom was over. If anything, it looks to be picking up steam.

non-defenseaircraft.jpg

defenseaircraft.jpg

Ways to play this include Boeing (BA - Annual Report), Embraer (ERJ), General Dynamics (GD - Annual Report), United Industrial (UIC) and Cessna parent Textron (TXT). Parts suppliers include Rockwell Collins (COL), Curtiss Wright (CW - Annual Report), and LMI Aerospace (LMIA).

So there you have it: 28 potential stock ideas from what looked at first glance to be a negative report on durable goods.

Disclosure: Long RIMM put options at time of publication.

Topics: 3Com (COMS), Aerospace and Defense, Apple (AAPL), Boeing (BA), Brocade (BRCD), Capital Goods, Cisco Systems (CSCO), Communications Equipment, Computer Hardware, Computer Peripherals, Computer Storage Devices, Corning (GLW), Curtiss Wright (CW), Dell (DELL), EMC Corp. (EMC), Embraer (ERJ), General Dynamics (GD), Hewlett Packard (HPQ), Hutchinson (HTCH), IBM, Iomega (IOM), LMI Aerospace (LMIA), Lexmark (LXK), Motorola (MOT), Nokia (NOK), Quantum (QTM), Research in Motion (RIMM), Rockwell Collins (COL), Sandisk (SNDK), Seagate (STX), Sun Microsystems (SUNW), Textron (TXT), United Industrial (UIC), WDC | No Comments

LCD Market Update: Channel Inventories a Concern?

I was pretty bearish on the LCD market last year, but as the overcapacity problem started to subside I have been fairly silent of late. Given the positive article about Corning (GLW - Annual Report) in this week’s Barron’s, I thought it a timely opportunity to look back at the recent LCD supply chain conference calls to see if there are any significant trends. I’ll start with the subject of the Barron’s article.

Starting with display, sales were $610 million in the second quarter, a 16% increase compared to the first quarter sales of $524 million. Glass demand was stronger than we anticipated. Glass volume increased 20% sequentially in the second quarter versus our guidance of 8% to 12%.

(Excerpt from full GLW conference call transcript)

That sounds pretty supportive of bullishness. However, the company was quick to throw a little cold water on the situation.

We believe this was mostly supply chain driven and not resulting from a change in end market demand, although we don’t have final end market statistics yet, and we have seen some reports of stronger IT demand.

We believe the supply chain’s approach to meeting the impact of television seasonality on the overall LCD industry is continuing to evolve. Clearly the panel makers’ decisions to run at lower utilizations in the first quarter and maintain smaller amounts of panel inventory was a refreshing change from last year. Our customer checks in May and June indicate the aggregate panel inventory is currently within acceptable levels. Further evidence of this can be found in the panel makers’ decisions to maintain, or actually slightly raise, panel prices in the second quarter.

We have a hypothesis that the supply chain has built some inventory at the set assembly level. As we have stated in the past, the set assembly level is the more opaque portion of the supply chain to us.

(Excerpt from full GLW conference call transcript)

In other words, consumers aren’t buying more TV sets than expected – but TV makers are buying more components just in case. As we saw last year, if they are wrong the excess inventory will hurt pricing and at any rate Corning’s long-term sales can only be in line with the end market. If they sold extra this quarter they will sell less in some future quarter.

LG Philips (LPL) saw a similar trend, but doesn’t seem concerned.

Ron H. Wirahadiraksa

We feel that the inventory levels throughout the channel are still quite healthy. There’s been some increase but please bear in mind that previously, the previous quarter and also the beginning of this quarter, inventory levels were quite low. We think that by and large, TV inventories is around two months, which is very normal for this time in the season.

(Excerpt from full LPL conference call transcript)

Neither does AU Optronics (AUO).

Dr. Hui Hsiung

This is Hui Hsiung. I think, in general, other than notebook panels, I think both TV and monitor panels, the OEM in the channels are higher inventory compared to Q1, of course. However, in general, those are not very high numbers, at most two weeks is about normal, mostly around one to two weeks is about normal. So it’s a very manageable inventory level.

Earlier, maybe a month ago, there appeared to be higher inventory in the TV 40 plus inch range, but recently, the sale through is improving, so that is getting better as well. So, by and large, I think that building up inventory is what is intentioned during the Q2 period. For a simple reason, I think Q3 we still have a high single digit percentage in terms of shortage between supply and demand. So that bit of inventory will easily be digested during Q3.

(Excerpt from full AUO conference call transcript)

At this point, the capital investments have subsided enough that quarterly inventory fluctuations shouldn’t be too much of a concern. Obviously if the market disruptions continue and, more importantly, begin to affect consumer spending then obviously demand could fall off temporarily. But most down cycles aren’t caused by demand but by supply. And on that basis, I’m inclined to agree with the managment teams that right now the channel inventory build shouldn’t be a big concern.

Topics: AU Optronics (AUO), Communications Equipment, Corning (GLW), Electronic Instruments and Controls, LG Philips LCD (LPL) | No Comments

The Week Ahead – 21 July 2007

The Economic Calendar is quiet in the early part of this week but there are important reports at the end of the week. On Thursday is the Durable Goods report, for which the consensus estimates a 2.0% increase. On Friday is the Preliminary Estimate of 2Q GDP, which the consensus has pegged at 3.2%. That sounds a little high to me based on the economic data table I’ve been compiling.

EconomicData

Bad and Deteriorating Bad but Improving Good but Deteriorating Good and Improving
Existing Homes (June) Chicago Fed NAI (May) Consumer Confidence (June) Real Disposable Income
Employment (June) Durable Goods (June) Personal Spending (June) ISM Manufacturing (July)
New Home Sales (June) Construction Spending Retail sales (August 2007) ISM Services (June)
ATA Truck Tonnage (June) CPI (July 07) Leading Indicators (June)  
GDP (Q2 Advance) Trade deficit (July 07)    
PPI (July 07) Durable Goods (July)    
Industrial Production (July 07)      
Housing Starts (July 07)      
       
       

The Earnings Calendar is as busy as it can get. Some of the names I’ll be watching:

Monday

Tuesday

  • CH Robinson (CHRW - Annual Report) – estimates have been rising and now stand at $0.47, but Landstar (LSTR - Annual Report) disappointed.
  • CDW Corporation (CDWC) – stellar monthly sales reports have kept estimates rising. They now stand at $0.97.
  • EMC Corporation (EMC - Annual Report) – The big news is still the VMWare IPO, but it is also a decent look at enterprise tech spend.
  • Laboratory Corporation of America (LH) – The Mid Cap and Large Cap Watch List (Track at Marketocracy) member has been seeing positive earnings revisions and is now expected to earn $1.09 on $1.03 billion in revenue.
  • Lexmark (LXK) preannounced and will probably offer poor guidance.
  • Linear Technology (LLTC) – expected to earn $0.35 on $267 million in sales.
  • Norsk Hydro (NHY) – The Large Cap Watch List (Track at Marketocracy) member has no analyst coverage right now.
  • Plantronics (PLT) – my covered call position is now being cashed out so I’ve no skin in this one. But it is often volatile.
  • United Parcel Services (UPS) is a great read on the health of the economy. Expectations are $1.03 on $12.23 billion in revenue.

Wednesday

Thursday

Disclosure: William Trent has a long position in SMH.

Topics: Air Courier, Altera (ALTR), Basic Materials, CDW Corp (CDWC), CH Robinson Worldwide (CHRW), Colgate Palmolive (CL), Communications Equipment, Computer Hardware, Computer Peripherals, Computer Storage Devices, Conglomerates, Consumer Non-cyclical, Corning (GLW), Durable Goods, EMC Corp. (EMC), Economy, Electronic Instruments and Controls, Federated Investors (FII), Financials, Freeport McMoRan (FCX), GDP, Graco (GGG), Healthcare, Healthcare Facilities, Hexcel (HXL), Ingram Micro (IM), Investment Services, Iron and Steel, Laboratory Corp. of America (LH), Large Cap Watch List, Lexmark (LXK), Linear Technology (LLTC), MEMC Electronic Materials (WFR), Metals and Mining, Mid Cap Watch List, Miscellaneous Capital Goods, Miscellaneous Transportation, Norsk Hydro (NHY), Personal and Household Products, Plantronics (PLT), Retail (Catalog and Mail Order), Semiconductors, Services, Small Cap Watch List, Steel Dynamics (STLD), Stock Market, Technology, Texas Instruments (TXN), Transportation, United Parcel Service (UPS), Watch List, Xerox (XRX), Xilinx (XLNX) | 3 Comments

The Skinny on Flat Panels

It has been a while since we took a look at the flat panel space, and we thought a good way to get back up to speed would be to review the recent conference call transcripts for Corning (GLW - Annual Report) and AU Optronics (AUO.) Some highlights are excerpted below.

To start with, the pricing pressures we were forecasting last year definitely have come to pass.

We are seeing some positive signs of pricing stabilization as well as improvement in the supply demand environment in the market. In Q1 2007, demand for notebook monitor panel shipments improved and exceeded our expectation. Our TV panel segment was in line to our guidance. However, pricing decline in this quarter was more than our expectation. AUO’s audit consolidated revenue declined 14.7% sequentially, reported at NT$18.7 billion, equivalent to US$2.4 billion for the quarter, mainly due to a 4.1% decline on large size panel shipments as well as a 10.8% decline on ASP per square meter, combining the impact of seasonal weakness and the qualification of the acquired QDI capacity that is still in progress. Our Q1 2007 fab loading rate was at about the 80% level.

In addition to that, panel pricing also experienced a significant drop. As a result we reported our gross margin as 0.4%, operating margin at negative 5.3%, net margin at negative 6.3% and EBITDA margin at 18.5% and an operating loss of NT$4.2 billion; net loss of NT$5.1 billion.

(Excerpt from full AUO conference call transcript)

However, it looks like the worst may be over.

Display sales were $524 million in the first quarter, a 15% decline compared to the fourth quarter sales of $619 million. First quarter glass volume declined 12% sequentially, as expected.

Regarding glass pricing, our new strategy appears to be working as we hoped. Sequential pricing is lower by just 1% to 2% in the base business. Equally important, there appears to be no material change in our market share in the first quarter. It comes as no surprise that we will continue this pricing strategy heading into the second quarter.

(Excerpt from full GLW conference call transcript)

The main difference between this year and last year is the inventory. If we look at the inventory at the end of our first quarter, last year we still had a pretty large inventory across the pipeline. This year, in almost every part of the value chain we found the inventory is healthy.

(Excerpt from full AUO conference call transcript)

The growing preference for wide monitors, however, means that more panels can be squeezed out of each plant due to the way the large pane of glass gets cut.

We are now seeing panelization improvements as our customers move towards widescreen monitors. For example, the GEN 5 panel maker can make 6, 20 inch panels in the standard 4:3 format on the GEN 5 piece of glass, which leads panelization efficiency of about 60%. However, on that same piece of glass they are able to make 8, 20 inch wide monitors resulting in panelization efficiency of 70%.

(Excerpt from full GLW conference call transcript)

This means capacity additions should still grow at a slower rate than panel sales, or the overcapacity will come right back. But if the capacity additions are slow in coming, both companies are expecting tighter supplies by year-end. The long lead times for adding capacity could make for a very profitable 2008.

Topics: AU Optronics (AUO), Corning (GLW), Stock Market | No Comments

The Week Ahead (22 April 2007)

The Economic Calendar is relatively light this week. Potential market movers include:

  • Wednesday’s Durable Goods report (consensus 2.2%)
  • Friday’s advance report on Q1 GDP (consensus 1.8%)

Earnings are another story. We are in the peak part of earnings season this week. A few of the stocks we follow:

Monday

  • Altera (ALTR) – valuation is rich but looks set up to beat on earnings.
  • Texas Instruments (TXN - Annual Report) – March and June quarters have both had significant downward revisions. Will day of reckoning be forestalled?

Tuesday

  • AU Optronics (AUO) – Forecasting losses, but panel business may have bottomed out.
  • CDW Corporation (CDWC) – 14.6% sales growth doable given Berbee acquisition.
  • CH Robinson (CHRW - Annual Report) – Could beat.
  • CSG Systems (CSGS) – earnings should be a piece of cake. If private equity buyers don’t take them out they’ll do it themselves the slow way.
  • Lexmark (LXK) – Estimates are doable but we’re always waiting for this company to trip up.
  • ST Microelectronics (STM) – Doing the right thing. Hopefully will pay off.
  • AT&T (T - Annual Report) – Estimates and stock both keep rising.

Wednesday

  • Apple (AAPL) – Hunch: company will blow away earnings, issue horrible guidance and blame it on iPhone build.
  • Arkansas Best (ABFS) – We’re staying away from truckers who own trucks.
  • Corning (GLW - Annual Report) – current quarter ok, guidance at risk.
  • LSI Logic (LSI) – May blame their poor guidance on Agere.
  • Maxim (MXIM) – Company is out of gas but focus will be on whether they might sell out.
  • Qualcomm (QCOM) – Nokia Nokia Blah Blah Nokia ad nauseam (excerpt from pending conference call transcript)
  • Silicon Laboratories SLABSold wireless just when biggest customer began to recover. What other surprises may be in store?
  • UPS (UPS) – They shouldn’t have trouble beating the estimates (but that doesn’t mean they won’t).
  • Xilinx (XLNX) – Altera with more risk to the earnings target.

Thursday

Friday

  • Dassault Systemes (DASTY) – We like Ansys (ANSS) better but don’t see why this name wouldn’t beat.
  • Ceradyne (CRDN)  – Earnings could be anywhere and don’t really matter.

Enjoy!

Disclosure: William Trent has a long position in SMH.

Topics: ANSYS (ANSS), AT&T (T), AU Optronics (AUO), Altera (ALTR), Apple (AAPL), Arkansas Best (ABFS), CDW Corp (CDWC), CH Robinson Worldwide (CHRW), CSG Systems (CSGS), Ceradyne (CRDN), Corning (GLW), Curtiss Wright (CW), Dassault Systemes (DASTY), KLA-Tencor (KLAC), LSI Corp. (LSI), Lexmark (LXK), MEMC Electronic Materials (WFR), Maxim Integrated Products (MXIM), McAfee (MFE), Microsoft (MSFT), Qualcomm (QCOM), STMicroelectronics (STM), Sandisk (SNDK), Silicon Laboratories (SLAB), Stock Market, Texas Instruments (TXN), United Parcel Service (UPS), Watch List, Xilinx (XLNX), YRC Worldwide (YRCW) | 4 Comments

iSuppli raises 2007 LCD TV panel shipment forecast

iSuppli raises 2007 LCD TV panel shipment forecast | Reuters.com

Research firm iSuppli Corp. said on Wednesday it had raised its shipment forecast on panels for LCD televisions by 3 percent to 75.2 million units globally this year, as falling prices boosted fresh demand. The unit shipment would be up 42.7 percent from 52.7 million liquid crystal display (LCD) panels shipped last year, iSuppli said in a statement. That was also higher than 72.9 million units it forecast in the fourth quarter of 2006.The price of a 32-inch LCD-TV panel is expected to fall 17 percent in the first half of 2007 from the fourth quarter of 2006, iSuppli said.

The sales forecast is probably as good as any, but the key question for investors is whether the supply growth will be in line with demand growth. Too much supply means lower pricing even with strong demand. The fact that prices are expected to fall 17% in the first half (typically tech prices decline about 20% per year) suggests the supply/demand balance remains out of whack.

Topics: AU Optronics (AUO), Corning (GLW), LG Philips LCD (LPL), Matsushita (MC), Sharp (SHCAY.PK), Sony (SNE), Stock Market | 1 Comment

LCD Oversupply? Never!

Paul Kedrosky’s Infectious Greed reports: LCD Panel Prices Continue Freefall

Slow seasonal sales and oversupply in the first quarter of 2007 will push prices to less than the $300 level for 32-inch LCD TV panels in March, which is below the manufacturing cost level, iSuppli believes. Many suppliers are continuing to cut their utilization rates at fabs that are producing these types of panels in order to stave off any further rapid price declines. Prices for 37-inch television panels are experiencing a stronger rate of reduction than the 40/42-inch television panels. Suppliers are cutting 37-inch pricing in a bid to boost demand. This may bring the 37-inch price closer to that of the 32-inch panels in the coming months….While iSuppli expects mainstream monitor and notebook panel prices to fall in the first quarter of 2007, pricing should stabilize by the end of the second quarter. This is because panel suppliers appear to be more cautious about capacity expansions and cutting utilization rates to control inventories. Most buyers have very low inventories, so any rise in demand may lead to increased panel purchases.

Where have we heard that before? Perhaps we are thinking of June 28, 2006 when DigiTimes reported:

Nevertheless, the ASP for 37-inch TV panels will stabilize once it reaches US$520-550 at the end of July or beginning of the August, said the sources.

Or possibly it was June 15:

Novatek indicated that present inventory levels are at 40-50 days, which is a reasonable level for the company. Although admitting the inventory value is higher than the first quarter’s NT$3 billion, Novatek anticipates that once panel demand resumes, inventory concerns will ease immediately. Source: DigiTimes.

As for iSupply’s estimates, on June 1 and June 9 they said:

Swelling inventories and disappointing demand from all applications caused prices for large-size panels to plunge in the first half of 2006, with no relief expected until the second half, according to iSuppli.

Of course, the second half came and went, with no relief found and still none on the horizon. Nonetheless, when we dared predict the industry was facing a supply crisis we got comments like:

LCD demand will have its ups and downs. The general trend though is up. There was this glass oversupply “Glut” last year and it did not stop the panel makers from expansion. Also China has not be tapped yet. Near term demand might be flat to slightly higher but as long as they keep finding ways to cut cost, lower ASP wont impact them as much.

For (and on) the record, we were negative going back to April 6, 2006. And unlike iSuppli, we are not expecting prices to stabilize by the end of the second quarter 2007.

Topics: AU Optronics (AUO), Corning (GLW), LG Philips LCD (LPL), Matsushita (MC), Sharp (SHCAY.PK), Sony (SNE), Stock Market | 2 Comments

Profitless Prosperity in LCD TVs

We already heard from Best Buy (BBY) and Circuit City (CC) that price competition on flat-panel television sets was hurting profit margins.

Holidaysales Blog – WSJ.com : ‘The Year of the LCD TV’

Consumers spent $8.75 billion on TVs, gadgets and other technology items from the week of Black Friday through the week ending Dec. 23, according to the NPD research group. “This was the year of the LCD TV,” NPD declared in a press release, reporting that $924 million of that total was spent on such TVs and that unit growth doubled from last year. The top-selling size of flat screen was 32-inch LCD and the average price of such models dropped to $796 from $1,354 during the 2005 season. The No. 2 spot went to 42-inch plasma.

So twice as many units at $796 equals total revenue of $1,592 compared with $1,354 last year. 18% growth doesn’t sound too shabby. The problem is, with gross margins of 23% over the last year it doesn’t take much of a drop in margins to wipe out 18% revenue growth. In fact, all it would take is for margins to drop just below 20% (three percentage points) for the profitability to show no growth at all.

Topics: AU Optronics (AUO), Best Buy (BBY), Circuit City (CC), Corning (GLW), LG Philips LCD (LPL), Matsushita (MC), Sharp (SHCAY.PK), Sony (SNE), Stock Market, Technology | No Comments

How Can LCD Revenue Be Down With Unit Sales Up 29 Percent?

Readers surprised by our general bearish stance on LCD panel makers generally point out how much demand for the monitors (both as computer monitors and flat panel TV sets) is rising. Indeed, Large-size LCD panel shipments dropped 4% in November, says WitsView

Worldwide large-size LCD panel shipments dropped to 26.3 million units in November, a 4% on-month decrease but 29% on-year increase, said research firm WitsView.

Ignoring the bearishness of the headline, 29% year/year unit growth is rather respectable. But with prices dropping 35% it means sales are lower this year than they were last.

Simple math.

Topics: AU Optronics (AUO), Corning (GLW), LG Philips LCD (LPL), Matsushita (MC), Sharp (SHCAY.PK), Sony (SNE), Stock Market | 1 Comment

Investigation May Be Unwarranted, But Still Bad for LCD Business

We were the first to point out that the price-fixing investigation aimed at LCD panel makers seemed a bit silly. And at least one firm is using our point as a defense, even at the expense of looking a bit inept. Plummeting prices all but prove the industry has not gotten together to reap excess profit. If anything, the industry needs to cut back production to get supply back in balance with demand. However, Goldman Sachs points out that the investigation may hinder them from doing so.
Investment firm doubts in feasibility of production cut plans for panel makers, report says

Panel makers may hesitate over their production cut plans in the first half of next year, as they will face a long-term investigation from justice departments in various countries, according to investment firm Goldman Sachs, as quoted by the Chinese-language Commercial Times. The hesitations may negatively impact the possibility for panel prices to rebound, the investment firm added, according to the paper.

An excellent point.

Topics: AU Optronics (AUO), Corning (GLW), LG Philips LCD (LPL), Matsushita (MC), Sharp (SHCAY.PK), Sony (SNE), Stock Market | No Comments