This Is Corning's Dilemma, According To Oppenheimer

On Wednesday, Corning Incorporated GLW announced a new investment in a Gen 8.5 LCD glass finishing facility in Chongqing. According to management, “The investment is driven by strong demand for LCD substrate in China and will enable Corning to serve Chinese panel makers more effectively through localized glass supply,” a recent Oppenheimer report read.

Analysts Andrew Uerkwitz and Martin Yang believe this venture may mark the start of a series of changes in the company’s LCD capex strategy, as it reacts to aggressive Chinese panel maker investments, the company’s own declining LCD business and its priority to keep sales and earnings growing.

Analysts' Input

While the company has not yet disclosed how much money this new facility will cost, Oppenheimer estimates the total investment could stand somewhere below $200 million.

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Corning's Dilemma

The analysts point out that Corning seems to be in a tough spot in the face of irrational LCD investments in China. “If it chooses to make more new investment in China (i.e., BOE's Gen 10.5), it may undermine the cash return to shareholders story. If not, it will threaten GLW's market share. Regardless, adding capacity in China could lead to steeper LCD price declines longer term,” the report explains.

While the experts consider it is still too early to assess this investment, they feel confident it adds complexity to the Corning thesis. Thus, they maintain a Perform rating on the stock.