Thursday, December 16, 2010

AU Optronics (NYSE:AUO), LG Display (NYSE:LPL), Corning (NYSE:GLW), Best Buy (NYSE:BBY) Confirm Dismal LCD Sector

Even though LCD in November rose about 7 percent, performances of AU Optronics (NYSE:AUO), LG Display (NYSE:LPL), Corning (NYSE:GLW), Best Buy (NYSE:BBY) confirm the dismal outlook for the sector, as demand remains tight.

Ticonderoga noted, "Taiwan Panel Sales Rise 7% in November. November sales for our Taiwan LCD Panel Barometer increased by 7.4% to NT$91.06 billion, in line with our estimate of up 5-10%. We highlighted our expectation for a much better than typical seasonal performance this November (i.e., the four-year average performance in November is down 9.9%) given the extreme weakness experienced during the month of October. Keep in mind, this November performance was preceded by four months of weaker than average monthly panel sales with a poor October (down 13.0% M/M vs. average of down 4.0% M/M), along with a weaker than average September (down 2.4% M/M vs. average of up 8.0%).

"Despite November Uptick, December Quarters Could Disappoint. Even if the Taiwan panel makers turn in an average month-over-month performance during December (down 13.5%), we estimate sales during 4Q10 will decline by 13.3% sequentially, well below the average decline of 3.6% experienced in 4Q. Even if December is flat M/M, we estimate sales will fall by 9.1% sequentially in 4Q10. By comparison, we are modeling a 6% sequential sales decline for AU Optronics and flat performance for LG Display, both of which are conservative estimates vs. the companies' outlooks. Netting this all out, we continue to find it difficult to get excited about our LCD universe, which consists of AU Optronics (Neutral), LG Display (Sell) and Corning (Sell).

"Best Buy Misses, Highlights Weakness in LCD TVs. Yesterday's weaker than expected November quarter performance and outlook from Best Buy provides further evidence of weak Black Friday demand for LCD TVs. The weakness in LCD TVs and consumer notebooks at Best Buy, combined with strength in the smartphone market, is in line with data points from our recent trip to Taiwan and China. During our meeting with Gome in Beijing, LCD TVs were highlighted as the weakest segment over the Golden Week holiday in China. Essentially, Best Buy's results support our thesis that the U.S. LCD TV market is in a recession, and next year we believe Western Europe, Japan and China will slow meaningfully."

AU Optronics closed Wednesday at $10.26, up $0.06, or 0.59 percent. LG Display ended the day at $17.49, down $0.72, or 3.95 percent. Corning closed at $18.64, losing $0.23, or 1.22 percent. Best Buy (NYSE:BBY) ended at $34.50, down $1.02, or 2.87 percent.

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