Is the Business of TV Manufacturing Worth the Trouble?
Once upon a time, Japanese heavyweights Sony (SNE) and Panasonic (PC) were the cream of the crop when it came to TV manufacturers. Nowadays, the leaders of the pack are Korean conglomerates Samsung and LG Display (LPL). In an interview with NPR News, industry pundit Jack Plunkett said:
The fact is that consumers worldwide today perceive Korean goods to be of high quality and to be very high value. So why should they pay a lot more for essentially the same product from Sony or Panasonic when they can get a great value and great quality from the Koreans?
This month, Sony announced a "TV Business Profitability Improvement Plan" that includes a revised forecast of 20 million unit sales for its fiscal 2011, compared to its prior estimate of 40 million units in fiscal 2012. LCD panels have flooded the market over the past several years, and LCD panels are Sony's largest variable cost of TV production. The company has been already been able to bring down fixed costs substantially, and its next priority is reducing variable costs.
How About Panasonic?
It's not like Panasonic is looking much better, as that company is scaling back flat-panel production because of its heavy losses. It will close a plasma and LCD factory, while its losses this year are pegged in the ballpark of $5.4 billion.
A Better Buy
While the Japanese pair is stumbling, one potential back-end play to consider is Corning (GLW), maker of a slew of glass products. Corning also makes the popular Gorilla Glass, which is found in just about any mobile device you can think of due to its resiliency. Gorilla Glass has been the growth driver in its specialty materials segment, which put up an 88% jump in sales last quarter to $299 million, yet it still pales when compared in dollar terms to the display technologies segment.
The challenging economics of the TV business add a twist to Apple's (AAPL) inevitable offering. Cupertino is probably the only player that has the weight and willpower to disrupt the broken industry and revitalize its profits, while keeping a healthy chunk for its troubles.
Chances are that even Apple's TV set will inevitably tie back to Corning, since Apple gets boatloads of displays from Samsung, which circles back to the company's Samsung Corning Precision joint venture, of which Corning owns 50%.
I've been watching Corning for a while for its specialty materials segment growth -- not that the display technologies segment is a laggard by any means -- and it looks downright cheap at these prices.
Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Corning and Apple; and creating a bull call spread position in Apple.