This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
My, how a couple of weeks can change things. Just two weeks ago, I described for you how Corning (NYSE: GLW  ) aimed to replace weakening LCD TV glass revenues with a super simian product by the name of Gorilla Glass -- and how smartphone makers like Apple (Nasdaq: AAPL  ) and Research in Motion (Nasdaq: RIMM  ) were key to Corning's effort. But fast forward 15 days, and what do we hear now?

That LCD TVs are going the way of the dodo -- and that it's all Apple's fault.

Yesterday, the ace analysts at Oppenheimer issued a pair of downgrades in tech, dropping Corning to "perform" and knocking AU Optronics all the way down to "underperform." The reason: Were I to sum it up in one word, it would be "iPad."

According to Oppenheimer, you see, there's trouble on the horizon -- and on the living room couch. Across the nation, consumers are rebelling over the high-and-increasing cost of hi-tech services for the home. They're "cutting the cord" on their landlines, imperiling revenue streams at AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) . And lately, they've begun pulling the plug on cable TV as well.

Between the continuing improvement of bandwidth and video resolution on laptop computers, the advent of smartphones, and the recent arrival of the iPad, consumers are finding it less and less necessary to absorb their daily dose of digital amusement with buttocks planted firmly on the family couch, eyes attached to the big screen TV. Instead, they're picking up their mobile devices, logging onto Hulu, Vudu, and video services making use of alternative vowels as well -- such as e/i advocate Netflix (Nasdaq: NFLX  ) -- and taking their business elsewhere.

What's it mean to Corning?
The most obvious losers from this trend are, of course, AT&T and its U-verse service, Verizon and FiOS, Comcast (Nasdaq: CMCSA  ) , Cablevision, Cox, and all the rest of the cable monopolies. But they're not the only ones. According to Oppenheimer "it's the TV market that should really be worried."

After all, if consumers can watch TV everywhere, and at a distance measured in inches-from-eyeballs, rather than feet-across-the-floor, how necessary is it to possess a 50" plasma TV hung upon the living room wall? For that matter, do you still need multiple televisions, spaced strategically across the length, breadth, and several stories of your McMansion, when you can simply pick up your iPad and carry it with you from room to room?

In Oppenheimer's view, the answer is: No, you don't. And that's bad news for glassmakers like Corning, which derives "more than 60% of its demand" from sales of the ultra-large sheets of glass that flat panel TV makers require to build their super-sized sets. Smaller glass panes on devices like the iPad, in contrast, can be made by many companies, bring lower profit margins -- and call into question the wisdom of the billions of dollars Corning has poured into the construction of large-panel glass manufactories, to maintain its edge over the competition.

Foolish final thought
Personally, I've been warning of this risk for years. I've argued that the same capital expenditures that bought Corning its lead in manufacturing capacity have sapped strength from its cashflows, and put the company at risk of obsolescence as tech trends evolve.

Now we have a real analyst making much the same argument: That Corning's been caught flatfooted as the iPad forges "a new paradigm for the consumption of video content." That "no industry may be more vulnerable than the LCD supply chain, which has depended on large-area TV panels for the majority of its business" -- and now has to contend with the growing popularity of a product that uses just one-tenth "the amount of glass used in an average 34-inch television."

It's time to wonder: Should an Apple a day scare you away from Corning?

Well? Should it? Click over to CAPS now, and cast your vote!

Apple and Netflix are Motley Fool Stock Advisor recommendations, and The Fool owns shares of Apple, but Rich Smith does not own shares of (nor is he short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 599 out of more than 170,000 members. The Motley Fool has a disclosure policy.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (5) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2010, at 4:08 PM, DrunkLivnOnLake wrote:

    Mass production costs going down and demand is going up. Eventually all homes will have 2, 3, 4 or more flat screens of varying sizes, kids will have more and more tablet pcs and eventually toys. Cars will have glass instrument panels. Refrigerators will have glass touchscreen user interfaces. The use of glass, fiber optics, solar cells, glass specialties will only go up. Anyone talking something different is likely corrupt, but possibly retarded.

  • Report this Comment On November 18, 2010, at 4:24 PM, DrunkLivnOnLake wrote:

    Also, the reason people are getting rid of cable is because they are realizing digital over the air broadcasts get them great HD picture without any snow. Something not possible before digital broadcasting and one time unique to cable and sat. Now that a perfect picture is free, it only makes sense cable would suffer. That and $100 a month and you end up watching fox, nbc 99% of the time, makes no sense to keep cable.

  • Report this Comment On November 18, 2010, at 6:19 PM, midnightmoney wrote:

    I must be one of said retards because I'm getting visions here of an ihelmet with slots your ipad could be slid into so you wouldn't actually have to even hold it. On the back side (facing out) there would be an ever-ruddy reality interface face (RIFF) that would see the world with ieyes indeed, either side of your inose, which you wouldn't blow when ill but rather disambiguate with a click of your ibrowsers. We'd navigate our homes by gps and I can see more than a few sparks flying on the occasion of one's first kiss. Wifi on top would be the feather in one's cap, though not mine so long as I could still get beer for my beer helmet and watch tv on my tv, like back in the eighties, which I seem to miss more every day

  • Report this Comment On November 19, 2010, at 6:18 AM, abuisaac wrote:

    There are some decent points here and real cause for concern. I appreciate the post. But the problem with this article, it seems to me, is its dubious claim that an ipad 10 inches from your face is tantamount to a 45 inch flat screen in your living room. A simple question: Do you want to have a Super Bowl watch party with your friends huddled around your (no doubt stunning) ipad, all of you drinking hot cocoa?

    I'm unpersuaded that LCDs in America are on the down-and-out. Furthermore, I'm more or less convinced they're on the up-and-up in China....and there are a lot more people in China.

  • Report this Comment On November 19, 2010, at 1:38 PM, Forkypine wrote:

    Midnight....that is some funny stuff! Have you heard about the new Hasbro product called My3d, Its like the Viewmaster of days gone by, it has an ipod dock, and kids wil be able to download apple content made in 3D in cooperation with tech from Imax, Sony and Apple who are all in on the project. Your helmet is not far off!

    Bill Gates Vision is real though, the one about media being every where an any flat surface, Walls that move with digital images, and table tops that glow with constantly changing info, and it is everywhere.

    We judge the quality of a sports bar, by the number, size and quality of its screens. Breakfast spots fail without a spot for an urban traveller to cast an andriod stare at a lead story, while woofing down the $3.99 special.

    Casino's continue to put in automated gaming, putting your digital dealer behind glass.

    Construction Cranes keep on poping up to build business towers and high density residenses, all covered in high quality glass.

    My gym has a 54" screen in the change room and a 10-20 inch screen on like 60 workout machines for those moving from one treadmill to another.

    Now every Subway platform has a weather/news channel and a bottom bar telling you when the next train will arrive, hanging off the ceiling.

    Solar panels look like they are going to become the roofing material of choice one day soon! If not everywhere yet, they do seem to more frequent when you happen to catch an ariel view.

    Touch screen glass covers made from Gorilla Glass for example going on small electronic devices, just some gravy for companies like this, and specialized too, sounds like good gravy.

    Dow Corning just bought a 49% stake in a Canadian company who's stock is at all time lows called Timminco, a silicon miner with a sorta niche product and process, falling on tougher times. I wonder what that is all about?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1374212, ~/Articles/ArticleHandler.aspx, 10/31/2014 5:44:59 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement