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Technology Stocks : Corning Incorporated (GLW)
GLW 35.35+0.4%May 17 4:00 PM EDT

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From: Asymmetric3/28/2012 9:26:24 AM
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Hon Hai's Sharp Deal Good for Corning
Corning provides glass for the plant that Hon Hai will take control of.

Sterne, Agee & Leach March 27, 2012

Hon Hai Precision Industry's stake in Sharp is a positive for Corning.

We do not think that Hon Hai's (ticker: HNHPF) investment in Japan's Sharp will change the demand outlook for liquid-crystal-display (LCD) panels. However, here are four things to highlight.

1) The Sakai City plant was designed to be Sharp's most efficient LCD panel plant in the world. We therefore believe that Sharp will be motivated to drive utilization higher at this plant relative to its others.

2) Corning (GLW) provides 100% of the glass requirements for the Sakai City plant. To the extent that utilization trends higher at the plant would be a positive for Corning.

3) From Sakai City, Corning does take some of its 10G glass and slices it into 8G glass for shipment to other panel makers. To the extent that this happens less would be a positive for Corning.

4) To the extent that Hon Hai's LCD panel purchases move in favor of Sharp Sakai City (where Corning has 100% share) and away from LG Display (where Nippon Electric Glass has dominant share and Corning has the least share) would be a positive for Corning.

Sharp announced that it will enter into a strategic partnership with Hon Hai. Sharp will issue shares to Hon Hai worth about $800 million. In exchange, Hon Hai will take half of Sharp's 93% stake in its Sakai City LCD plant. Before the investment, Sharp owned 93% of the plant, and Sony (SNE) owned 7%. After the investment, Sharp will own 46.5%, Hon Hai will own 46.5%, and Sony will own 7%. Ultimately, Hon Hai will procure up to 50% of the large-size LCD panels and LCD modules from the plant.

Sharp's LCD panel plant in Sakai City (where we visited a few weeks ago) is its state-of-the-art, flagship operation -- the newest, most environmentally friendly (LED lighting everywhere), and most efficient plant within Sharp. Co-located at the Sakai City plant are glass makers (Corning) and color filter makers (Toppan and Dai Nippon Printing). Sharp also has a solar-panel facility on-site.
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