Corning To Post Another Tough Quarter But Long Term Value Intact

by Trefis Team
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Trefis
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Corning
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Corning (NYSE:GLW) is expected to announce its second quarter earnings report on Wednesday, July 25 2012. [1] The company is coming off of a dismal previous quarter where it posted a decline of nearly 40% in net income on a year-over-year basis. [2]

We anticipate the second quarter to be marginally better than the previous quarter. However, the earnings will be impacted in this quarter from a continuing decline in prices of LCD glass substrates, and lower sales at Dow Corning due to lower demand and price decline of silicone products. The impact will be partially offset by growth in sales of Gorilla Glass and optical fibers and cables.

On the whole, Corning has another tough quarter to negotiate.

We have a price estimate of $16 for Corning, nearly 30% above its current market price.

See our complete analysis of Corning here

Earnings impacted by price decline in LCD glass substrates and silicone products

The prices of LCD glass substrates have been declining since the last quarter of 2011, due to overcapacity in the market and reduction in the amount of inventory in supply chain. As a result, we anticipate sales in the Display Technologies division of the company to get impacted. The division primarily manufactures glass substrates for LCDs and constitutes 25% of the overall company value.

Equity income through Dow Corning, which manufactures silicone products and constitutes approximately 20% of the company value,  shall also get impacted due to lower demand and decline in prices of silicone products.

Higher sales of Gorilla Glass and Optical fiber & cables

However, the impact will be partially offset by higher sales of Gorilla Glass and optical fiber and cables.

We anticipate growth in sales of Gorilla Glass in the second quarter of 2012, on a year-over-year basis, driven by higher sales of smart phones, tablets and other hand-held display devices, which incorporate the Gorilla Glass. It is part of the Specialty Materials division, which constitutes approximately 6% of the company value.

We also anticipate, higher sales of optical fibers and cables, driven by increasing demand in developing nations that have much lower optical fiber network capacities in comparison to developed nations. Optical fibers and cables are part of the larger Telecommunications business division of the company and constitute 6% of the company value.

On the whole, the second quarter earnings report of Corning shall get impacted by decline in prices of LCD glass substrates and silicone products, partially offset by higher sales of Gorilla Glass and optical fiber and cables.

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Notes:
  1. Second Quarter 2012 Earnings Conference Call, www.corning.com []
  2. Corning reports first quarter results, April 27th 2012, www.corning.com []
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