Samsung Corning Precision Acquisition Will Drive Corning’s First Quarter Revenue

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Corning (NYSE:GLW) is set to release its first quarter 2014 earnings result on April 28. We expect to see an increase in Corning’s revenue for the first quarter. However, the growth in revenue will be inorganic. This means that the increase in revenue would not have been generated internally through growth in volume of sales or increase in prices, but externally, through an acquisition. Corning’s revenue will be driven by the acquisition of Samsung Corning Precision, which was completed in January 2014. [1] We expect to see Corning’s Specialty Materials revenue stabilize after having declined in 2013 due to the Gorilla Glass inventory accretion in the supply chain.

In the previous quarter, Corning’s revenue declined 9% due to price declines in its display business and volume declines in its specialty materials business. [2] Net profits increased 171% to reach $421 million driven by cost reductions and payment received for the settlement of a dispute in China.

See our complete analysis of Corning here

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Display Technologies Revenue Will Increase Due To Corning Precision Material

Post acquisition, Samsung Corning Precision was renamed Corning Precision Materials (CPM) and merged with Corning’s Display Technologies segment. Merger with the segment implies that revenue from CPM will now be a part of the Display Technologies segment. This should lead to a significant increase in the segment’s revenue in the first quarter and throughout 2014. CPM and Corning’s Display Technologies segment generate comparable amounts of revenue. In 2013, CPM generated $2.15 billion and the Display Technologies segment generated $2.54 billion. [3] In the first quarter of 2013, CPM generated $658 million and the Display Technologies generated $650 million. [4]

Though we expect a significant increase in the segment’s revenue, it would be somewhat tempered by declines in LCD prices. Corning’s Display technologies revenue decreased 12.5% and 7.5% in 2013 and 2012, respectively, due to declining LCD prices and low volumes. CPM’s revenue also declined 23% and 14% in 2013 and 2012 respectively. [3] LCD prices have been declining for the past few years due to an oversupply in the industry and we expect the trend to continue in the first quarter of 2014. Competitive pricing mechanisms in contracts that Corning had negotiated towards the end of 2012 will aggravate the price declines. [5] However, the effect of the contracts is expected to be limited to the first quarter. Thereafter, price declines should be moderate.

Global shipments of LCD panels declined 10% in 2013 on account of the LCD inventory overhang created in 2012. [6] However, demand had somewhat recuperated in the fourth quarter of 2013. Corning’s Display Technologies volumes were also up 5% in the fourth quarter. [5] However, we expect to see a sequential decline in volume in the first quarter of 2014. This is because device manufacturers tend to slow down the purchase of display glass during the first quarter due to the relatively slow retail season during the second quarter of the year. Additionally, there are fewer operating days in the quarter since February is a short month. On a year-over-year basis, volume may be stagnant or slightly negative given that global shipments of LCD panels have also been relatively stagnant in the first quarter of 2014.

Gorilla Glass Volumes Are Expected To Stabilize

In 2013, Corning’s specialty materials revenue, majority of which comes from Gorilla Glass, was down 13%. [3] Sales volume of Gorilla Glass had been declining throughout 2013 due to the impact of excess inventory that had built up in the supply chain in the fourth quarter of 2012. However, Corning expects to see growth in Gorilla Glass sales volume in 2014 since most of the excess inventory has been utilized in 2013. Also, the present market conditions indicate better matching of supply and demand. [5] For the first quarter of 2014, the segment’s revenue is expected to be fairly consistent year-over-year with a gradual increase in the coming quarters.

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Notes:
  1. Corning Completes Acquisition of Samsung Corning Precision Materials, January 15 2014, www.corning.com []
  2. Corning’s 2013 Q4 earnings form 8-K, January 28 2014, www.corning.com []
  3. Corning’s 2013 10-K SEC Filing, February 10 2014, www.corning.com [] [] []
  4. Corning’s First Quarter 2013 10-Q SEC Filing, April 26 2013, www.corning.com []
  5. Corning Management Discusses Q4 2013 Results – Earnings Call Transcript, January 28 2014, www.seekingalpha.com [] [] []
  6. Panel Track, www.displaysearch.com []