Gorilla Glass And Display Technologies Segment Will Drive Corning’s Earnings

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Corning (NYSE:GLW) is set to announce its third quarter 2014 results on October 28. We expect to see growth in the firm’s Display Technologies and Specialty Materials segment. The acquisition of Samsung Corning Precision Materials, which was completed on January 15th of this year and now known as Corning Precision Materials, will add to Corning’s revenue. The Specialty Materials segment should see growth driven by the Gorilla Glass, as speculation exists about the possibility of it having been used on Apple’s iPhone 6.

In the second quarter of 2014, Corning’s revenue grew 25.2% year-over-year to reach $2.48 billion, primarily driven growth at its Display Technologies, Optical Communications, and Environmental segments. [1] Corning’s net income declined 73.5% on account of poor sales and margins at its Specialty Materials segment.

See our complete analysis of Corning here

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‘New product’ launch could have boosted Gorilla Glass sales

During its second quarter earnings meet, Corning announced that it expects 10% sequential growth in Gorilla Glass sales driven by ‘new product’ launches. The only product that comes to mind is Apple’s iPhone 6. We all know that Apple is an important customer for Corning and contributes significantly to its Specialty Materials segment’s sales. Although Apple has not explicitly mentioned that the iPhone 6 or iPhone 6 Plus are equipped with Gorilla Glass, we have reasons to believe that this just might be the case.

Similar to the previous quarter, Gorilla Glass sales may be tempered by the sluggish sales of tablets. With growing screen sizes and improving functionality of smartphones, tablets have been losing their appeal leading to a slowdown in their sales. Because of this, tablet shipments for the year are expected to rise by 12.1%, compared to a growth rate of around 51.8% during 2013. [2]

CPM will continue to drive inorganic growth in Corning’s Display segment

In the first quarter and second quarter, Corning’s Display Technologies revenue grew 43% and 56% respectively, driven by the acquisition of Corning Precision Materials (CPM). [1] We expect the third quarter revenue to witness similar inorganic growth due to the acquisition.

LCD prices continued to decline in the second quarter due to oversupply in the industry negatively impacting Corning’s pricing. However, price declines have moderated significantly since the past few quarters. Additionally, Corning has already negotiated new contracts with customers which will ensure lower price declines.

Growing internet traffic could drive Corning’s Optical Communications segment

Cisco forecasts that the global network traffic will increase 23% every year through 2017 [3] driven by higher online video content, an increase in the number of internet friendly mobile devices and growth in demand for cloud computing services. Growing internet traffic will drive sales of optical fiber and related equipment, the market for which is expected to grow to $80.6 billion by 2018, at an average growth rate of around 14% every year. [4] We expect the trend to have a positive impact on Corning’s Optical Communication revenue in the third quarter and years to come.

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Notes:
  1. Corning’s Second Quarter 2014 Financial Statements & Exhibits, www.corning.com [] []
  2. Worldwide Tablet Shipments Miss Targets as First Quarter Experiences Single-Digit Growth, May 01, 2014, www.idc.com []
  3. Cisco Visual Networking Index: Forecast and Methodology 2012–2017, www.cisco.com []
  4. Fiber Optic Components: A Global Strategic Business Report, December 2013, www.prweb.com []