Corning Earnings: Large Screen TVs, FTTH And Gorilla Glass Drive Corning’s Top Line

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Corning (NYSE:GLW) announced its fourth quarter and annual results on Tuesday, January 27. The company reported 23% year-on-year growth in GAAP revenues, to cross $2.4 billion, driven by its Display Technologies, Optical Communications and Specialty Materials segments. [1] Its Life Sciences and Environmental Technologies segments grew in low and mid-single digits, respectively. Corning’s net profits increased a staggering 135% primarily due to the integration of Corning Precision Materials, an increase in income from foreign currency transactions and hedging gains.

Looking at Corning’s core results, which excludes the impact of foreign currency and other special items, its revenues grew 30% year-on-year, crossing $2.6 billion and beating market estimates by $100 million. Corning beat earnings per share estimates as well, by $0.07, to reach $0.47. The market reacted positively to the earnings and revenue beat, pushing the stock up by 3.43% by the end of the day.

See our complete analysis of Corning here

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Demand For Bigger Screens Drives Display Technologies

Corning’s LCD glass volume increased mid-teens year-over-year and mid single digits sequentially, driven by the strong demand for larger LCD televisions. Consumers are trading up to larger screen sizes due to their declining prices and greater viewing pleasure. The average size of LCD TV shipments have increased to 39”, more than 1.5” larger than last year. [2] Larger sizes have also contributed to the stabilization of declines in overall industry prices. Corning reported that LCD glass price declines had moderated and fell less than what was seen in the previous quarter.

The major driver of revenue and segment profits was the consolidation of Corning Precision Materials. However, in 2015, the segment will have to deal with tough year-on-year comparisons. LCD glass demand will likely remain low sequentially in the first quarter due to weak retail demand in the second quarter and fewer shipping days in February. However, volumes should be higher year-on-year, reflecting the growth in demand for larger screen LCD televisions.

Our long term outlook for Corning’s Display Technologies remains positive primarily due to the growing adoption of LCD TVs and replacement of Plasma and CRT TVs. Sales of Plasma and CRT TVs have been declining due to cost competitive LCDs. Plasma and CRT TVs are expected to disappear soon from the market, giving way to LCD TVs. [3] OLED TVs may offer some competition to LCD TVs, but they are expected to account for just 1% of overall TV shipments through 2017 due to their higher prices. Emerging markets such as India are expected to fuel the demand for LCD TVs as these regions continue shift from traditional CRT TVs to LCD TVs. In 2012, 47% of Total TV shipments to India were LCDs, but by 2015, this is likely to rise to 97%. [4] The shift to larger sizes will likely lead to strong demand for 4K LCD TVs, which are expected to grow more than 50%, reaching more than 32 million units in 2015. [2]

Optical Communications, Gorilla Glass To Drive Q1 Growth

Corning’s Optical Communications and Specialty Materials segments had a strong fourth quarter. Higher than expected demand for Fiber-To-The-Home (FTTH) broadband in North America helped drive core sales of the Optical Communications segment by 12%. [1] Demand for Corning’s latest version of cover glass, Gorilla Glass 4, and continued growth in sales of smartphones drove Specialty Materials sales up by 12%, slightly offset by price declines.

We expect these trends to continue driving growth in Corning’s revenue in the first quarter of 2015. Optical Communications will likely continue to grow as Internet traffic rises driven by higher online video content, an increase in the number of Internet-friendly mobile devices and growth in demand for cloud computing services. The segment should also benefit from integration of TR Manufacturing, a provider of fiber-optic and copper cable interconnects and electro-mechanical assemblies to original equipment manufacturers, which Corning had acquired earlier in January. [5]

Corning expects Specialty Materials sales to be up 10% in the first quarter, driven by strong retail sales of touch-based devices.  We should be able to see some improvement in pricing given the launch of Gorilla Glass 4, which has the best drop performance in the market. This could help Corning charge a premium price. Later in the year, we expect Gorilla Glass sales to rise on the launch of Samsung’s (PINK:SSNLF) Galaxy S6. Speculation exists that the Galaxy S6 will sport Gorilla Glass 4. [6]

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Notes:
  1. Corning’s Q4 2014 8-K SEC Filing, January 27, 2015, www.sec.gov [] []
  2. LCD TV Shipment Forecast Revised Upward on Strong Consumer Demand for Larger Sizes, December 31, 2014, www.displaysearch.com [] []
  3. LCD TV Growth Improving, As Plasma and CRT TV Disappear, According to NPD DisplaySearch , April 16, 2014, www.displaysearch.com []
  4. LCD Will Be the Sole TV Technology in India by 2016, According to NPD DisplaySearch, April 29, 2014, www.displaysearch.com []
  5. Corning Incorporated Completes TR Manufacturing, Inc. Acquisition, January 9, 2015, www.corning.com []
  6. This is the Samsung Galaxy S6 Unpacked, January 21, 2015, www.bgr.com []