Corning Earnings Preview: Revenue To Grow On Display, Optical And Specialty Volumes

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Corning (NYSE:GLW) is set to announce its first quarter 2015 results on Tuesday, April 28. We expect to see growth in revenues driven by its Display Technologies, Optical Communications and Specialty Materials segments. However, the growth rate will likely slow down due to tough comparables. In 2014, most of the revenue growth had come from the acquisition of Samsung Corning Precision Materials, whose revenues were comparable to those of Corning’s Display Technologies segment. Now that the cycling of the previous year’s acquisition-based growth has come to an end, revenue growth will be completely reliant on volumes, while most of Corning’s segments continue to suffer from price declines.

In the fourth quarter, Corning reported 23% year-on-year growth in GAAP revenues, to cross $2.4 billion. [1] 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.

See our complete analysis of Corning here

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Bigger Screens To Drive Display Technologies

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. Consumers are now trading up to larger screen sizes due to their declining prices. This is also evident from the fact that the average size of LCD TV shipments have increased to 39”, more than 1.5” larger than last year. [2]

Display Technologies’ volumes should also benefit from replacement demand of Plasma and CRT TVs. Sales of Plasma and CRT TVs have been declining due to cost competitive LCDs and may soon disappear from the market . [3] 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]

Larger screen sizes will also help in moderating the price declines in the LCD industry, which have been plaguing Corning since 2012. Corning expects that LCD glass price declines in the first quarter to be consistent with the previous quarter’s decline.

Optical Communications To Drive Q1 Growth

Optical Communications revenue 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. We expect to see strong growth in sales in North America, as the region has seen a spike in demand for Fiber-To-The-Home (FTTH) broadband. In the fourth quarter, higher sales in North America helped drive core sales of the Optical Communications segment by 12%. [1]

The segment should also benefit from the 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]

Specialty Materials To Grow On Gorilla Glass 4

Demand for Corning’s latest version of cover glass, Gorilla Glass 4, should help drive Specialty Materials sales in the first quarter. Most recently, Gorilla Glass 4 was featured on the Samsung Galaxy S6 and S6 Edge, which were launched on April 10. Samsung (PINK:SSNLF) placed orders for 13 million units of the smartphones, which should have a significant impact on Gorilla Glass 4 volumes, particularly because Gorilla Glass 4 has been used on both sides of the S6 and S6 Edge.

In the past year, Gorilla Glass pricing had taken a beating. However, we expect to see some improvement in the first quarter driven by Gorilla Glass 4. This is because Corning is likely to charge a premium for Gorilla Glass 4’s features. Corning had earlier made claims of Gorilla Glass 4 having the best drop performance in the industry.

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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 []