Corning Earnings Preview: Revenues To Remain Flat In Q3’16
Corning (NYSE: GLW) is set to report its Q3’16 earnings on October 25th. We expect its earnings to remain flat due to: 1) the mixed impact of declining LCD panel prices; 2) decreases in mobile device shipments; 3) increased demand for optical communication and display products; and, 4) joint ventures in the areas of optical communication and diesel technologies in last few quarters. However, Corning’s recent acquisitions in Optical Communication segment and an expected surge in demand for optical communication equipment and fiber optic products globally are likely to drive its long-term growth. The company has also invested significantly in R&D resulting in disruptive specialty material such as Gorilla Glass 5 , Corning iris glass and slim glass substrates. This could add up to about 7% margin increase by the end of our forecast period if Corning capitalizes on its innovative products.
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Global mobile phone, tablet and computer shipments, which declined by 0.75% in 2015, are expected to fall nearly 3% in 2016 according to Gartner, due to market saturation. Only the premium ultra mobiles and entry level phones are expected to grow due to integration of the latest Intel CPU platform and Windows 10. Gartner also mentioned that global devices market is not on pace to return to single-digit growth soon. Growth is on pace to remain flat during the next five years. We have incorporated this in our forecast for Corning’s display technology revenues.
We expect this trend to impact the growth of Corning’s Display Technology business, which constituted close to 35% to Corning’s overall revenues in 2015. We believe that this segment is likely to exhibit either flat growth or may decline slightly in Q3’16 as well as in full year 2016. Additionally, declining LCD prices are also likely to impact Corning’s earnings.
Acquisitions made in Optical Communication segment to pay off
Corning’s optical communication segment has grown at a CAGR of 11.75% in the last 5 years due to growth in global IP data and higher demand for cloud computing. We expect the demand for fiber optics to go up as companies shift from traditional IT system to cloud computing, and data consumption increases due to improved Internet connectivity and increased smartphone usage.
Corning acquired Alliance Fiber Optic Products, TR Manufacturing and Samsung’s fiber optics business last year, we expect these acquisitions to pay off in 2016 onwards as it will lead to higher pricing power and increased growth of its optical communication segment.
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Corning
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