Corning Q2 Earnings: Solid performance in Q2 is likely to build momentum for the 2nd half of 2016

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Corning (NYSE: GLW) reported its Q2 earnings on July 27th and the results came in line with the analyst estimates. Sequential revenue growth of more than 12.4% is indicative of momentum gain in 2016, which is a positive for the company as the historical demand of display technology and optical communications segment tends to increase in the second half of the year. We believe that Corning’s Q2’16 results are an indicator of momentum pickup for the rest of 2016. Panel makers are expected to increase utilization in the 2nd half of the year to cater the increased demand. Also, Corning’s acquisition and joint ventures, which were closed in Q2’16 in optical communication and environmental technology, are likely to drive its sales in the coming quarters.

Larger Screen Sizes and Gorilla Glass 5 will Drive Corning’s Sales

Glass demand in the first half of 2016 was down both sequentially and year-on-year due to weak demand in emerging markets driven by strong dollar and shrinking demand for IT products including tablet and notebook PCs. However, handheld and IT markets are a very small portion of the overall glass industry. TV units account for a much bigger portion, and growing average TV sizes will lend strong support to the overall demand.

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Optical Communications to benefit From the acquisition of Alliance Fiber Optics Products

The company’s optical communication segment has recovered from the software implementation issue, but the weak demand for auto products and soft economic environment in China are likely to act as dampeners. However, Corning completed the acquisition of Alliance Fiber Optic Products in June 2016 in order to expand its market access and enhance product sets in fiber-to-the-home and data center portfolios. Corning expects sales in optical communications segment to be up approximately 10% versus last year in Q3’16, driven by growth in fiber-to-the-home and data centers.

Environmental Technology Business Rebounded 

Environmental technology sales declined both sequentially and year on year in Q2’16 due to weakness in heavy-duty auto products and weak smartphone and laptop markets. This was was partially offset by strong demand in cabling facilities and light duty auto products. However, we believe that Corning will be able to revive this segment in the next couple of quarters as its investment in auto segment has started to pay off. The company has used its technological expertise to build products such as ’Gorilla Glass Auto’ to assist car manufacturers facing stricter pollution regulations. Both Mercedes Benz and Volkswagen recently announced that they will equip vehicles with particulate gas filters starting 2017 and as a result, Corning won several new GPF platforms in Q2’16.

For more information, please refer to our complete analysis for Corning

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