Specialty Materials, Environmental Technologies Will Drive Growth For Corning

by Trefis Team
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In continuation with a strong performance in the first half of 2018, Corning (NASDAQ: GLW) posted another impressive quarter and sustained its growth trend in Q3. The company comfortably beat consensus estimates, with its revenue coming in at $3.1 billion (+15% y-o-y), and its adjusted earnings per share coming in at 51 cents (vs. 40 cents in Q3’17). Much of the revenue growth came from its Optical Communications segment, as a result of increased demand for its products by data center and carrier businesses, coupled with the acquisition of 3M’s Communication Markets division. Robust performance across multiple segments – Optical Communications, Specialty Materials, and Environmental Technologies – led by investments in innovation and capacity expansion drove growth for the company. A noteworthy highlight in the Q3 earnings was the moderate growth in its Display Technologies segment, as a result of improved LCD pricing environment and continued ramp up of Gen 10.5 plant. Increased consumption of streaming services, new smartphones launches, and improvement of the heavy-duty truck market in North America should drive the company’s full year results. Below, we provide a brief overview of the company’s results and what lies ahead.

 

Our updated price estimate for Corning’s stock stands at $33, which is slightly above the market price. We have also created an interactive dashboard on Specialty Materials, And Environmental Technologies Growth For Corningwhich shows the forecast trends; you can modify the key value drivers to see how they impact the company’s revenues and bottom line.

Factors That May Have An Impact In The Upcoming Quarters
 
The Optical Communications segment generates nearly 37% of the company’s overall revenue and continued its solid performance in Q3, as a result of increased demand for Corning products by data center and carrier businesses across North America and Europe. This was largely driven by increased consumption of streaming and cloud services. Corning is one of the leading players in the Optical Communications segment, and is well-positioned to increase its share over time. In addition, the acquisition of 3M’s Communication Markets Division, which is likely to expand both its global reach and portfolio, should provide for reasonable growth opportunities in the upcoming quarters and provide for significant long-term growth opportunities. Further, the expected deployment of 5G between late 2018 and mid-2019, should drive growth for its fiber-optic products and provide for meaningful medium-term growth opportunities. Consequently, the Optical Communications segment holds substantial growth potential for Corning as a result of robust growth in the amount of data being transmitted and processed.
The Environmental Technologies segment continued its robust showing in Q3, as a result of strong growth in all product categories and manufacturing operations – which led to increased demand for Corning’s gas particulate filters (GPFs). This was largely driven by the improvement of the heavy-duty truck market in North America. Additionally, its recent partnership with Changan Automobile should further drive demand for its gas particulate filters. As a result, we expect strong demand for Corning’s gas particulate filters (GPFs) as auto OEMs ramp up for full adoption of EURO VI emission standards and as governments look to tighten emission standards. In addition, its capacity expansion in Hefei facility should help the company meet expected increase in demand for its gas particulate filters as a result of the upcoming China 6 automotive emission standards. This should drive its Environmental Technologies segment.
Corning’s Specialty Materials segment showed tremendous strength in Q3, posting 23% revenue growth, beating even the company’s own expectations. The stronger than expected performance was as a result of higher shipments of Gorilla Glass due to several new smartphone launches in Q3. Further, the company also witnessed reasonable demand for its advanced optics products. The launch of three new iPhones, a strategic partnership with smartphone manufacturer OPPO, and the anticipated launch of new smartphones later this year, should result in robust demand for Corning’s recently launched Gorilla Glass 6. Additionally, increased use of glass backs on phones should further drive the segment’s revenue in the near term. Furthermore, Samsung’s decision to use Gorilla Glass DX+ for its smartwatch should provide moderate near term growth opportunities. We expect this segment to grow driven by new smartphone launches, which should aid robust demand for its Gorilla Glass, thanks to increased adoption by smartphone OEMs.

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