Optical Communications Segment To Account For Half of Corning’s 2020 Sales Decline?

by Trefis Team
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Corning’s (NYSE:GLW) Optical Communications segment has seen revenues grow from $3.6 billion in 2017 to $4.1 billion in 2019. Why is this important? Optical Communications is the company’s largest segment – contributing more than 37% of the company’s revenue growth in the last 3 years. Sales growth in this segment has been driven by multiyear data center and carrier projects, as well as sales from the recently acquired 3M’s communications business. Looking forward, the segment’s revenues are expected to decline 10.1% to $3.7 billion in 2020, accounting for roughly 45% of the total revenue decline for the company, as we detail in our interactive dashboard, Corning Revenues: How Does GLW Make Money?

Optical Communications segment revenues are largely linked to the spending in the telecom industry. Given the current COVID-19 pandemic, and its impact on businesses, several companies have lowered their capital expenditures, either to preserve cash or due to logistics issues. Corning, in its Q4 2019 earnings release stated that it expects 5-10% decline in segment revenues in 2020. In Q1 2020, the segment sales plunged 26%. While we currently estimate a 10% drop in 2020 sales, the impact could be even higher, if signs of coronavirus containment aren’t clear by the Q2 earnings timeframe.

Beyond Optical Communications, the company’s Display Technologies segment is also expected to take a hit in 2020, though the decline in segment sales will likely be lower, compared to the Optical Communications segment. The demand for products such as television and smartphones is expected to decline in the near term, given most of the stores have been closed for the past few weeks. This directly impacts the demand for Corning’s glass products, as we detail in our interactive dashboard on Corning’s Revenues.

Corning’s Business Model

Corning is a global technology company that manufactures and processes a variety of products at over 100 plants in 15 countries. It makes money primarily through its joint ventures Samsung Corning and Dow Corning. Samsung Corning manufactures glass substrates for active-matrix liquid crystal displays (LCDs) which are primarily used in notebook computers, flat panel desktop monitors, and LCD televisions. Dow Corning manufactures silicone products. Corning’s other business segments include environmental technologies, life sciences, and telecommunications. Corning is primarily responsible for supporting customers using optical communications, mobile consumer electronics, display technology, automotive emissions control products, and life sciences vessels. Corning’s business model faces stiff challenges and competition from offerings by its global competitors such as: 3M, Johnson Controls, and General Electric, among others.

Corning reported $11.5 billion revenues in 2019 under 5 Operating Segments:

  • Optical Communications: This segment is classified into two main product groupings – carrier network and enterprise network. The carrier network group consists primarily of products and solutions for optical-based communications infrastructure, while the Enterprise network group consists primarily of optical-based communication networks.
  • Display Technologies: This segment manufactures glass substrates for high performance displays, including organic light-emitting diode (OLEDs) and liquid crystal displays (LCDs).
  • Specialty Materials: This segment manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals.
  • Environmental Technologies: This segment manufactures ceramic substrates and filter products for emissions control in mobile applications around the world.
  • Life Sciences & Other: Life Sciences segment works with researchers and drug manufacturers seeking to increase efficiencies, reduce costs and compress timelines. Other is primarily comprised of the pharmaceutical technologies business, new product lines and development projects, as well as certain corporate investments.

Among the company’s 5 business segments, Environmental Technologies has seen the fastest growth with revenues growing 35% from $1.1 billion in 2017 to $1.5 billion in 2019, led by high demand for its automotive ceramic substrate products. Though, just as the other segments, Environmental Technologies sales will likely decline in 2020. Overall, all of the company’s segments are expected to face headwinds in the near term, though Optical Communications could be the worst hit, in our view. Additional details about how other components of Corning’s Revenues have changed over the years and are likely to trend going forward, along with comparison of the company’s top line with peers, Ametek and Rockwell Automation, are available in our interactive dashboard. Trefis estimates an outlier case of Corning’s stock falling to $17, in view of the current pandemic and its impact on businesses.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

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