Corning is set to announce its second quarter 2015 results on Tuesday, July 28. We expect to see growth in core sales driven by its Display Technologies, Optical Communications and Specialty Materials segments. However, the reported sales will likely be tempered due to foreign currency headwinds. Apart from the earnings figures, we will be looking forward to any updates on Corning's latest products, Lotus NXT and Phire.
In the previous quarter, Corning reported revenues declined 1% due to currency-related headwinds. However, its core sales improved 4%, to reach $2.43 billion, driven by growth at its Optical Communications and Specialty Materials segments. Corning's core earnings increased 14%, to $484 million, driving a 21% increase in core earnings per share, to reach $0.35. The market was expecting earnings per share of $0.34.
See our complete analysis of Corning here
Bigger Screens To Drive Display Technologies
We expect to see growth in Corning's glass volumes in the second quarter as a result of 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 has increased to 39", more than 1.5" larger than last year. 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. In addition, replacement demand of Plasma and CRT TVs should also drive growth in glass volumes.
Larger screen sizes will not only help in driving volumes, but should 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 second quarter will be less than what was witnessed in the previous quarter.
Acquisitions To Drive Optical Communications
We expect to see growth in Corning's Optical Communications segment, driven by the consolidation of TR Manufacturing and Samsung Electronics' fiber optics business. Corning acquired TR Manufacturing in January. TR Manufacturing is a provider of fiber-optic and copper cable interconnects and electro-mechanical assemblies to original equipment manufacturers. Corning acquired Samsung Electronics' fiber optics business on March 31. The acquisition led to the integration of Samsung's fiber optic manufacturing facilities in South Korea and China into Corning's Optical Communications division.
Apart from acquisition-based growth, the Optical Communications segment will likely continue to grow as Internet traffic rises driven by more online video content, an increase in the number of Internet-friendly mobile devices and growth in demand for cloud computing services. Cisco forecasts that the global network traffic will grow at an average rate of 23% annually through 2018.
Gorilla Glass 4 Sales Will Likely Be High
Demand for Corning's latest version of cover glass, Gorilla Glass 4, should help drive Specialty Materials sales in the second quarter. Most recently, Gorilla Glass 4 was featured on the Samsung Galaxy S6 and S6 Edge, which were launched on April 10. Samsung 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 took a beating. However, we expect to see some improvement in the second quarter driven by Gorilla Glass 4. This is because Corning is likely to charge a premium for Gorilla Glass 4's features. Corning has made claims of Gorilla Glass 4 having the best drop performance in the industry.
Looking Out For Lotux NXT and Phire
Towards the end of the second quarter, Corning launched the Lotus NXT Glass, its newest installment of display glass for LCDs and OLEDs and third generation of its Lotus Glass products. The sales of Lotus NXT will not contribute significantly to Corning's Display Technologies business in the second quarter. But given its characteristics, we believe that it could see high demand and become an important part of Corning's product line up.
In February, Corning unveiled its design-in version of Gorilla Glass, named Project Phire, its answer to competition from sapphire-based cover glasses. At the time of unveiling the Phire, Corning announced that it will be available commercially in the second half of 2015. We therefore expect Corning to give some update regarding the product in the earnings call.
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