Corning Falls on Unclear Glass View - Analyst Blog
02 Dicembre 2011 - 4:30PM
Zacks
Corning Inc. (GLW) slashed its fourth quarter
Gorilla Glass sales outlook when a major South Korean customer
dishonored its glass display purchase contract.
Corningcut its Gorilla Glass fourth quarter sales forecast to a
sequential decline of 25% from a 15% sales decline. LCD glass
prices are also expected to decline sequentially in the fourth
quarter. As a result, consolidated equity earnings are expected to
be down 30% as opposed to down 5% guided originally.
Corninghad taken the initiative to recapture its market share in
Korea by cutting prices. But unfortunately, its long-term
contract fell through because the supply of LCD glass outpaced
demand, causing share prices to plunge 10%. Hence, the company
plans to reduce its glass capacity in the fourth quarter by
delaying the start of new tanks.
Corning makes Gorilla Glass for LC TVs, smartphones and tablet
computers. Management believes that Corning’s Gorilla Glass outlook
clearly indicates lower global demand for cover glass used in
tablet computers and LCD TVs.
The lower adoption of Gorilla Glass on TVs and decline in tablet
demand are matters of concern. We do not expect much improvement in
the near term as glass price decline is also expected to continue,
resulting in weaker-than-expected results in the fourth quarter and
beyond.
However, a few analysts indicated that Amazon
(AMZN) is using Gorilla Glass in its ‘Kindle Fire.’ With
preliminary sell-through data points for Amazon Fire appearing to
be strong, we expect the demand for Corning's glass substrates to
improve in the near future.
Corning faces significant competition due to excess capacity in
the market place, price pressure and product launches. For hardware
and equipment products, significant competitors are 3M
Company (MMM), Tyco Electronics, Ltd.
(TEL), Furukawa OFS, CommScope and ADC Communications.
Currently, Corninghas a Zacks #3 Rank, which implies a Hold
rating on a short-term basis.
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