With Uncertainty over Sapphire Screen, Corning’s Stock Might Have Fallen for Nothing

1 Aug

Corning Incorporated, American manufacturer of specialty glass, released a weak earnings report July 29 on the slower tablet and smartphones demand and the possibility that Apple and Samsung might ditch glass screen and for sapphire screen. Were it not for the strong demand for LCD TVs due to the FIFA World Cup, the company would have fared worse. With the market trend not in its favor, Corning’s share prices fell 9.3 percent — its largest decline in two years — to reach its lowest point in three months at US$20.

According to Corning’s second-quarter earnings report, its revenue rose 28 percent to US$2.58 billion and its net earnings were US$527 million, up 12 percent year-on-year; it reported US$0.37 EPS for the quarter, up 16 percent from the same period last year. The solid revenue was a result of hot TV sales in Europe and South America that drove the LCD glass shipments, which accounted for 30 percent of Corning’s revenue. The worse-than-expected earnings were driven by the poor Gorilla Glass sales, which has relatively higher gross profit margin. Corning CEO Wendell P. Weeks reportedly admitted that the company had misjudged the trend in the tablet market.

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Corning reported worse-than-expected earnings on slower Gorilla Glass demand

Market research firm WitsView was pessimistic about the volume of tablet shipment for 2014, projecting a year-on-year growth of less than 5 percent. Apple may see its first annual decline since the iPad hit the market in 2010. IDC also forecast lower tablet shipment this year, due to the influence of smartphones with larger screens and the fact that consumers are keeping their tablets longer than expected. The market trend prompted Corning to lower its estimate for the growth of cover glass shipment for 2014 to 20 percent. Its original estimate was 24 percent.

Specialty materials accounted for 15 percent of Corning’s revenue in the second quarter; of which, Gorilla Glass had the highest gross profit margin. LCD glass volume remained the largest segment, taking up one third of its revenue. Corning maintained optimism about the third quarter, mainly because the drop in LCD glass is expected to slow down and to return to 2013 level. Sales of specialty materials are expected to grow 10% as demand for Gorilla Glass increases in the second half of this year.

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Absent from the assembly line, sapphire screen unlikely in September

Facing the possible threat of sapphire screen, Corning is ready to take up the challenge. Corning has been pitching the advantage of Gorilla Glass through its marketing channels, claiming that based on their experiments, sapphire breaks more easily than Gorilla Glass under the same thickness and size. Also, sapphire crystal costs more and weighs more than Gorilla Glass, which makers it harder to process, and may not be as applicable to consumer electronic products.

It’s been said that a new iPhone with a sapphire display may not be likely in September this year, because the material has not been seen in the assembly line. According to research firm TrendForce, GT Advanced Technologies’s poor yield rate for sapphire ingot is also a problem. If Apple insists to use sapphire display on its new iPhone, the U.S. phone maker should be seeking a new supplier already. However, sapphire price dropped approximately 5 to 10 percent this quarter, an indication that Apple was not buying it in large quantities. This has prompted the industry to speculate that a sapphire display for the iWatch may also be unlikely.

Corning should breathe a sigh of relief if all of the above are proven true. Before the yield rate for sapphire ingot improves, the demand for Gorilla Glass should continue to remain stable. More importantly, before a sapphire glass is put into mass production for consumer electronic products, Corning still has time to convince its clients that Gorilla Glass should fare better than sapphire crystal. The market should be able to see in the near future how the competition between Gorilla Glass and sapphire develops.

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