Corning's Restructuring Charges Offset Gains From Gorilla Glass Sales
Higher sales of Gorilla Glass, the market leading cover glass for smartphones and tablets, drove growth in Corning's ( GLW ) revenues in the fourth quarter. Revenues increased 14% year-over-year to $2.1 billion, however, profits declined 42% y-o-y to $283 million on restructuring and impairment charges.
For full year 2012, revenues improved marginally but profits declined 38% y-o-y to $1.7 billion on severe LCD price declines. For 2013, Corning anticipates continued growth in Gorilla Glass sales and a rise in LCD glass shipments. But, persisting low demand from the solar industry for silicon products could impact its performance.
Rising sales of Gorilla Glass
In the fourth quarter, Gorilla Glass sales continued to rise and crossed $1 billion in annual sales driven by the increasing adoption of touch screen devices like smartphones, tablets and touch-enabled laptops. Gorilla Glass is now present on more than 1 billion devices worldwide. In the fourth quarter, sales at the Specialty Materials division, which includes Gorilla Glass increased 68% y-o-y to $399 million.
LCD business stabilizes
At the Display Technologies division, which includes Corning's LCD business, sales grew 3% y-o-y to $800 million in the fourth quarter. Sales growth was driven by higher LCD glass shipments partially offset by lower prices.
For full year 2012 though, sales at this division declined 8% y-o-y to $2.9 billion due to severe LCD price declines caused by excess manufacturing capacity in the industry.
Restructuring and impairment charges impact profits
Profits were impacted by restructuring and impairment charges in Q4. Corning initiated several restructuring activities, including headcount reductions in the fourth quarter to reduce its cost structures. These steps were driven by weak company earnings over the past couple of years and sustained challenges in many of its businesses. Corning recorded charges of $133 million (including $44 million asset impairment charge at the Specialty Materials division) related to workforce reductions and asset write-offs at its wholly-owned businesses in the fourth quarter.
Corning also booked restructuring and impairment charges in equity earnings from its joint ventures. It took a charge of $87 million in equity earnings from Dow Corning and a charge of $13 million in equity earnings from Samsung Corning Precision. The profits from both these joint ventures were impacted due to a downturn in their respective industries. While profits at Dow Corning, which manufactures silicon products, were impacted by the depressed poly-silicon demand from the solar industry, profits at Samsung Corning Precision, which manufactures LCD glass, were impacted by declining LCD prices.
We currently have a stock price estimate of $13 for Corning , approximately 5% above its current market price. We are in the process of incorporating fourth quarter earnings and will update our analysis shortly.