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Corning Q4’16 Earnings: 2016 Ended On A High On Strength In Displays And Optical Communications

Corning ( GLW ) reported its Q4'16 earnings on January 24th and results came in line with analyst estimates. Corning's growth momentum from the past couple of quarters continued and its Q4'16 revenues grew by nearly 11%, driven by strength in display technology and optical communications. We expect these segments to continue growing in the coming quarters due to strong TV display demand and the rapid growth in cloud computing. Specialty Materials also performed exceptionally well this quarter driven by new launches such as Gorilla Glass 5 and Gorilla Glass SR+. Environmental Technology sales declined due to weakness in North American heavy duty diesel products, which is likely to persist due to declining freight rates and increasing fleet of operators.

Strength in Display Technology Optical Communications To Continue

Corning's Display technology and optical communication sales have been growing for the past few years and that momentum continued in Q4'16 sales. Optical communication segment's performance, in particular, has been exceptional and has grown by CAGR of more than 11% in the past 5 years driven by growth in a number of internet users and cloud computing. Display Technology and optical communication segment grew by 13% and 11% in Q4'16 continuing its growth momentum from past few quarters driven by an increase in average TV screen size and strong demand for Corning's fiber-to-the-home solutions in North America.

Corning's new manufacturing software contributed a significant role in this quarter's growth. We recall that it resulted in a sales decline for the optical communication business in Q1'16 due to the software glitch. We expect this to continue to help Corning in the coming quarters. Although we expect a number of TV units sold to grow at a low single digit rate this year, Corning's display revenues are still likely to grow by mid-single digits this year due to the continuing increases in screen size. We don't expect LCD prices to decline significantly this year as display industry's profitability is already low due to declining prices. Moreover, supply demand are stabilizing as 2016 saw a minimal decline compared to last 5 years.

New Launches To Drive Corning's Specialty Material Growth

Corning's Specialty Materials sales increased by nearly 22% in Q4'16 due to a rapid adoption of Gorilla glass 5 and Corning's premium pricing on its newly introduced products. We expect this momentum to continue in the near term as Corning's Gorilla Glass 5 and Gorilla Glass SR+'s durability is much higher as compared to previous versions. Moreover, Corning's customers are starting to use these on the more diverse set of devices such as smart watches and tablets. It is important to note that the Specialty Materials supply chain is not affected by seasonality but rather depends on new launches and product improvements. Thus, we may witness the improved performance of Corning's specialty materials starting Q1'17.

Environmental Technology and Life Sciences Sales To Remain Flat

Corning's Environmental Technology sales declined by 7% in Q4'16, taking the full year 2016 decline to 2% due to decline in heavy-duty diesel market in North America but partially offset by growth in light-duty automotive sales. We expect this segment to remain flat in the coming quarters as heavy duty auto industry is expected to remain weak due to declining freight rates and growing fleets. This decline will be offset by new contract wins by Corning in GPFs (Gas Particulate Filters) which will likely to ramp up in the second half of 2017.

We are currently reviewing our valuation model for Corning in the light of the recent earnings and will have an update soon.

For more information, please refer to our complete analysis for Corning

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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