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Technology Stocks : Corning Incorporated (GLW)
GLW 37.61+0.4%4:02 PM EST

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From: Asymmetric8/2/2014 9:55:06 PM
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Corning Feels Pain of Weak Tablet Sales
Glass Screen Maker Cuts Its Tablet Outlook After Overestimating Market
By Anna Prior / WSJ July 29, 2014 3:25 p.m. ET

Corning maker of glass screens, became the latest company to feel the pain of slowing tablet sales, saying it had overestimated the market.

Shares fell 9.6% to $19.93 in midday trading as Corning's earnings were hurt in part by weaker-than-expected sales of its mobile-device display covers, called Gorilla Glass.

Known for making display glass used in high-definition televisions and fiber-optic gear, Corning also picked up on the smartphone boom with Gorilla Glass, a specially-treated display cover for touch-screen devices that resists scratching and breakage. However, Gorilla Glass has faced headwinds, with sales falling 17% last year as Corning worked through an inventory overhang after a bad bet on touch-screen laptops.

Corning on Tuesday made some significant reductions to its cover glass forecast for the year, specifically regarding the media tablet market, which it expects to only grow 8% to 10% this year.

"We just got that really wrong about what was happening in the tablet market, and we have adjusted down our forecast," Chief Financial officer James Flaws said on the company's quarterly conference call. He noted that lower-than-expected tablet sales was the reason for the reduced expectations for Gorilla Glass growth this year.

Enthusiasm for tablets has waned as smartphone screens grow larger and laptop computers grow thinner and lighter. Tablets aren't as essential to many users as smartphones, nor are they as portable. They don't handle many work chores as well as laptop or desktop PCs. And while many people watch videos or read articles on a tablet, it isn't quite a must-have device for many consumers.

As such, Apple last week said that unit sales of the iPad—the best-selling tablet on the market—fell for a second straight quarter, while recent evidence points to slowing sales for imitators that rushed their own tablets to market.

On Tuesday, Corning said sales for its specialty materials, which includes Gorilla Glass, rose 14% sequentially in the second quarter but still fell short of the company's expectations.

"We believe our Gorilla Glass sales reflect what happened in the smartphone and tablet markets in the first half of the year," said Mr. Flaws, adding that in the second-quarter, the company saw "evidence of disappointing sale through, which we believe contributed to our weaker sales into the supply chain."

Corning, which relies on sales of LCD-TV glass for the bulk of its profit, confirmed Tuesday that liquid-crystal display glass price declines in the quarter were more moderate than those in the first quarter.

The company's LCD glass volume, meanwhile, grew more than expected in part because of stronger-than-expected retail TV sales in Europe and South America, likely because of the FIFA World Cup, the company said. Corning said LCD glass volume rose in the low-teens percentage sequentially, compared with expectations of a high-single-digit percentage increase.

For the third quarter, Corning said it expects its LCD glass volume will be up by a mid-single-digit percentage sequentially, while price declines are expected to moderate further, returning to the rates experienced through most of 2013.

Overall, Corning reported a profit of $169 million, or 11 cents a share, down from $638 million, or 43 cents a share, a year earlier. Excluding acquisition-related costs and other items, core earnings per share rose to 37 cents from 32 cents.

Sales jumped 25% to $2.48 billion, while core sales rose 28% to $2.58 billion.
Analysts polled by Thomson Reuters predicted earnings of 38 cents a share on revenue of $2.53 billion.
Product costs rose 32%, and selling, general and administrative costs climbed 20%.


Cheap Tablets Crack Corning's Stock
By Dan Gallagher / WSJ July 29, 2014

Corning's high-profile Gorilla Glass business has slipped on a banana peel.

Corning shares slumped sharply Tuesday after the company reported quarterly earnings per share that missed Wall Street's consensus forecast by all of a penny. The selloff reflects in part a high valuation heading into the announcement: 13.7 times forward earnings, or 36% above the stock's five-year average, according to FactSet.

The main culprit for the miss was lower-than-expected sales in Corning's specialty-materials segment, which includes the Gorilla Glass cover material used in smartphones and tablets. On its conference call, the company singled out weakness in tablet demand, noting that the fastest-growing segment of this market is for lower-end devices less likely to use Gorilla Glass. Specialty-materials revenue increased 14% from the first quarter, well below the company's prior forecast of 20% to 25%.

The specialty-materials business accounts for only 11% of Corning's revenue, so some may deem the selloff an overreaction. The company's largest segment remains LCD glass used in large-screen TV sets and other products, and revenue from that business jumped 62% year over year while revenue from specialty materials was merely flat on that basis.

But perceptions of Corning's value have become closely identified with the popular Gorilla Glass brand, such that the business has an outsize effect on the company's stock.

Given the weakness in tablets, Corning will need successful launches of new smartphones—particularly the larger-screen iPhone 6 from Apple —to make its numbers for the third quarter. The company predicted a 10% sequential gain in specialty-materials revenue for the third quarter, which is a bit higher than the 8% gain it delivered in the same period last year that included the launch of the iPhone 5s.

But phones come with a catch: They use less display materials than tablets. So Corning must keep Gorilla Glass—and its stock valuation—balanced on a smaller footprint.
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