Corning (GLW) shares are trading lower despite better-than-expected June quarter results, as investors worry about signs of softening in the LCD glass market.
As noted earlier Q2 results beat the Street, with revenue of $1.71 billion and profits of 58 cents a share, topping the Street consensus at $1.65 billion and 52 cents.
But some cautionary comments from the company has triggered some modest concern about the company’s near-term outlook.
In an interview with Tech Trader Daily, Corning CFO Jim Flaws said that the company in Q2 “had a great quarter, any way you measure it.” But there were a few tiny cracks in the facade.
Flaws said that demand from consumers and businesses for LCD televisions and displays has been running for the most part in line with the company’s optimistic case. But he also noted that U.S. television sales have been a little weaker than anticipated for a couple of months now. TV sales in the rest of the world remains very strong, he notes, with solid growth in China, Europe and Japan. And he says demand for IT products “has been very strong also.” Flaws said it isn’t entirely clear why U.S. TV demand has softened, although he notes that the industry faces a tough comparison versus the analog-to-digital transition last year, and adds that there have not been a lot of price promotions in TVs lately. He notes that China saw 38% growth in June, and adds that Europe has been strong, perhaps driven by the World Cup.
Meanwhile, Flaws also notes that the company is seeing some “minor utilization cutbacks” by the :LCD panel makers who buy glass from Corning. He notes that AU Optronics (AUO), for instance, said yesterday that it has reduced its expected utilization to 93% from 97%. Flaws says the industry has rebuilt inventory that was lacking coming into the year, and are now cutting back a little.
Flaws said pricing is down about 8% since the end of February, a “very modest reduction,” and not a signal that something bad is happening. He expects price declines to continue as a similar slow rate in Q3.
The Corning CFO contends that the Street isn’t giving the company enough credit for its rapidly growing Gorilla glass business, which consists of ultra-hard glass used primarily in hand-held devices. He notes that the business, which was $75 million last year, should hit $250 million this year, and could be larger if the company had the capacity. Corning has announced plans to expand production, and contends the business could be $1 billion in revenue in 2011.
Flaws reports that the Gorilla glass market is entering a new segment, with covers for televisions. He notes that TV producers are offering more frameless televisions – and that they are using Gorilla glass covers to provide higher strength and protection. Flaws notes that current LCD televisions use 2 panes of glass; adding a Gorilla glass layer would increase the total to three. “It could be a very big business,” he contends, and add that the added glass in particular improves the display of 3D content.
Speaking of 3D, Flaws is cautious on the outlook for 3D televisions, “It’s a little hard for us to judge,” he says. “There’s not a tremendous amount of content yet,” adding that he’s not sure how consumers will react to having to wear 3D glasses to watch content on their televisions.
GLW is down 31 cents, or 1.7%, to $17.69.
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