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Corning Inc. recently announced its results for the second quarter of 2009, as well as its expectations for the third quarter. Sales for the second quarter of 2009 were $1.4 billion, up 41% sequentially. The Display Technologies segment’s combined glass volume, including Corning’s wholly owned business and Samsung Corning Precision Glass Co., Ltd. (SCP), increased 66% sequentially. Volume in the company’s wholly owned business improved by 101% sequentially, while SCP’s volume increased by 50%.
“Global LCD television retail sales continue to be resilient during these challenging economic times,” said Wendell P. Weeks, chairman and CEO. “This gave confidence to the LCD supply chain to rebuild inventory during the second quarter.”
Weeks noted that Corning initially met the increased second quarter demand by working off its inventory supply, “but as demand continued to rise, we restarted some idled glass melting capacity to help meet the industry’s increased appetite. We saw glass volume increase by 101% at our wholly owned business and by 50% at Samsung Corning Precision quarter-over-quarter,” he said. “Additionally, we saw growth in our other businesses and improvement in equity earnings from Dow Corning Corp. in the second quarter.”
Sales in the Display Technologies segment were $673 million, an 89% increase sequentially. As expected, price declines in the second quarter were modest. Display sales were negatively impacted by foreign exchange rate movements this quarter.
Telecommunications segment sales were $437 million, an increase of 14% over the previous quarter. Corning again experienced strong demand for optical fiber and cable in China. In North America, the company saw increased demand for its fiber-to-the-home products.
Environmental Technologies segment sales were $132 million, an increase of 20%, driven primarily by improved automotive product sales in Germany, China and the U.S. The company said that U.S. automotive product demand was likely driven by a necessary replenishment of the supply chain during the quarter, rather than an increase in auto production. Government incentive programs contributed to the sales increases in Germany and China in the second quarter.
Specialty Materials segment sales were $71 million, up $11 million over the first quarter, due primarily to continued adoption of Gorilla™ glass by notebook and portable electronic device makers.
“The resurgent demand for LCD glass is propelling us to restore much of our previously idled production capacity as quickly as possible to meet our customers’ needs,” said James B. Flaws, vice chairman and chief financial officer. “Approximately 40% of our second quarter shipments came from existing inventory. We need to-and have-restarted tanks to replace this inventory drawdown to meet third quarter demand. We believe our third quarter glass shipments will be flat to up slightly, compared to the very strong second quarter level.” Flaws reiterated that Corning expects third quarter glass substrate prices to be even with those of the second quarter.
Flaws said that supply chain inventories at the end of the second quarter have been rebuilt to levels similar to the end of 2008, as the industry prepares for a seasonally stronger second half of the year. “We estimate that current inventory supplies are 16% less than the second quarter last year, compared to retail demand that has been running approximately 15% ahead of a year ago,” he said. “Retail demand is forecasted to continue growing at double-digit rates in the back half of this year. This comparison gives us some comfort about the outlook for the remainder of the year. However, the pace of economic recovery remains uncertain, and we are being cautious about the amount of capacity we are restarting for the fourth quarter and for early 2010. As we receive more clarity from our customers on their fourth quarter outlook, we will make decisions on our fourth quarter capacity levels.
“We have increased our forecast for LCD glass market volume in 2009 due to the vitality of LCD TV sales in the first half of the year. We now estimate that total yearly volume will be around 2.3 billion square feet, or about 15% growth over last year.”
The company expects to see continued improvement in equity earnings from Dow Corning, noting that silicone orders have been improving month by month. Volumes at Hemlock Semiconductor, Dow Corning’s consolidated subsidiary corporation, should remain strong.
“As we enter the second half of the year, we are seeing signs that the impact of the global recession on our businesses may be moderating,” said Flaws. “That said, questions pertaining to the pace of economic recovery remain. While we do not currently believe another corporate-wide downsizing will be necessary, we are looking at specific business unit restructuring needs. We don’t expect the global auto industry and U.S. truck market to rebound quickly. As a result, we are evaluating further cost reductions in our Environmental Technologies segment later this quarter, which may result in restructuring charges in the back half of the year.
“We are also working to align the level of the company’s research, development and engineering spending with our future revenue estimates in what may be a relatively slow economic recovery. As a result, restructuring charges in this area are also possible in the fourth quarter.”
The company said 2009 capital expenditures are forecasted to be approximately $1.1 billion. In 2010, capital expenditures are expected to be around $600 million.
“LCD TVs have become the product of choice for consumers, and the speed at which they are replacing CRT models is accelerating,” said Flaws. “This technology substitution is expected to fuel the LCD glass market for several years to come. Telecommunications carriers worldwide continue to invest in broadband network expansions, and we are seeing rapid acceptance of our Gorilla™ glass as a cover glass for many handheld and computer applications. These are promising signs that our businesses are poised for future growth.”
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