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Corning Inc. recently announced results for the third quarter of 2008. Sales were $1.56 billion, about even with last year’s third quarter. Earnings per share (EPS) were $0.49, including net special gains of $36 million, or $0.03 per share. Excluding special items, EPS was $0.46, up 21% over last year’s results, due in part to favorable exchange rate movements.
“During the third quarter, we experienced the impact of a supply chain correction in our display business,” said Wendell P. Weeks, chairman and chief executive officer. “We believe that worsening economic conditions are now affecting retail demand for several of our businesses and that this economic decline may be accelerating in the fourth quarter. In response, we have initiated actions to reduce capital spending, scale back some manufacturing operations, curb the rate of growth in research, development and engineering expenses, and reduce overhead to manage costs. If business conditions deteriorate further, we will consider additional capacity and operational adjustments.”
Third quarter sales for Corning’s Display Technologies segment were $696 million, a 14% sequential decline and flat with the third quarter of 2007. Glass volume from Corning’s wholly owned business decreased by 2% year-over-year and 10% sequentially. Price declines were in line with previous quarters. Compared to the second quarter, sales were negatively impacted by a weaker Japanese yen-to-U.S. dollar exchange rate.
Equity earnings from SCP’s LCD glass business were $259 million for the quarter, a 6% sequential gain and a 62% increase over third-quarter 2007 results. SCP’s quarterly glass volume increased 12% sequentially and 38% year-over-year, reflecting continued strength in the Korean LCD market.
“Although our combined glass volume reflects strong year-over-year growth in the LCD glass market, we have seen lower demand in Taiwan and stronger demand in Korea. This trend is expected to continue in the fourth quarter,” Weeks said.
Telecommunications segment sales in the third quarter were $496 million, a 4% sequential increase and a 5% increase over a year ago. The sequential increase was the result of higher demand for private network solutions.
Environmental Technologies segment sales were $177 million for the quarter, a 15% sequential decline and an 11% decrease from a year ago. Sales were lower than expected in the third quarter due to continued weak automotive products demand in North America and recent market softness in Europe and the rest of the world. Heavy-duty diesel product sales continue to be depressed due to the slowdown in the U.S. freight shipping industry.
Specialty Materials segment sales were $101 million, a slight sequential decline and a 6% increase over the third quarter last year. The Life Sciences segment had sales of $83 million in the quarter, a 5% sequential decline and a 6% year-over-year increase.
“We are now seeing the impact of the global economic turmoil on several of our businesses, most notably our display business,” said James B. Flaws, vice chairman and chief financial officer. “Recent retail data, supplied by the NPD Group, revealed considerable slowing of U.S. consumer LCD television purchases in the second half of September and again in the first half of October. (The NPD Group is an independent consumer market research firm.) As a result, we expect our fourth quarter results to reflect appreciably lower sales as well as increased costs from capacity reductions in several of our businesses.”
Combined glass volume in the Display Technologies segment is expected to decline 10 to 20% sequentially, with the wholly owned business down 20 to 30% and SCP down 5 to 15%. Price declines are expected to be consistent with previous quarters.
“We now expect Taiwanese panel makers to run at much lower utilization rates through the fourth quarter as they prepare for a seasonally lower first quarter and potentially slower consumer demand for LCD televisions and monitors in 2009,” said Flaws. “Although utilization rates in Korea remain higher, we are starting to see softness in that market as well.”
Corning expects to maintain its current pricing strategy in the quarter. The company’s fourth-quarter guidance assumes a Japanese yen-to-U.S. dollar exchange rate of 101, which should positively impact sales and earnings by about $35 million compared to the third quarter. Further strength in the Japanese yen-to-U.S. dollar exchange rate could improve sales and earnings.
“During this time of economic volatility, it is difficult for us to assess the potential impact on the full-year 2009 glass market,” Flaws said. “We are seeing rapid shifts in our display glass customer ordering patterns as they react to changes in their demand. We have seen some slowing in consumer demand for LCD televisions in the early fall, but it is difficult to know how prolonged any slowdown may be. As a result, we think that it is prudent to lower our 2009 glass market forecasts and plan our capacity accordingly. As such, we have revised our LCD glass market growth estimate to 5 to 15% to better reflect the potential impact of continued weak economic conditions.
“The worldwide automotive industry is also experiencing significant declines and faces great uncertainty. We anticipate 2009 worldwide auto volume could be down 5 to 8%, and we are adjusting our capacity to prepare for these levels. We are also expecting the heavy-duty diesel market will remain very weak in 2009. These dynamics underscore our need to be very agile in managing our businesses and controlling expenses to effectively address changing product demand and market conditions.”
As previously announced, Corning plans to slow its rate of capital spending in the Display Technologies segment for the remainder of this year and 2009. Corning’s total 2008 capital spending is now expected to be between $1.8 billion and $1.9 billion. “We are also planning further reductions to our previously disclosed 2009 capital spending range of $1.6 billion to $1.7 billion, and potential restructuring charges in the fourth quarter. And, we are carefully managing our research and development spending while maintaining a commitment to investments in new business opportunities,” Flaws said.
“We believe Corning’s strong financial position can endure a prolonged downturn in the economy,” said Flaws. “We have $3.2 billion in cash and short-term investments and $1.5 billion of debt, only $250 million of which is due in the next four years. The majority of the company’s cash and short-term investments are in U.S. treasury bills, treasury-backed securities, government money market funds and bank deposits. We expect to continue to have full access to a $1.125 billion unused revolving credit facility, which doesn’t expire until 2011.”
Weeks added, “We do believe the present market uncertainty is not changing the long-term fundamentals that drive our business segments. While the economy is clearly impacting us in the short run, we believe LCD televisions will continue to penetrate the worldwide TV market and demand will increase for cleaner environmental solutions and faster information delivery systems, all made possible through Corning’s products and technologies.”
For additional details, visit www.corning.com.