Corning Incorporated (GLW): Looking to iWatch for Breakthrough

Hemlock

Corning outlined its worst case scenario for Hemlock (a part of its 50%-owned joint venture with The Dow Chemical Company (NYSE:DOW)). Corning disclosed the Hemlock began losing money in 4Q12, driven by solar market challenges, aggressive pricing, and an anti-dumping investigation by China, which has resulted in frozen shipments to the world’s largest solar market. Corning expects more details by the end of 1H13. Under a worst case scenario, the company would:

1). Exit the solar business and impair its assets (Corning’s share would be $700 million, non cash impact), and

2). Resort to enforcing the take or pay nature of its customer contracts on an outstanding amount of $12.7 billion.

Corning believes that Hemlock can be restructured if necessary, which would not require cash from either Corning or Dow Chemical. Outside Hemlock’s solar business, Dow Corning’s exposure to the silicone market remains healthy and stable, and Corning plans to report it separately from the struggling Hemlock polysilicon business.

FX

Corning prices all its LCD glass sales in Yen (and reports in USD), resulting in decreased sales and profits when translated to USD given the weakness in the Yen since late 2012. As a result, Corning plans to take action to mitigate the impact of the Yen, and is considering:

1). More active but low cost hedging and/or,

2). Pricing its LCD glass in USD.

Uses of cash

Corning expects to generate operating cash flow of $2.6 billion in 2013 and reduce CAPex by almost 30% to $1.3 billion from $1.8 billion in 2012. As a result, the company remains dedicated to returning cash to shareholders. Specifically, it stated that it plans to increase dividends over time and repurchase shares. The company is also evaluating several minor acquisitions, but none as big as Discovery Labware (acquired for $720 million).

Foolish bottom line

There is no doubt that announcement of iWatch will be a big catalyst for the company given that it will help the company to improve its results for display segment which is current the weakest of the lot. Overall, the stock gives a neutral outlook (till the announcement).

The article Glass Giant Looking to iWatch for Breakthrough originally appeared on Fool.com and is written by Masam Abbas.

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