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Corning's Samsung Fiber Optics Acquisition Should Benefit From China Growth
On December 2, Corning announced that it had reached an agreement with Samsung Electronics to purchase its fiber optic business. Neither company disclosed much information about the transaction. The deal, which is expected to be completed by the end of the first quarter of 2015, will result in the integration of Samsung’s fiber optic manufacturing facilities in South Korea and China into Corning’s Optical Communications division, which derives 50% of its revenues from sales of fiber optic cables. We believe that apart from the inorganic growth in revenue and earnings from the acquisition, the resulting consolidated Optical Communications segment should see considerable revenue accretion driven by growth in China’s fiber optics market, which is the largest consumer of fiber optics products in the world. The announcement of the acquisition helped Corning’s stock jump around 3% through Wednesday.
See our complete analysis of Corning hereChina’s fiber optic market to grow faster than global average
The demand for fiber optic cables and products is growing due to the rising demand for 3G and 4G connectivity for mobile usage and high speed Internet connections at residences, offices and commercial spaces across the globe. Fiber optic cables have a distinct advantage over traditional copper cables in terms of data transfer speed, which makes them preferable to fulfill the demand for mobile connectivity and high speed Internet.
In China, the government has been pushing to implement its Broadband China plan to universalize broadband Internet in the country and increase penetration, which was around 40% in 2012. The initiative plans to bring Fiber-To-The-Home to more than 250 million users by the end of 2015, compared to 94 million in 2012. The Broadband China plan is focused on providing bundled services, which will include cable television, telecommunications and internet. This will invariably require the use of a fiber optic network since it has higher bandwidth relative to copper cable. To this end, Chinese telecom and broadband companies have been trying to increase their Fiber-To-The-Home subscribers and are working towards improving their networks. This will likely help the Chinese fiber optics market grow at a rate higher than the global average of 5.1% CAGR between 2014 and 2019.
Corning is a leading manufacturer of fiber optic cables with one of its manufacturing facilities in China. The integration of Samsung’s optic fiber facilities in South Korea and China will augment its manufacturing capacity and increase its exposure to the Chinese fiber optics market, making it well positioned to capitalize on the expected growth in the market.
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