Electronics Adapt
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Nam Tai Electronics (NYSE: NTE) recently happily announced its second quarter results for 2012. Net sales increased 62.8% year over year to $205.2 million. Net income increased 213% year over year to $9.4 million. These good results are attributed to a few main factors. The company’s profits improved likely due to a discontinuation of certain production orders that have had low sales and poor performance for the past few years.
Also, during the quarter the company purchased land to expand a manufacturing facility in Wuxi, which will include a research and development center, environmental and safety control center, and plant and warehouse. This facility recently allowed the company to ramp up production of larger quantities of high-resolution liquid crystal display (LCD) modules for tablets this quarter. An expansion will allow them to ramp up production even more. The company is still working with the Shenzhen government on plans to expand their Shenzhen facility. Nam Tai is clearly not a stagnant company. They are making changes that are necessary to keep the company profitable and improving.
As Nam Tai reported a successful quarter, one of their industry peers recently reported a more disappointing quarter. Corning Inc (NYSE: GLW), the leading supplier of glass substrates used in liquid crystal displays (LCDs), reported a profit decrease of 39% year over year alongside a decrease in earnings per share of 36%. The year over year declines are largely due to lagging sales in display technologies, which is responsible for LCD glass. Display technologies is also its largest business segment. Sales in this segment were down 16% year over year. However, overall sales were down just 1% from the first quarter of the year.
Wendell Weeks, Chairman, President, and CEO, said, “We have seen signs that the unsettled global economy impacted some of our businesses in the past quarter…If we see further weakness, we will respond with appropriate actions.” For Nam Tai, LCDs were a successful area in this quarter. The Corning CEO’s statement saying that the company will respond only if they see further weakness is troublesome. At that point any actions taken might be too late. The company should look to peers such as Nam Tai and follow their lead.
Yet another industry peer that has taken action to cement their standing is Flextronics (NASDAQ: FLEX). Recently Goldman Sachs upgraded the stock to a buy from a sell. The company reported a decline in their quarterly profit as PC sales lowered its revenue by 20%. Still, the company managed to surpass Thomson Reuters’ earnings per share estimate for the quarter.
Flextronics produces many electronic components, including chips, power supplies, and LCD displays. In March the company agreed to sell certain assets of its camera-module business to Tessera Technologies for $23 million to focus on its more advanced manufacturing. The company has also recently acquired Stellar Microelectronics to expand its service offering to the aerospace, defense, and medical-manufacturing markets. Shifts into advanced manufacturing and expanding into different market segments shows that Flextronics is able to adapt to continue to grow. Flextronics, like Nam Tai, is a company that is making changes and planning well for the future.
While Nam Tai and Flextronics make necessary changes to keep their companies in line with expectations, Corning appears to be falling behind. Corning is waiting to make the necessary changes until the situation worsens. The company will continue to fall behind its peers that adapt, expand, and grow. Either Nam Tai or Flextronics would be a great addition to any portfolio. Corning, however, shows little promise for the future as it is slow to change. In electronics manufacturing, competition is high, always changing and growing. New companies frequently enter the market threatening to take away market share. To remain competitive companies must continually adapt to their surroundings. Nam Tai and Flextronics appear to do this seamlessly while Corning struggles.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool owns shares of Corning. Motley Fool newsletter services recommend Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
