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Investment Overview for Corning (NYSE:GLW)
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Below are key drivers of Corning's divisions that present opportunities for upside or downside to the current the current Trefis price estimate for Corning:
Samsung Corning Precision
- Corning LCD Market Share: Corning's LCD market share increased overall from 2.96% in 2008 to 3.17% in 2012. We currently anticipate its market share to decline in the near-term and then increase marginally over the remainder of the Trefis forecast period to reach 3.11% by its end.
If however, Corning's LCD market share rises to 5% due to benefits from increased capital spending and higher-than-expected uptake of its LCD panels then this could provide a potential upside of around 4% to the ${trefisprice}.
- Average LCD Price per Shipment: Average LCD price per shipment decreased from $57.82 in 2008 to $37.73 in 2012 due to severe competition and higher supply driven by rising manufacturing capacity. We currently anticipate LCD prices to continue to decline in the near term and then stabilize around $36.68 by the end of the Trefis forecast period.
If however, the average LCD prices continue to decline at high rates throughout the forecast period to reach $26 then there could be a potential downside of nearly 5% to the ${trefisprice}.
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Corning is a global, technology company that manufactures and processes products at approximately 60 plants in 14 countries.
Corning makes money primarily through its joint ventures - Samsung Corning (which manufactures glass substrates for active matrix liquid crystal displays (LCDs)that is primarily used in notebook computers, flat panel desktop monitors, and LCD televisions) and Dow Corning (which manufactures silicone products worldwide). Corning manufactures many other products across different segments that include display technologies, environmental technologies, life sciences, telecommunications and specialty materials. Corning also manufactures Gorilla Glass, which is used in many products such as the iPhone4.
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We believe that Samsung Corning is the most valuable division because:
High demand from LCD panel makers located in South Korea
Samsung Corning offers glass substrates for active matrix liquid crystal displays (LCDs)which is primarily used in notebook computers, flat panel desktop monitors and LCD televisions to customers in South Korea. In spite of the concentrated customer base with two LCD panel makers located in South Korea accounting for approximately 93% of total Samsung Corning Precision sales, revenues are large because of the high demand from these customers.
In comparison, Corning's display technologies division, which offers its products to LCD panel makers in other markets also has a concentrated customer base, but its revenues are only around 60% of that of Samsung Corning.
Higher gross margins
Samsung Corning's gross margins are also much higher than that of Corning's core divisions. In addition R&D expenditures for Samsung Corning are much lower than for Corning because Corning has agreed to provide research and development services at arms length to Corsam, a 50-50 joint venture of Corning and Samsung Corning Precision.
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Average LCD Price per Shipment declining
Glass manufacturing is a commoditized business where prices are determined solely by factors of supply and demand. Innovations in LCD technology and manufacturing over capacity are putting downward pressure on LCD prices. Sustained innovation in the field of technology has tended to drive down LCD prices in the long term. Larger than expected demand from emerging markets could push up the unit prices of LCD glass if current capacity is not expanded.
Consumer demand for LCD from emerging markets expected to accelerate
Notebook, tablet PC and LCD television penetration remains low in most emerging markets and developing nations. We expect this demand to increase and subsequently increase the total number of LCD panels shipped consistently.
High replacement rate for LCD in developed markets driving demand
The replacement rate for tablets, notebook PC's and LCD televisions remains high in developed markets. This is expected to create demand for LCD panels and hence increase the total number of shipments.
Increasing raw material costs
Lately commodity prices including prices of precious metals and minerals have remained stubbornly high. Forecasts have shown that these prices are expected to remain bullish in the near and medium term. Corning requires a variety of metals and minerals for the manufacture of LCD glass hence rising prices could crimp margins going forward.
Limited sourcing for certain key materials
Certain key materials and proprietary equipment used in the manufacturing of products are currently sole sourced or available only from a limited number of suppliers. Any future difficulty in obtaining sufficient and timely delivery of components could result in lost sales due to delays or reductions in product shipments.
Investment in new technologies for maintaining competitive advantage
Corning believes it has sustained its competitive advantages in LCD glass substrate products by investing in new technologies. To maintain its competitive advantage Corning is expected to continue investing in new technologies.
Trefis Forecast Rationale for Equity in Earnings of Affiliates
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Equity in Earnings of Affiliates denotes Corning's earnings from its equity stake in Dow Corning and in other affiliates except Samsung Corning. Corning and The Dow Chemical each own half of Dow Corning, which has historically constituted 82-92% of the equity earnings of Corning's affiliates.
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Equity in Earnings from Dow Corning and other affiliates increased overall from $387 million in 2007 to $440 million in 2011, with minor fluctuations in between.
In 2012, it declined sharply to $111 million due to a decline in demand for polysilicons from the solar industry.
Going forward we expect ${forecast} to decline in the short term due to price declines of silicone products.
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Trefis considered the following factors for its forecast
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- Price decline of silicone products
- Prices for raw materials needed to manufacture silicone products have been rising. And, prices for the manufactured silicone products have been declining. This dual effect will largely drive decline in top line at Dow Corning and impact Corning's share of earnings from the same as well.
- Over capacity in solar industry in the short-term
- Dow Corning is also the majority owner of Hemlock Semiconductor, a market leader in the production of high purity polycrystalline for the semiconductor and solar energy industries.
- Recently, declines in governmental subsidies in the solar panel industry and over-capacity at all levels of the solar supply chain led to significant declines in polycrystalline silicon prices at Hemlock. This led to decline in earnings at Dow Corning.
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- Manufacturing presence throughout the world hedges risk
- Dow Corning has manufacturing facilities across the world with centers in Belgium, Brazil, China, France, Germany, Japan, South Korea and the United Kingdom. The U.S plants are located in Kentucky and Michigan. This geographical diversification distributes geo-political risk, thus ensuring that the production capabilities of Dow Corning are not hampered. This will ensure a steady flow of income for Corning from Dow Corning.
- Thrust on innovation and customer diversification
- Dow Corning has been engaged in a continuous program of basic and applied research on silicon-based materials to develop new products and processes. This will help it to improve and refine existing products and processes, apart from developing new applications for existing products.
- The company manufactures over 7,000 products and serves approximately 25,000 customers worldwide, with no single customer accounting for more than five percent of the company’s sales in any of the past three years. This product and customer diversification ensures a steady revenue for Dow Corning and subsequently a steady income source for Corning.
- Solar panel and cell manufacturing to propel further growth
- Although the semiconductor market has matured over the years, solar energy remains a lucrative and high growth market with tremendous growth potential.
- With a focus on clean energy, investments in solar power have multiplied manifold over the last 5 years. Most governments have started providing tax subsidies and holidays for the manufacture and installation of solar panels. Corning's know how in polycrystalline manufacturing will take advantage of this phenomena and drive growth over the long-term.
- Bankruptcy charges to affect margins
- Dow Corning emerged from Chapter 11 bankruptcy in 2004 and has certain obligations under its Plan of Reorganization to resolve and fund claims of its creditors and personal injury claimants. Dow Corning may incur further bankruptcy charges in the future which may adversely affect its operations or assets, thereby impacting profit margins.
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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