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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 Samsung Corning LCD Market Share
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${forecast} represents Samsung Cornings net sales as a percentage of global LCD Market sales.
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${forecast} decreased from 3.1% in 2006 to 2.2% in 2007 as Samsung Corning's net sales growth was unable to match the pace of growth in global LCD sales. Thereafter it continued increasing in 2008 and 2009. In 2010, it decreased slightly and stood at 5.7%.
We forecast that ${forecast} will continue declining gradually over our forecast horizon.
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Trefis considered the following factors in its forecast:
Supporting
- Increased competition will hurt prospects of sales growth
- Asahi Glass, Nippon Electric Glass and Avan Strate, Inc. (formerly NH Techno) are Corning’s principal competitors in display glass substrates.
- We forecast that competition will become increasingly intense over our forecast horizon, thus limiting growth in ${forecast}.
- Concentration of clients will hurt prospects of sales growth
- Samsung Corning forecasts that worldwide demand for LCD glass in 2011 will increase from 3.15 billion square feet to approximately 3.6 to 3.8 billion square feet when compared to 2010. This will be driven by continued strength in demand for LCD televisions, computer notebooks, and desktop monitors.
- We believe that Samsung Corning's concentration of clients will limit its ability to match the growth in global LCD sales. Samsung Corning Precision’s sales are concentrated across a small number of its customers. In 2010 and 2009, sales to two LCD panel makers located in Korea accounted for approximately 93% of Samsung Corning Precision sales in each of those two years.
- This concentration of clients also makes Samsung Corning highly susceptible to competition.
Mitigating
- Opportunity to diversify client base can help expand market share
- We believe that if Samsung Corning is able to better diversify its client base by acquiring new customers, it will have the opportunity to expand its market share.
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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