Corning‘s (NYSE:GLW) telecommunication business, which consists of optical fiber and cable and related hardware products, is gaining strength on rising Internet connections in developing countries and increasing data traffic in developed countries. Sales in this segment have increased at a compounded annual growth rate of nearly 12% over the last two years, from $1.7 billion in 2010 to $2.1 billion in 2012. 
Looking ahead, we anticipate sales and profits in Corning’s telecommunication segment to continue to grow at strong rates as Internet penetration in developing countries is still very low. This segment constitutes around 6% of Corning’s value according to our estimates.
We currently have a stock price estimate of $14 for Corning, approximately 10% above its current market price.
Corning Is Well Positioned To Benefit From Rising Global Optical Fiber Demand
Optical fibers are preferred as a medium for data transfer over long/short distances as they ensure a low rate of data loss. Thus, a growing number of Internet users, especially in developing countries, and rising Internet traffic in developed countries are forcing telecom carriers and other infrastructure companies to continue to lay optical fiber networks.
Corning’s intellectual property, advanced technology and large scale manufacturing facilities in this domain position it firmly to benefit from this rising demand for optical fiber and cables. Its principal competitors in this industry include Japan-based Furukawa, Fujikura and Sumitomo Electric, and Italy-based Prysmian Group.
Enormous Growth Potential In Developing Regions
According to the International Telecommunications Union around 80% of the population in developed regions of the world had subscribed to either a fixed or mobile broadband connection in 2011, compared to only 13% of the population in developing regions.  Thus, with time as more people from developing regions demand subscription to broadband Internet connection, optical fiber networks in these regions will have to massively expand. Certain developing markets that present a substantial growth opportunity in this regard include China, India and Brazil.
In China, approximately 9.4% of the population are subscribed to a fixed broadband connection. Even though this translates to the largest number of fixed broadband connections (126 million) in the world, there is significant growth potential to be realized. In developed countries, the percentage of population with a fixed broadband connection are much higher – for example 31.7% in Germany, 31.5% in the U.K. and 27.6% in the U.S.  In Brazil and India, the percentage of population with a fixed broadband connection is even lower compared to China.
Corning identifies this opportunity in these key growth markets and has accordingly set up optical fiber manufacturing facilities in China and India. To address the opportunity in Brazil, Corning announced in February 2013 the acquisition of Bargoa S.A., which is a leading telecom connectivity solution provider in the country. Thus, we believe that Corning’s telecommunication sales will continue to grow driven by increasing optical fiber demand from developing regions and Corning’s position in these markets that will allow it to address this demand.
Optical Fiber Sales Could Also Grow In Developed Markets
We also anticipate that sales of optical fibers could grow in developed markets as rising online video traffic, demand from financial sector for ever-faster trading connections and rising data usage on mobile connections (which are linked to land line networks) will force telecom carriers and other players to add to their existing optical fiber network capacities. In addition, in certain developed markets, government policy initiatives are generating significant demand for optical fibers. For instance, in Australia, the government’s plan to link 93% of the population with fiber-to-the-premises (FTTP) network and the remaining with fixed wireless and satellite technologies is adding substantial growth to Corning’s optical fiber sales.Notes:
- Corning’s 2012 10-K, February 13 2013, www.corning.com [↩]
- List of countries by internet broadband subscriptions, March 22 2013, www.wikipedia.com [↩]
- List of countries by fixed broadband subscriptions, March 22 2013, www.wikipedia.com [↩]