Corning’s $15.50 Fair Value: Consumer Electronics And Network Bandwidth Demand Drive Growth

by Trefis Team
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Corning (NYSE:GLW) is a leader in glass and ceramic components that enable systems like consumer electronics, telecommunications and emissions control in automobiles. The company maintains leadership positions in all its major businesses through active research and development, and here we identify the key trends that will drive its future growth.

We currently have a stock price estimate of $15.50 for Corning, around 5% ahead of its current market price.

See our complete analysis of Corning here

Rising Demand For High Performance Displays

Consumers today are demanding higher resolution televisions and monitors for a better viewing experience. This is pushing manufacturers like Samsung, Toshiba and Sony to introduce more pixels on their liquid crystal display (LCD) and organic light-emitting diode (OLED) screens. However, a key condition in adding more pixels to the display screen is that manufacturing should take place at higher temperatures. Corning’s Lotus XT display glass substrate allows precisely this and thus enables manufacture of higher resolution displays, also called as high performance displays. Corning figures that driven by consumer demand for a more life-like viewing experience, this market for high performance displays will grow at 47% annually over the next few years. [1] This will likely drive strong growth in sales volume of the company’s Lotus XT display glass substrate.

Additionally, over the past couple of years, the display glass business of Corning, which constituted 36% of its $8 billion revenues last year was impacted by severe price declines driven by excess industry manufacturing capacity. [2] However, the moderate price declines seen in the past couple of quarters indicate that a lot of this industry overcapacity has been addressed through disciplined capacity addition from manufacturers and increased demand for televisions, monitors, notebooks, tablets and smartphones that employ LCD and OLED display screens. For the next few years, Corning plans to not add any significant display glass manufacturing capacity which will further aid price stabilization.

Proliferation Of Touch On Consumer Electronics

Another trend that is driving growth at Corning is the rising penetration of touch on consumer electronics. Touch enabled display screens in smartphones, tablets and other devices require protection from scratches and other damages during everyday use. Corning’s Gorilla Glass fulfills this essential requirement and thus features as a cover glass on many touchscreen smartphones and tablets today. It crossed $1 billion in sales last year – merely five years after launch in 2007. We figure that driven by the rising unit sales of smartphones and tablets coupled with their growing screen sizes, sales of Gorilla Glass will continue to grow.

Additionally, the emerging trend of touch on notebooks is opening a new market for Gorilla Glass. Earlier this year in July, Corning launched a special version of Gorilla Glass – Gorilla Glass NBT – for notebooks. This cover glass provides 8-10 greater scratch resistance for touch enabled notebooks than conventional soda-lime glass. Propelled by the many advantages of this cover glass, Dell recently announced to introduce Gorilla Glass NBT on its touch enabled notebooks. If these new notebooks gain wide acceptance then other manufacturers will likely adopt Gorilla Glass NBT on their touch notebooks promoting sales of this market leading cover glass. Corning anticipates that sales of Gorilla Glass can double from its current level in the long-term driven by these trends.

Gorilla Glass is a part of Corning’s Specialty Materials segment, which constituted nearly 17% of its revenues in 2012.

Need To Expand Network Bandwidth

Apart from glass, some of Corning’s other businesses, notably telecommunications is also poised for long term growth. Last year, sales of optical fibers, cables and other telecom hardware constituted roughly 27% of the company’s top line. [2] In this industry, the demand to add network bandwidth driven by greater data access from a growing number of connected devices worldwide is expected to drive sales of Corning’s optical fibers. According to industry figures cited by the company at a recent conference, global online data is doubling every two years which will raise the number of servers in use in the next decade by 10 times. At the same time, Internet traffic is expected to quadruple by 2016 with more than 19 billion connected devices. ((Corning’s presentation at Citi 2013 global technology conference, September 4 2013, www.corning.com)) This massive growth in data creation, storage and access will require higher network capacities. Corning with its many optical fiber network solutions is well positioned to take advantage of this demand.

Separately, Corning is hopeful that new applications of its innovative products, like usage of Gorilla Glass as markerboard and Willow Glass, which can bend, will add to the growth from its existing product applications. If the company is able to add breakthrough applications to its existing product applications then our price estimate for Corning will likely rise.

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Notes:
  1. Corning’s presentation at Citi 2013 global technology conference, September 4 2013, www.corning.com []
  2. Corning’s 2012 10-K, February 13 2013, www.corning.com [] []
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