Trends Driving Corning’s Display Technologies Segment

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Corning’s (NYSE:GLW) Display Technologies segment accounts for 40% of the company’s revenues and is a high margin business. It manufactures specialized glass panels for displays used in consumer electronics such as TVs, PC monitors, mobiles and tablets. In 2014, most of the growth in the segment came from the consolidation of Corning Precision Materials. Now that the cycling of previous year’s acquisition-based growth has come to an end, we take a look at the trends that could help Corning’s Display Technologies grow in the next couple of years.

See our complete analysis of Corning here

Demand For Glass To Grow On Larger Displays

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Nowadays, consumers prefer large displays on electronic devices, such as TVs and smartphones, This is evident from the fact that the average size of LCD TV shipments have increased to 39” in 2014, more than 1.5” larger than the year before. [1] A similar trend has been seen in smartphones as well, where the average screen size has increased from 3.5 inches to 5.2 inches in the past couple of years. [2] The shift towards larger screen sizes is primarily due to the greater viewing pleasure.

The demand for large screen LCD TVs is likely to continue in the future driven by new technologies such as Ultra HD, 4K and 8K, which provide enhanced viewing pleasure on large screen sizes. Also, with the consistently declining prices, consumers do not have to worry about affordability of large screen TVs. Narrower bezels in LCD TVs allow for large screens while maintaining the overall size of the device, thereby eliminating concerns over the extra space required for a large screen TV, which earlier may have hindered purchases.

Smartphones sizes are also likely to grow due to similar factors. IDC expects 32% of smartphones to have a screen size of 5.5-7.0 inches by 2019, compared to only 12% in 2014. [3] IHS DisplaySearch forecasts the total area demand for displays in devices such as LCD TVs, mobile phones, notebooks, tablets and automotives to grow at a compound annual growth rate (CAGR) of 5% from 2012, reaching 223.6 million square meters in 2020. [4] With an increase in glass area demand, Corning’s glass sales volume can also grow.

Replacement Demand To Bolster Glass Volume

Corning’s Display Technologies segment could see an increase in volumes not only because of increase in screen size but also because of the growing adoption of LCD TVs and replacement of Plasma and CRT TVs. Sales of Plasma and CRT TVs have been declining due to cost competitive LCDs. Plasma and CRT TVs are expected to disappear soon from the market, giving way to LCD TVs. [5] OLED TVs may offer some competition to LCD TVs, but they are expected to account for just 1% of overall TV shipments through 2017 due to their higher prices. Emerging markets such as India are expected to fuel the demand for LCD TVs as these regions continue shift from traditional CRT TVs to LCD TVs. In 2012, 47% of Total TV shipments to India were LCDs, but by 2015, this is likely to rise to 97%. [6] The shift to larger sizes will likely lead to strong demand for 4K LCD TVs, which are expected to grow more than 50%, reaching more than 32 million units in 2015. [2]

Margin Improvements On Thinner Display Glass, CPM Assets

Manufacturers tend to use thinner and lighter glass to fulfill consumer demand for lighter and thinner devices. This bodes well for Corning since its Display Technologies’ costs are roughly correlated to glass thickness. Since thin displays require lower volumes of raw material compared to thicker displays, higher production of thin glass should help reduce costs and improve margins. Corning has already proven its capability in manufacturing thin and high quality display glass. In June 2012, Corning launched Willow glass, a flexible glass which is 8% thinner than a dollar bill.

Separately, we believe that a significant part of continued margin improvement will come from Corning Precision Materials’ (CPM) assets in Korea. Corning claims that these assets are one of the most efficient assets in the world. This is fairly evident from the fact that Corning has consistently revised upwards its expected synergies from the acquisition. At its 2015 investor conference, Corning revised its synergies estimate to $630 million, compared to its earliest estimates of $460 million. [7] These cost savings combined with reduced production costs for thin glass will together lead to improvement in Corning’s Display Technologies’ margins.

Iris Adds New Revenue Stream

On January 6, Corning unveiled the Corning Iris Glass, a substrate that allows for thinner displays on LCD TVs. [8] Corning claims that the substrate can be used to make LCD TVs “as thin as a smartphone”. This is possible due to the stiffness, low thermal expansion and higher light distribution capability of the Iris Glass, which does away with the need for extra structural components and wider bezels, making it a superior alternative to plastic light-guide plates popularly used in LCD TVs. These plastic light guide plates require extra structural components, which make LCD TVs bulky and heavy.

At a recent conference, Corning said that the Iris glass will carry a premium pricing. [9] Though the premium pricing should help Display Technologies revenues and margins, any substantial impact will come only if Iris is widely adopted. For the time being, Iris is likely to be limited to large screen premium LCD TVs.

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Notes:
  1. LCD TV Shipment Forecast Revised Upward on Strong Consumer Demand for Larger Sizes, December 31, 2014, www.displaysearch.com []
  2. 5 ways the smartphone is conquering the tablet, February 5, 2015, www.pcworld.com [] []
  3. As Tablets Slow and PCs Face Ongoing Challenges, Smartphones Grab an Ever-Larger Share of the Smart Connected Device Market Through 2019, According to IDC, March 20, 2015, www.idc.com []
  4. Flat Panel Display Area Demand Growing Rapidly, According to HIS, January 29, 2015, www.displaysearch.com []
  5. LCD TV Growth Improving, As Plasma and CRT TV Disappear, According to NPD DisplaySearch , April 16, 2014, www.displaysearch.com []
  6. LCD Will Be the Sole TV Technology in India by 2016, According to NPD DisplaySearch, April 29, 2014, www.displaysearch.com []
  7. Wendell Weeks’ Presentation At Corning Investor Meeting 2015, February 6, 2015, www.corning.com []
  8. Corning Unveils Latest Display Innovation at CES 2015, January 6, 2015, www.corning.com []
  9. Morgan Stanley Technology, Media & Telecom Conference, March 3, 2015, www.corning.com []