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Investment Overview for Corning (NYSE:GLW)
Below are key drivers of Corning's divisions that present opportunities for upside or downside to the current Trefis price estimate for Corning:
- Corning LCD Market Share: Corning's LCD market share has fluctuated in recent years due to competitive pressure and acquisition of additional stake, and stood at 4.02% in 2015. Going forward, we expect the figure to increase marginally. If however, Corning's LCD market share rises to 6.0% due potential manufacturing cost advantage in a period of declining prices and better uptake of its LCD panels, it could lead to a potential upside of around 10% to our price estimate.
- Average LCD Price per Shipment: Average LCD price per shipment decreased from $57.82 in 2008 to $30.5 in 2015 due to severe competition and higher supply driven by rising manufacturing capacity. We this trend to continue, albeit at a lower rate and forecast LCD prices to decline around $25 by the end of our forecast period. However, if the price pressure remains intense and the average pricing falls to $20, there can be a downside of 5% to our price estimate.
Corning is a global technology company that manufactures and processes a variety of products at approximately 60 plants in 14 countries. It makes money primarily through its joint ventures Samsung Corning and Dow Corning. Samsung Corning manufactures glass substrates for active matrix liquid crystal displays (LCDs) which are primarily used in notebook computers, flat panel desktop monitors and LCD televisions. Dow Corning which manufactures silicone products. Corning's other business segments include environmental technologies, life sciences, and telecommunications.
The display technologies business is the largest contributor to Corning's value.
Corning's expertise in glass substrate manufacturing
Corning's Display Technologies segment accounts for nearly 40% of the company's revenue and close to 50% of its EBITDA. Its proprietary fusion-based process produces high quality glass substrates which are highly uniform, clean, light-weight and thin, which are important qualities required for manufacturing LCD screens. The process enables Corning to produce large sized substrates in a cost effective manner.
Innovative products help maintain market leadership
Corning continually invests in R&D to develop innovative products to cater to demands of LCD panel manufacturers. Corning recently launched Iris glass, which could help replace light guide plates in LCD TVs and make them slimmer and lighter. It also launched a new project named Phire, its latest version of Gorilla Glass, which is more scratch resistant than a sapphire-based cover glass and stronger than Gorilla Glass 4.
100% ownership of Samsung Corning Precision complements Corning's display business
Samsung Corning Precision (SCP) offers glass substrates for active matrix liquid crystal displays (LCD). As Corning has acquired 100% stake, it could leverage its marketing and distribution reach to expand the business outside South Korea. Corning could also use excess capacity at SCP to manufacture other products such as Gorilla Glass. At its 2015 investor conference, Corning revised its synergies estimate upward from the SCP acquisition to $630 million.
LCD prices are 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. However, strong demand from emerging markets could put brakes on price decline if the current capacity is not expanded.
Growth in consumer demand for LCD in emerging markets
Notebook, tablet PC and LCD television penetration remains low in most emerging markets and developing nations. We expect this demand to increase and drive the growth in global LCD shipments.
Demand for large sized displays
Consumers prefer larger displays on their TVs, notebooks, tablets and mobile phones because of the enhanced viewing pleasure. This may drive an increase in demand for LCD glass and thereby increase shipments. The demand for large screen LCD TVs is also likely to be driven by new technologies such as Ultra HD, 4K and 8K, which provide enhanced viewing pleasure on large screen sizes.
High replacement rate for LCD in developed markets
The replacement rate for tablets, notebook PCs 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.
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. This is likely to continue and could keep costs high.
Stringent emission standards drive demand for better filters
To ensure compliance with emission standards, automobile manufacturers resort to the use of emission control systems. As these standards get even stricter, automobile manufacturers have to upgrade to newer and effective emission control systems in order to remain compliant. This has a positive impact on the automotive exhaust systems market, which includes manufacturers of automotive substrates and filters.
How 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.
See more on: DCF Methodology
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