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In CES 2014, Corning (GLW) demonstrated world's first antimicrobial Gorilla cover glass for mobile devices. This glass features ionic silver to prevent the growth of algae, mold, mildew, fungi, and bacteria. The company is targeting markets like electronic display panels as well as frequently touched architectural surfaces used in healthcare, hospitality, and transportation industries. This is not the first time that Corning's Gorilla Glass has found a use beyond smartphones and tablets. The company made its Gorilla Glass customized for markerboards, touch-enabled notebooks, and car windows (BMW i8).

During the course of the event, Corning also announced new products featuring Gorilla Glass. First, Gorilla Glass will be featured in MooreCo's new line of markerboards. This a major design win in this market after the company unveiled its plans in September last year to develop Gorilla Glass to address the current problems facing markerboard manufacturers by providing stain-resistant and durable glass for their products.

The second important design announcement was in the touch enabled notebook market with Gorilla Glass NBT being featured in Dell's touch-enabled PC series including the XPS, Inspiron, and Latitude. This glass (Gorilla Glass NBT) is the latest addition to the Gorilla Glass family and is custom designed for protecting the screens of touch- enabled notebooks, which currently accounted for about 11% of laptops sold in 2013. Due to the rising demand for this product, this penetration rate is expected to increase to 40% by 2017, hitting the total shipments mark of more than 60 million units, up from near 20 million units estimated in 2013.

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Source: NPD DisplaySearch

Thus, Gorilla Glass NBT is an important product for targeting the demand for touch-enabled notebooks. Looking at the scratch resistance and durability features of this glass, I believe we will see more designs featuring Gorilla Glass NBT in coming months.

Flexible Display, a next big growth driver

Smartwatch maker Pebble has opted for Gorilla Glass in its new Pebble Steel smartwatch. The wearable devices market is growing at a rapid pace with shipments of wearable technology (including smart glasses, smartwatches, and wearable fitness trackers) expected to reach 64 million in 2017, up from 8.3 million units worldwide in 2012. Big OEMs like Sony (SNE) and Samsung (OTC:SSNLF) have come out with smartwatches already, and other manufactures are also expected to enter the market with products soon.

Corning has gone one step further, targeting the overall flexible display market with its initiative towards commercialization of finished 3D-shaped Gorilla Glass parts in 2014. The company will work with G-Tech Optoelectronics to establish a vertically integrated operation in Taiwan for the aforesaid purpose. Samsung and LG have already released curved display smartphones, and more than half of the top 10 smartphone manufacturers already market devices that incorporate cover glass with subtle curves. Global shipments of flexible displays are expected to cross 792 million units in 2020, up from 3.2 million in 2013. Thus, it is good multibillion opportunity for Corning to add to its Gorilla Glass revenue.

This development can also been seen as an important step towards targeting Apple's (AAPL) upcoming flexible display products. Apple has been amongst Corning's biggest clients, with Gorilla Glass protecting screens of both the iPhone and iPad series. It is rumored that Apple is developing a curved display iPhone, and its first smartwatch iWatch is expected hit the market soon. Looking at Apple's strong relationship with Gorilla Glass, its new curved display devices are expected to feature Gorilla Glass. Apple was among the early adopters of Gorilla Glass in its iPhone, and the company has continued using it in the latest iPhone 5s and 5c, thus squashing all rumors of Apple moving to Sapphire glass.

Overall, Gorilla Glass adoption has surpassed 2 billion devices, and 33 major brands are using this in one at least of its products. I believe Corning's efforts targeting flexible displays is an important strategy for capitalizing on the next big market opportunity in the mobile device market.

Why the display business remains the key to growth

Corning's display technology is the major revenue contributor towards the company's topline, with 32.9% share in the first nine months 2013. Last year, the decline in the liquid crystal display, or LCD, glass price affected the segments revenue. This year, the segment's performance will improve due to some price stabilization witnessed at the end of 2013 along with a rise in average screen size, resulting in increased glass consumption. The surge in demand for large size LCD panels has resulted in a rise in the average TFT LCD area demand, which is expected to grow 9% year over year in 2014.

In addition, Corning's deal to buy out Samsung's 43% stake in Samsung Corning Precision Materials, or SCP, which is one of the leading manufacturers of LCD glass for flat panel displays, will add to the display technology's good performance. Samsung will gain 7.4% ownership in Corning with this transaction, and it signed a 10-year supply agreement with Corning for its products.

Corning's acquisition of Samsung's 43% stake along with the buyout of the remaining 7% stake of other shareholders' minority interests gives Corning a 100% ownership in SCP. This would help Corning strengthen its grip on the LCD glass market, and the transaction would add approximately $2 billion in annual sales, $350 million in incremental profit before special items, and approximately $500 million in additional cash flow to Corning. This acquisition provides Corning with freedom to leverage the state of art manufacturing facility in developing a variety of glass substrates and use this for developing its Gorilla Glass. In addition, this transaction provides a 10-year demand security from Samsung, thus offsetting any cyclical downturn.

For Samsung, this transaction means that its 7.4% stake will make it a major shareholder in Corning, thus it will benefit significantly from Corning's growth. In addition, Samsung can leverage Corning's research and development in cover glass to fulfill its needs, especially in flexible displays.

Conclusion:

Corning is all set to post a strong fiscal year 2014 result with Gorilla Glass continuing to be a major contributor and the Samsung deal proving to be an inflection point for the display business. The company has made an important collaboration for commercializing the production of flexible display, and this will help it capitalize on the surging demand for curved devices. The company has a trailing 12 months P/E of 15.32, while its forward P/E is 12.16, and its PEG ratio (for the five year expected) stands at 0.84. All these strong valuation parameters support my thesis, and I recommend buying this stock.

Source: What Will Drive Corning's Future?