The Long Cases For ARM Holdings And Corning

by: Richard Saintvilus

Technology is not dead, it's just changing. The death of techs have been spoken about for quite some time due to the languishing stock action of former high-flyers such as Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO) and Intel (NASDAQ:INTC). But the truth is, if you closed your eyes over the past 12 months you probably missed two of the most significant changes that are currently taking place.

The market has an insatiable appetite for growth. Because of this, trends move rapidly as investors are quick to gravitate toward only companies that are producing growth in the double digits - this is why firms such as Apple (NASDAQ:AAPL) continue to serve as anchors of the entire market. On the flip-side, it has caused the aforementioned Microsofts and Ciscos of the world to take a backseat when it comes to growth outlooks. But it is not because tech is dead, but because it is doing precisely what we love about it and that is evolving.

Two of the companies that will capitalize on this evolution are ARM Holdings (NASDAQ:ARMH) and Corning (NYSE:GLW) - two lesser known names that are now ready to explode onto the scene. The trend to which I am referring involves the explosion of smart phone and tablet computing. According to analysts at IDC, tablet sales will be equivalent to 15% of the PC market this year. Researchers at Gartner predict that more than 320 million tablets will be sold annually by 2015. Smart phones have already overtaken traditional cell phones in many developed markets and British bank Barclays estimates that global smart phone sales will grow by 43% in 2012.

Forty-three percent growth in any industry is hard to ignore. I've recently discussed how to play the cloud and offered a few companies that I think are well positioned for its inevitable explosion. While neither Corning nor ARM may generate much excitement at the moment, they do stand to benefit a great deal for being part suppliers and chip makers of a growing industry.

If you have not yet heard of the term "Gorilla Glass" both value and opportunistic investors should immediately look it up. The glass has been described as visually stunning, lightweight and highly damage-resistant and has changed the way the world thinks about glass. It helps protect smart phones, tablets, PCs and TVs from everyday wear and tear. This is all according to its website and there is plenty of evidence to suggest that the description is factual. So the question becomes, why is the stock sitting only percentages away from its 52-week low?

Corning has taken a beating from investors over the past several months. Since reaching its 52-week high of $23.43 in March, the stock has lost a remarkable 42% of its value and currently sits at $13.77. The beating was a result of the company having slashed its near term outlook for its glass products. But considering the recent forecast by Barclays of a 43% smart phone and tablet increase in 2012, it stands to reason that Corning is poised to benefit should this growth be realized.

It also helps to learn that Amazon's is using Gorilla Glass in its new Fire tablet and the glass type is quickly becoming the standard screen. Similarly, LG Display (NYSE:LPL) is seeing continued success from its relationship with Apple.

ARM Holdings is another firm that will likely surge in 2012 on the explosive growth of smart phones and tablets. The company has come out of nowhere to give Intel a run for its money. Though the company has been around for quite some time, it has been relatively unknown until Apple regained its prominence and the smart phone game was in full mode. But it wasn't until Microsoft announced that it will build its next generation of Windows with chips using ARM's technology that its name really took off. You can draw your own conclusions as to why Microsoft opted for ARM instead of Intel, but clearly it was a positive for ARM and was only the beginning.

The company then went on to forge relationships with Qualcomm (NASDAQ:QCOM), Nokia (NYSE:NOK), Texas Instruments (NYSE:TXN) as well as Nvidia (NASDAQ:NVDA). Given that ARM already owns 75% of the mobile processing market, further tablet and smart phone proliferation will generate instant growth for the semiconductor maker.


As the use of mobile devices continues to surge, finding winners within the sector will prove more challenging than investors expect. One of the safest ways to play the growth will be to consider the parts suppliers. I have to think that both ARM Holdings as well as Corning will prove to be two of the best bets going into 2012.

Disclosure: I am long CSCO, MSFT, TXN.

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