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The rise of smartphones and tablets has affected most technology companies, benefiting some and annihilating others. A very small number of businesses have been able to offset the negative impacts, by riding the growth in smartphone/tablets. Corning (NYSE:GLW) has successfully evolved itself, in order to counter the negative growth in the Display Technologies segment, which caters to Notebooks/PCs, by driving sales from Specialty Materials. We believe that there will be a huge impact of the Windows 8 on the Specialty Materials and Display Technologies segments, due to its focus on touch technologies and hybrid notebooks. Therefore, investors should look at the Windows 8 as a major catalyst for GLW. Based on our long-term positive outlook on Corning and short Windows 8 catalyst, we are giving a buy rating for GLW.

Corning Incorporated:

Corning Inc is an American-based technology company, primarily involved in manufacturing glass and other ceramics products. GLW has five primary segments, namely, Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials and Life Sciences. The company has shown an ability to innovate and evolve according to changing market demands and needs. The Lotus Glass and Gorilla Glass are Corning's responses to changing market demands and trends. It has successfully evolved into a major player in the new tablet and smartphone industries. The Lotus Glass enables OLED & LCD displays on handheld devices, while Gorilla Glass is becoming a key part of most high-end smartphones. Corning's most recent acquisitions include Mediatech and Mobile Access.

Segment Performance:

The table given below shows the performance of each of the company's five segments. The Display Technologies segment is the largest contributor to the company's revenues. The segment derives its revenues from manufacturing glass substrates for LCD displays, used in laptops, monitors and LCD televisions. Most of the production facilities are located abroad, other than the one in Kentucky. The major competitors in this segment are Asahi Glass, Nippon Electric Glass and Avan Strate Inc. The growth in this segment has slowed down significantly during the last few years. The high growth in 2010 has come down to 4% in 2011. We are expecting a further slowdown in this sector due to a general slowdown in PC sales. Investors should expect this segment to show a negative growth of around 10%-15% for the current year. The launch of Microsoft (NASDAQ:MSFT)'s Windows 8 later this month will benefit Corning immensely, especially its Display Technologies Segment. Depending on the public's response to the Windows 8, we will have to revise our revenue estimates of Display Technology for 2012.

Corning's Telecommunications segment is the second largest contributor to its revenues. This segment showed the most growth in 2011 (21%). We expect the segment to show a steady growth of around 5% for the current year. The Environmental segment is focused on making emission control products, used by manufacturers of emission control systems. The growth in this segment has been healthy (38%) in 2010, and (22%) in 2011. The increase in environmental regulations around the world has increased the demand for emission control products. A combination of quarterly revenue guidance and actual results indicates a low single-digit growth in the environmental technology sector. The Specialty Material segment makes the famous Gorilla Glass, used in high-end smartphones. The segment has shown the most growth, and has been able to offset the slowdown in the Telecommunication and Display Technologies segments. It has shown a phenomenal growth of 25% in 2010, and 86% in 2011. There has been a slowdown in growth, but quarterly results indicate that the segment will be able to achieve growth in the low-20s for the current year. The launch of the Windows 8 makes us very optimistic about this segment. The switching of more than a billion Windows users to touch screens (eventually, if not immediately) will be a big boost to the Specialty Materials segment. There are a number of other players in this segment, but we believe that the Gorilla Glass 2 leads the market in innovation, and will drive up the segment's revenues.

2007

2008

2009

2010

2011

Display Technologies

2613

2724

2426

3011

3145

4%

-11%

24%

4%

Telecommunications

1779

1799

1677

1712

2072

1%

-7%

2%

21%

Environmental Technologies

757

711

590

816

998

-6%

-17%

38%

22%

Specialty Materials

379

372

331

578

1074

-2%

-11%

75%

86%

Life Sciences

305

326

366

508

595

7%

12%

39%

17%

Others

27

16

5

7

6

-41%

-69%

40%

-14%

Total Revenue

5860

5948

5395

6632

7890

2%

-9%

23%

19%

Table: Corning Inc Revenue Break Down

Analyst Views:

A majority of the analysts are giving a buy or strong buy rating to GLW. There are two analysts in the current month with an underperform rating for GLW. This shows that analysts, in general, are optimistic about the company's long-term prospects.

Source: Yahoo Finance

Conclusion:

GLW is trading at a P/E of 9x. We believe that the future prospects of the Specialty Materials and Display Technologies segments warrant much higher valuations. Using average EPS estimates of $1.28, and NASDAQ P/E of 15x, we can establish a price target of $19. Using low and high estimates, we can establish a price range of $18-$24. The stock is trading around $13, and we are seeing an upside of around 40%. We believe, Corning is going to benefit greatly from the Windows 8 launch, and, therefore, a P/E of 15x is justified.

Source: Buy Corning: Windows 8 Will Be A Major Catalyst For The Stock