By Ishtiaq Ahmed
Corning (GLW) stock has been flat for most parts of the year. The stock was trading around $12 at the start of the year and closed at $13.56 on October 16. The reason behind the flat price of the stock has been the fear of declining revenues in the key segment of the company. At the moment, the company faces declining revenues from the display devices segment. However, if I had to define Corning in one word; it will be reinvention. For decades, Corning has been able to reinvent itself and remain a key player in the markets it operates.
A key component to the success of the company is its culture. Corning is a large company (over 29,000 employees), which operates like a small one. Most of the old timers are still around and have spent their lives working for the company. The employees at Corning feel a certain affiliation and affection for the company, and the work they do. Management at corning follows a democratic style of leadership with emphasis on Kaizan, the continuous improvement philosophy.
Corning spends almost 10% of its revenues on research and development. Along with a dedicated set of scientists, the company has ample cash reserves and resources to continue its research. However, before we look at some new ideas and opportunities, let's look at the challenges faced by the company.
At the moment, the biggest challenge faced by Corning is declining revenues from its display devices segment. At the end of 2011, this segment accounted for 40% of the total revenues. However, after the first six months of 2012, the display devices segment revenue stood at about 35%. The main reason for the decline in revenues is the oversupply in the LCD screens market. At present, big screen manufacturers face declining revenues due to falling prices. As a result, Corning is suffering as the biggest supplier of the market.
It is vital to note, that a small number of customers account for a substantial portion of Corning sales. Ten largest customers of the company account for almost 51% of total sales. Out of these ten customers, four account for almost 77% of the total display technologies segment. These factors are extremely important to consider, as the lack of diversification in the customers can expose the company to decline in its biggest segment.
Is the death of LCD near?
Everyone I know seems to be of the view that LCD era is near to its end. However, I believe we are not there yet. It is true that the industry is showing signs of maturity, but that is only true for the developed world. Global LCD TV demand is expected to grow by 7% during 2012. Although, developed markets experienced a decline of almost 5% during the past year, developing world continues to show incredible growth potential. Emerging markets grew by 34% in 2011, Brazil being the biggest contributor thanks to the aggressive marketing campaign by the manufacturers. LCD manufacturers can exploit the opportunities in the emerging markets and reap impressive revenues. Further, investment by the LCD manufacturers in research and development to enhance the user experience suggests that these companies still see potential in the market.
Future Prospects and Ideas:
Corning's newest product is the ultrathin flexible glass called, Willow Glass. Willow Glass performs remarkably well with touch sensors. It will prove to be a natural combination with the curved smart phone designs. Additionally, the glass could be used in lighting and flexible solar cells. Furthermore, the glass may be used to make e-books into a physical manifestation.
The company has sent samples to select customers. Willow Glass could very well transform the shape of TVs, smart phones, tablets and other consumer electronic devices. Ultimately, it could substitute Gorilla Glass, which is at present used on many such devices. In addition, the company is developing a high-tech glass, which is capable of killing bacteria and viruses. This new innovation will surely increase revenues from Corning's life sciences segment.
Tablets and smart phones have changed the way people live their lives. I believe the growth in smart phone and tablets market will drive the growth for Corning. It is true that the company faces decreasing revenue from LCDs due to the maturing industry. However, the growth in the smart phones and tablets will make up for the shortfall in LCDs segment. Smart phones and tablets market is expected to grow exponentially. By 2016, the market will almost double.
In addition, the company is working on promising products, which can generate substantial revenues once the products hit the market. At the moment, the stock is trading at a P/E of 9 and P/B ratio of 0.9 along with a dividend yield of 2.29%. Investors investing at these prices will essentially get future growth for free. I remain confident that the company will be able to achieve substantial growth and GLW will prove to be a shrewd long term investment.
Disclaimer: EfsInvestment is a team of analysts. This article was written by Ishtiaq Ahmed, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.