Analysis Corning (GLW)nov. 28, 2018

Corning is a high tech material science company with nearly 12 bn$ annual revenues. It is focused on glass materials. Corning`s business fields display technologies - the glass cover for computer and TV screens, optical communication - glas fibres for data transport, specialty materials - the glass cover for mobile phones (gorilla glas), environmental technologies - particle filters for automobiles... is high tech. 

A motivation to buy Corning is the growth potential of its high tech businesses of approximatly 5 - 10% /year and an acceptable PE of 15 (2019).  

This is not a recommendation or proposal to do anything. It is my private personal opinion. I`m not independing as I own a position of Corning shares. 

Chances & Risks

The technologies of Corning require a high capital deployment. It seems to cost plenty of capex to build new plants for gorilla glas, glas fibres and particle filters. Corning has assets of 26 bn. $ and a capex of 2 bn$ (2018). On the other hand it has a gross margin of 42% (Q3/18).  Such a capex intensive business has the advantage that if the company makes a good decision at the right time, to have the right product and capacity at the right timing ex. q3/18 it can earn a lot if not ... The high capital employment costs flexibility.

Another risk is that such products like gorilla glas, glas fibres for communication and cover glasses for TV and computer screens are products that chinese state planners might have in mind when they make plans to devolop the chinese economy. Most plants for TV cover glasses are situated in China. It seems possible that China and chinese companies will get access to the technologies and will build up excessive capacities to grab these markets. 

There are 2 substantial innovations from Corning pressing in the market 

-The marketing of the very light, scratch resistant Gorilla glas in the automobile industry. I assume it will find a market in premium and electrical automobiles.

- Its new line of pharmaceutical glass packaging named Valor Glass. Valor Glass, if Corning's scientists are to be believed, "substantially reduces particle contamination, breaks and cracks, while significantly increasing throughput" of prescription drugs in glass packaging. The pharmaceutical market is a very slow market due to certification requirements and FDA approvals. Its main competitors Schott and Gerresheimer are well established. Hence it will requires many years to achieve a significant share of this market. 

It is assumed that these innovations have the potential of making bn$ in additional revenues each and is only partly compensated by a commodization of existing business. 

Some observations 

It seems as the growing gorilla glas business is the most profitable business of GLW. The profitability of the display market is fluctuating. 

The Display glass market is dominated by 3 competitors, Corning 48% share, Asahi 24%, Nippon Electric Glass 23% (1). Actually LCD displays are replaced by OLED displays. A new market are Samsung foldable OLED. These displays use Polyimide material instead of glass!  

Some Data

Number of shares: 622,808,502

Q3 GAAP Net Sales $ 3,008; GAAP Net Income $ 625 mio; GAAP EPS $ 0.67 $, gross margin 42%

2018 CapEx is $2 billion with expenditures in each of the five market access platforms.

Quarterly Dividends of 0.18$ each. 

Total Assets: 26.3 bn$ = 42$/share

Some references

(1) 2018/11/28




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