Willow Glass Will Boost Corning’s Earnings and Stock

Anindya is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Higher sales of Gorilla Glass, the market leading cover glass for smartphones and tablets, drove growth in Corning’s (NYSE: GLW) revenues in the fourth quarter of 2012. Revenues increased 14% y-o-y to $2.1 billion, however, profits declined 42% y-o-y to $283 million on restructuring and impairment charges.

Despite the delivery of growth in Gorilla Glass for mobile devices and computers, Corning remains range-bound. Since September 2011, Corning shares traded between around $11.40 and $12.40. In this article I will focus on Corning’s near-term worries as well as new growth drivers, and offer an argument for my bullish stance on the stock. 

iPhone Worries

Apple (NASDAQ: AAPL) reported its much anticipated fourth quarter results a few days ago. While the company saw another record quarter, revenue for the quarter fell short of consensus forecast. In addition, iPhone sales also fell short of expectations, raising worries that the demand for the smartphone is fading. Also, the company's revenue outlook for the current quarter pointed to fading demand for iPhones.

Apple, of course, is a key customer for Corning and rival LG Display (NYSE: LPL), and a weak outlook for the iPhone maker does not augur well for them. Corning's Gorilla Glass is widely used in Apple products. So the weak Apple outlook is a bad news for Corning.

Declining TV Sales

Another area of concern for Corning and LG Display has been declining TV sales. In the third quarter of 2012, sales in Corning's Display Technologies segment, which includes LCD glass business, fell 6% on a y-o-y basis.

In fact, Corning and LG Display have been banking on growth in the smartphone market to offset declining sales in the TV market. However, Apple's disappointing outlook is major concern for both the companies.

South Korea-based LG Display reported its fourth quarter financial results. The company posted a profit of $299 million for the quarter due to mobile product launches during the quarter, including from key customer Apple. For the same period in the previous year, LG Display had posted a loss after it was fined by European Union for price fixing. LG Display's sales for the fourth quarter jumped 32% to 8.74 trillion won.

Although LG Display reported strong fourth quarter results, shares fell sharply post earnings, as the company's outlook disappointed investors. The company's CFO said in a statement that panel shipments in the first quarter of 2013 are expected to register a percentage drop in mid-teens compared with the fourth quarter of 2012 due to seasonal factors.

Corning Pinning Hopes on Gorilla Glass

Gorilla Glass: According to Wendell P. Weeks, the Chairman, CEO, and President of Corning, "Today, Gorilla Glass is featured on 1 billion devices worldwide. It is Corning’s second-most-profitable business and the fastest-growing product in Corning’s history. Our Gorilla Glass business has the potential to more than double in sales over the next several years."

There are three major trends driving this opportunity: 1) Smartphone volume growth expected to double and tablet computers to triple by 2016; 2) Large screen sizes for electronic devices using more cover glass; 3) Touch technology moving to notebook computers, creating an entirely new opportunity.

This year Corning revealed its Gorilla Glass 3 in the International Consumer Electronics Show, CES, in Las Vegas. Gorilla Glass 3 will be even more remarkable and hardy.

Gorilla Glass is changing the face of television. It allows TV manufacturers to create slim LCD TVs with seamless, edge-to-edge fronts that make an elegant addition to any home décor. Sony Corporation (NYSE: SNE) is leading the way by featuring Corning Gorilla Glass on select models of Sony's BRAVIA line of 40-inch and larger televisions. The 0.7 mm cover glass helps further evolve Sony BRAVIA's Monolithic Design, providing viewers with a more sophisticated TV experience. In its smartphone segment, Sony's new Xperia Z uses Gorilla Glass on both the front and the back panels. The 4-inch Xperia J also uses Gorilla Glass.

In the fourth quarter of 2012, Gorilla Glass sales continued to rise and crossed $1 billion in annual sales driven by the increasing adoption of touch screen devices like smartphones, tablets and touch-enabled laptops. In this quarter, sales at the Specialty Materials division, which includes Gorilla Glass, increased 68% y-o-y to $399 million.

Corning’s New Growth Driver: Willow Glass

In 2011, a Corning researcher Terry Ott faced a problem that nobody else had needed to solve in the company’s 160-year history: how to make sheets of glass that could be rolled onto spools.

<img src="/media/images/user_14403/corning_large.png" />

Roll of Glass: A Corning engineer inspects a spooled sheet of flexible Willow Glass

Inventing the glass was an achievement in itself for Corning. Willow Glass, which is one-third as thick as Gorilla Glass, would be a more remarkable breakthrough if Corning could figure out how to manufacture it in large quantities.

Corning finally solved the problem of mass-producing Willow. Corning’s factories typically churn out individual panes of glass that are cut into the sizes needed for displays. Ott would have to devise manufacturing lines that would produce Willow Glass in strips as long as three football fields. This method is more cost-effective than producing individual panes because each cut inevitably wastes glass, but it’s possible only if the glass is thin and flexible enough to roll onto spools.

To get Willow made in continuous sheets, Ott’s team had to figure out the proper rate at which to draw the glass out after it fused, so that the surface quality would be consistent. The process of getting the glass onto rollers also required new equipment and Ott’s team had to develop thin plastic tabs to line the edges of the glass and keep it from touching anything on the rollers, which could create defects in its surface. The tabs are applied to Willow’s edges as the glass is being drawn.

Commercial Success of Willow Glass: A Matter of Time

Now Corning has to help its customers figure out how to bring Willow into their manufacturing lines. Dipak Chowdhury, a Corning vice president, says the first devices that use Willow Glass will appear in 2013. It could be the basis for displays in thinner, lighter cell phones and tablets -- or for entirely new products, like Apple’s upcoming iWatch. With wearable computing on the verge of becoming reality, Willow Glass will definitely be a grand commercial success for Corning.

Corning Willow Glass will enable the industry to pursue high-temperature, continuous “roll-to-roll” processes -- similar to how newsprint is produced -- that have been impossible until now. 

It will support thinner backplanes and color filters for both Organic Light Emitting Diodes (OLED) and Liquid Crystal Displays (LCD) in high performance, portable devices such as smartphones, tablets, and notebook computers. This new, ultra-slim flexible glass will also help develop conformable (curved) displays for immersible viewing or mounting on non-flat surfaces. 

Corning Willow Glass is formulated to perform exceptionally well for electronic components such as touch sensors. Moreover, exploiting its natural hermetic properties, Willow Glass can be used as a seal for OLED displays and other moisture and oxygen sensitive technologies.  

The Verdict

Life Sciences and the Gorilla Glass business are two areas offsetting Corning's weak LCD and solar segments. Corning forecasts its Life Sciences division becoming a $1 billion business. Its Willow Glass division is expected to result in substantial revenue generation going forward. The stock is a long-term “buy”. I would advise accumulating the stock in dips.

Anindya7 has no position in any stocks mentioned. The Motley Fool recommends Apple and Corning. The Motley Fool owns shares of Apple and Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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