A Foolish Outlook on Corning
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On Tuesday, shares of technology company Corning (NYSE: GLW) traded higher by nearly 4%, fueled by an overall market rally and the news that Corning's optical fiber network supports the transport of data over distances of more than 600km.
In the early morning hours of Tuesday, ADVA Optical Networking announced that its 100G Metro can transport data across long distances. Corning's optical technology supported this solution, and several service providers and enterprises may want to deploy 100G over longer distances in regional networks. Corning shares have been under pressure over the last five years as LCD TV sales cooled off, rapidly diminishing the need for Corning's glass. But as this new market for its optical fiber develops, it does appear as though Corning may be Foolishly cheap.
A Cautious Look at Corning
Back on Sept. 25, 2011, I took my first look at Corning and determined that is was incredibly cheap. The stock has since returned gains of only 15%, underperforming the market. Some investors have argued that the company has regressed, as LCD sales have not increased and total sales have been relatively flat.
The key issue moving forward remains Display Technologies, its largest segment. This particular segment saw a 16% year-over-year decline during its most recent quarter. However, the company did mention that the prices were declining at a more moderate pace, despite decelerating growth in Europe and China. The company is also failing to produce the same level of growth from its smaller segments as in previous years. The good news regarding these issues is that all have been priced into the stock, and future growth, or lack thereof, should reflect as stock performance.
Short-Term Catalyst for Growth
Looking ahead, there are several short-term catalysts for the Display Technologies segment, including the launch of Microsoft’s (NASDAQ: MSFT) Windows 8. Microsoft needs its new Windows system to appeal to both desktop and tablet users. And the company must account for the rapid transition to touchscreens, which could play a role in growing the Display segment of Corning if Microsoft is successful.
Apple (NASDAQ: AAPL) may be one of Corning’s most significant drivers of immediate growth. Corning’s earnings slipped during its most recent quarter in part thanks to slower smartphone sales. Corning is part of the large Apple network, as the manufacturer and supplier of glass for most smartphones and tablets. Analysts are expecting anywhere from 35 million-40 million iPhones in the next several months, and with the new “iPad mini” expected to be announced next week Corning could see a nice bump pending a successful launch.
A Fool’s Outlook
Part of Corning’s history has been transitional periods, where it shifts from one demand to the other. Sure, this latest transition from LCD to smartphones hasn’t been as smooth, but as I’ve already discussed, the company remains well-positioned for growth in emerging segments. Other than smartphones, the company’s news on Tuesday was encouraging, as its Telecommunications segment grew by a disappointing 2% year over year during its most recent quarter. The ADVA Optical news insinuates upside in this particular segment, which will be a key driver of future growth. Therefore, considering its valuation and immediate catalysts I do think that Corning could see a nice rally in the weeks and months that lie ahead.
BrianNichols owns shares of Apple. The Motley Fool owns shares of Apple, Corning, and Microsoft. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.