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Corning Incorporated (GLW): The Supplier Driving Apple Inc. (AAPL)’s Next Round of Growth

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Today’s New York Times features a story that sheds more light on the latest Apple Inc. (NASDAQ:AAPL) product rumor quickly building up steam: the company’s attempts to build a wearable watch powered by iOS.

The problem with the report is that while it offers confirmation that Apple is exploring a wristwatch-like device from the much-quoted “people familiar with the situation,” it’s short on details about how such a device would function. Instead, most of the attention is placed on the Apple supplier whose breakthrough technology could be the enabler behind Apple’s efforts. Let’s look at Apple supplier Corning Incorporated (NYSE:GLW)‘s new technology, and what it could mean for both the company and Apple itself.

Apple Inc. (NASDAQ:AAPL)A new wave in glass technology
Corning is a conglomerate, but it has seen most of its profits shift to its LCD glass division. The company’s name might be familiar to Apple investors thanks to one major product: Gorilla Glass, a thin cover glass whose specialty is damage resistance. It has been widely adopted across the entire mobile industry, including by Apple.

Gorilla Glass has been a breakthrough product for Corning. In the company’s third-quarter conference call, Corning revealed that more than 1 billion devices have been shipped with the glass across 500 different products.

Many investors saw the success of Gorilla Glass and used it as a reason to invest in Corning. On the surface, that’s a reasonable investment thesis. There were 700 million smartphones shipped last year, and tablet growth is starting to explode. It’ll move from about 120 million units last year toward an expected 280 million-plus over the next four years. Corning holds a central placement as a killer technology in mobile devices. As mobile grows, it would seem Corning’s future is destined to grow along with it.

Yet the problem is that glass technology pricing is driven by volume, and smartphones and tablets have significantly less screen volume than other devices like televisions. A 4-inch smartphone screen isn’t one-tenth the size of a 40-inch TV screen. TV measurements are marketed by their diagonal width, which obscures the difference in screen volume a few diagonal inches can add. For example, a 40-inch television has 9,900% more screen volume than a 4-inch smartphone. Its screen area is about 684 inches (about 35-by-20), while an iPhone 5’s area is closer to 7 inches (about 3.5-by-2).

The end result is that while Corning is seeing blockbuster success in Gorilla Glass, it still contributed only about $1 billion in sales for the company, or 12% of total revenue, last year.

More innovation, more profits?
However, there is a key overarching idea to Gorilla Glass. Corning is dependent on televisions and the huge glass volume in them, but so much growth in technology spending is in small mobile devices with less screen space. The company has attempted to solve this problem by using innovation to still take advantage of the mobile market. If it can come up with advanced technologies where it’s collecting more revenue on lower total glass volume, it could find success in mobile.

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