Corning Incorporated (NYSE:GLW)’s recent investor meeting disappointed most of its investors. Poor outlook for display segment, a persistent weakness in yen and instability in its Hemlock Division were some of the disappointing factors. However, bright prospects for Gorilla Glass and rumors like Apple Inc. (NASDAQ:AAPL)’s interest in using Corning’s bendable glass for its soon-to-be released iWatch has sent bullish signals to the market.
The key takeaways from the meeting include:
1). Display is expected to decline in FY13 and stabilize thereafter;
2). TAM for cover glass is expected to double or triple by 2016;
3). Telecom sales are expected to grow by more than 10% in FY13, with profits growing faster;
4). Corning outlined plans for a “worst case scenario” for Hemlock, which could include exiting solar and a significant write-down; and
5). The company is committed to generating shareholder returns via dividends and buybacks.
Corning focused on its ability to achieve market stability entering 2013, due in large part to its new customer agreements. The company expects Display profits (in dollar terms) to decline in 2013 but remain relatively stable after that. The stability is said to be brought by increase in the market for TV displays (such as larger TV screens).
The company is also focused on its introduction of differentiated products, including Lotus (for high temperature, high performance applications like OLED) and Willow (extremely thin and flexible).
Corning achieved $1 billion of Gorilla Glass sales in 2012. The company believes the cover glass addressable market will double or triple by 2016. The key driver of growth will be touch notebooks, increase in smartphone sizes and increase in tablet proliferation.
Moreover, cover glass may find applications in new product categories, such as auto, appliances and architectural glass. In 2013, the company is also expected to release anti-bacterial, anti-reflective, and 3D (i.e. curved or shaped) cover glass products.
NYT and WSJ both have recently reported that Apple is working to make an iWatch. The new device is expected to utilize the new curved glass technology available at Corning (known as the Willow Glass). Apple has been fond of Corning’s Gorilla Glass that has been used in its iPhone and is likely to choose the Willow Glass for its iWatch. The bendable glass is said to bend as easily as a piece of paper in the wind without breaking. Recently, RBC speculated that iWatch will add approximately $7 billion-$9 billion in Apple’s annual revenues.
Corning expects double digit revenue growth in 2013 and even faster profit growth driven by FTTH, bandwidth demands, and fixed/mobile convergence. The company highlighted carrier opportunities with Australia’s National Broadband Network as well as in Brazil and Canada. The company is also leveraged to data center traffic demand (25% of its Telecom sales) and recently announced consumer fiber products (Thunderbolt and USB 3.Optical).
Despite a 3% decline in 2012 revenues, Corning expanded gross margins to 47.7% from 44.0%. Despite a soft European market, the company expects to grow profits in 2013 by more than 10% as it sees global regulations driving product adoption, specifically in the emerging markets.
After completing the acquisition of Discovery Labware in November 2012, Corning expects revenue growth combined with further margin expansion to drive double digit profit growth in 2013.