ViewApart/iStock via Getty Images
ViewApart/iStock via Getty Images
Corning Inc (NYSE:GLW ) is a company whose products pretty much anyone in the developed and even emerging economies uses without knowing they're using it. Corning manufactures glass covers for phones, laptops, and tablets, glass substrates for TVs, lenses for Metrology, AR/VR applications, laser optics, vessels for medical use, and much more.
Corning is a value company with a wide moat in many industries in which it participates. It owns large shares of markets projected to grow rapidly over the next few years and, as it's close to the commodity supply chain, can easily increase its prices to compensate for price hikes.
Due to a lack of competitors that have sufficient scale in the industries in which Corning acts, it has adequate pricing power to achieve the price increases without the danger of losing customers.
In the last few weeks, the market realized what a gem Corning is and raised its valuation appropriately. To accumulate faster, I'd like Corning to become a tad cheaper. Well, it's part of my portfolio in which I invest bi-monthly.
When looking at Corning's historical operating cash flow chart, we see that price follows its operating cash flow metric closely and is based on the growth projection in its markets.
I'm bullish on Corning for a projected time horizon of 3-5 years as the company experiences many tailwinds catapulting its business forward.
I created a little overview of Corning's business segmentation, the industries in which it operates, the products it manufacturers, and each segment's contribution to Corning's revenue.
Corning business segments and percentage of Revenue (Keyanoush - TVB Investment Research)
Corning business segments and percentage of Revenue (Keyanoush - TVB Investment Research)
In each of these segments, Corning is one of the leaders within the industry. When looking at the specialty materials segment, almost any flagship phone uses Corning's Gorilla Glass panel.
Corning and Apple (AAPL) recently collaborated on a ceramic glass shield for Apple's latest iPhone models. The risk of Apple switching to Sapphire glass anytime soon seems to have evaporated as it and its suppliers fought with scaling issues manufacturing sufficient quantities of sapphire glass.
Corning is the largest worldwide manufacturer of fiber-optic cables. Demand for high-speed networking, data transfer, video consumption, and communication leads to a steady expansion of fiber-optic networks worldwide. Corning's optical communications segment is continuously growing in long-haul fiber optics and fiber cables needed within data centers.
Corning provides high-density pre-connectorized cabling solutions for data center applications within and between data center racks.
Data center connections are driving optics volume (Finisar Presentation)
Data center connections are driving optics volume (Finisar Presentation)
I talked a lot about the fiber-optics market in my Lumentum article (LITE). I recommend reading that article to better understand this market's intricacies and why this could be a major growth driver for Corning.
20% of Corning's revenue comes from environmental and life science products. Over the medium term, I don't expect much change in the environmental segment. Corning manufactures the filters for Diesel and heavy-duty combustion engines. Corning's filters are an intermediate product used by the final manufacturers of the catalysts and car filter system builders.
Corning Revenue & Segmentation (Keyanoush - TVB Investment Research)
Corning Revenue & Segmentation (Keyanoush - TVB Investment Research)
In 2021, each of Corning's business segments experienced considerable growth. 2021 was a strong year for the economy, especially considering a weak 2020, where many turned down their manufacturing due to the ongoing pandemic.
In 2021, revenue grew 23%, and margins remained stable over the last 5 years.
Few of Corning's business segments are experiencing and will continue to experience strong growth over the next few years.
In the optical communications segment, the rising demand for fiber optic cables worldwide leads to a surge for Corning's cables. The demand for Video streaming, video call, and much more is soaring.
Global shortage of fiber-optic cable threatens digital growth (ars technica)
Global shortage of fiber-optic cable threatens digital growth (ars technica)
The situation evolved to the point where we're experiencing a global shortage of fiber-optic cables. According to the Cru Group, prices per fiber km increased by 70% since the record low in 2021, from $3.70 to $6.30.
Platforms like YouTube, TikTok, Instagram, or Facebook are being used around the clock. As the camera quality of phones around the world improves, the picture and video sizes increase. The pandemic led to a surge in data demand, and service providers are pushing hard to offer more bandwidth. The demand will not recede. The trend will continue well into 2026.
Average Mobile wireless data usage per smartphone by region (Statista)
Average Mobile wireless data usage per smartphone by region (Statista)
It goes so far that we could soon see the first service providers hike their phone plan prices. The reason is the increase in data consumption and the rise in energy costs. There are internal discussions of European service providers not just to decrease the price per GB but eventually keep the prices steady or even increase them due to the changing economic landscape.
Corning is the world's largest fiber optic cable supplier, with a market share of 16.3%. A whopping 4% more than its next largest competitor.
What's the expected CAGR of the fiber optic market, you ask? Recent (1-2 years old) reports expect a CAGR of 10.7%. Others revise their projections further upwards.
Corning is expanding its investments in the metrology and semiconductor market. Corning offers metrology systems for low-resolution chips but, more importantly, the lenses and glasses used in many other metrology systems in the market. The global semiconductor is expected to grow with a CAGR of ~11% until 2029 (source 1, source 2).
Lenses are an indispensable part of the manufacturing and quality assurance of wafers. Corning participates in the growth of these markets in a few of its business segments like specialty materials and the "All Other" segment in which Corning's recent acquisition Hemlock Semiconductor Corporation, or HSC, reports its revenue and earnings.
HSC is the largest producer of polysilicon in the US, a necessary ingredient for Solar Panels and Wafers. The world is dependent on China for Solar Panel supply. With ongoing and maybe even rising tensions between the superpowers, reducing the reliance on external sources for energy-critical systems might lead to future subsidies for this segment. The solar panel market is expected to have at least a CAGR of 7.2% from 2021 until 2030. I anticipate even more growth for the superpowers to reach their ESG mandates.
Corning is one of the few manufacturers that can provide glass substrates large enough for the high-end TV market. That puts Corning display segment in a growing segment with a large moat. Consumers tend to buy larger and larger displays and TVs. In the largest TV segment, very few companies can manufacture the glass substrates for 65" displays and larger.
Advanced TV Shipments by Size and Display Technology, 2019 to 2022 (DSCC Quarterly Advanced TV Shipment and Forecast Report)
Advanced TV Shipments by Size and Display Technology, 2019 to 2022 (DSCC Quarterly Advanced TV Shipment and Forecast Report)
Corning opened its Gen 10.5 glass factory in Wuhan in 2021. Corning is the largest contributor of the largest size glass substrates in the world. The demand for Gen 10.5 is increasing rapidly, doubling Glass shipments between Q2 2020 and Q2 2021.
Display Glass Shipments by Gen Size, 2019-2021 (Displaydaily)
Display Glass Shipments by Gen Size, 2019-2021 (Displaydaily)
Considering the industry's revenue distribution among manufacturers, Corning owns ~65% of the market.
Display Glass Revenue by Manufacturers, 2019-2021 (Displaydaily)
Display Glass Revenue by Manufacturers, 2019-2021 (Displaydaily)
NEG and AGC, the next largest manufacturers of glass substrates, had supply problems in 2021, which gave Corning an edge. Due to surging demand and those supply problems, Corning increased its display glass pricing by an industry-leading 4%.
Corning is a specialty glass manufacturer positioned in multiple high-growth industries with incredibly wide technological and intellectual moats.
I discussed a few of Corning's growth markets and visualized their impact on Corning's revenue. One segment I didn't mention is the augmented and virtual reality segment. Corning provides this market with lenses, which are expected to grow with a CAGR of 40.7%!
Corning's business segments' growth potential (Keyanoush - TVB Research)
Corning's business segments' growth potential (Keyanoush - TVB Research)
Corning's growth potential exceeds its historic growth. Additionally, investors enjoy a 2.77% dividend yield.
The risk-reward ratio tends to lean more towards reward with a big margin of safety for conservative investors and good growth potential for investors that want to generate a good rate of return.
I always welcome constructive criticism and open discussions. Please feel free to comment or PM me about my calculations and/or sources that I use in my articles.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of LITE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have no formal training in investing. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. All relevant risks are not covered in this article. Readers should consider their own unique investment profile and consider seeking advice from an investment professional before making an investment decision.