Is Being King of the Mobile Jungle Worth It?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Corning (NYSE: GLW  ) began shipping its updated Gorilla Glass 2 to major partners in the past week. The original Gorilla Glass turned Corning from mere glassmaker to technology enabler when selected for Apple's (Nasdaq: AAPL  ) first-generation iPhones, but that hasn't been rewarding for shareholders despite broad improvement in the company's key numbers. Can the rollout of this newer, thinner glass position Corning in the sweet spot of a more profitable mobile explosion and finally turn its fortunes around?

Taking it from the top
Gorilla Glass has been around for decades, but only took off after 2007 when its properties made it ideal for touch-sensitive smartphones. As of a year ago (about five years into its adoption), Gorilla Glass could be found on about 200 million -- or about 20% -- of the world's mobile devices. That number may have increased of late, as some of Corning's major partners include HTC, Samsung, Motorola, and Nokia (NYSE: NOK  ) as well as Apple. Here's how Corning's done since the original iPhone rollout:

Despite diminishing earnings since the start of 2011, Corning's growth has been respectable. But it's those diminishing earnings that are worrying investors. Much of Corning's revenue still comes from its Display Technologies segment, which makes glass for flat-panel displays. Gorilla Glass is part of its Specialty Materials segment. Let's see how the various parts of Corning performed over the last two years, to better understand the path it's likely to take.


2011 Net Income

2010 Net Income


Display Technologies $2,349 million $2,993 million  (22%)
Telecommunications $195 million $98 million 99%
Environmental Technologies $121 million $43 million 181%
Specialty Materials ($36 million) ($32 million) NM
Life Sciences $61 million $60 million NM
Total $2,690 million $3,162 million (15%)

Source: Corning 2011 10-K filing. NM = not meaningful.

A look from all angles
The specialty materials section wasn't profitable in 2009, either. Total sales have increased markedly, from $331 million in 2009 to $578 million in 2010, and then to just over $1 billion in 2011. Gorilla Glass is cited as a major factor in not having larger losses, but that's not particularly compelling. Despite net sales that amounted to a third of those at Corning's flagship display tech segment, the Gorilla Glass-backed specialty materials segment is far from reaching the same high level of profit.

Gorilla Glass and its successor will need to deliver a high profit margin to make up for display technologies' expected decline. But Corning reduced Gorilla Glass production capacity by 25% last year despite the exploding revenue stream. This streamlining might make for better margins in the short term, but smartphone sales are exploding, with 1.5 billion handset sales projected by 2016. Is Corning throwing in the towel too early, or can its existing facilities keep pace with this growth?

Consider that if display technologies' profit declines by "double digits" as management expects, Corning's other segments will need to pick up over $200 million in slack next year -- assuming that "double digits" means the very lowest double digits possible. Stretching similar drops in profit out to 2016 reduces Corning's profit by a billion dollars annually from what it was last year. Yet despite impressive revenue growth rates in the specialty materials segment, Trefis projects margins to remain low beyond 2016.

Corning is cheap today, but that might evaporate if display glass profit can't be made up elsewhere. It's not enough to churn out more revenue if there's no boost to the bottom line.

Looking for other ways to cash in on the mobile explosion? Check out The Motley Fool's free report on three hidden winners of this transformative trend. These companies already make great profits in the mobile sector, and could gain much more than Corning from global smartphone growth. Claim your free copy of this important report now to find out more.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Apple and Corning. Motley Fool newsletter services have recommended buying shares of Apple, Nokia, and Corning. Motley Fool newsletter services have also recommended creating a bull call spread position in Apple. 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.

Read/Post Comments (1) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1798692, ~/Articles/ArticleHandler.aspx, 5/27/2016 10:29:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 17,873.22 44.93 0.25%
S&P 500 2,099.06 8.96 0.43%
NASD 4,933.51 31.74 0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/27/2016 4:00 PM
GLW $20.51 Up +0.38 +1.89%
Corning CAPS Rating: *****
AAPL $100.35 Down -0.06 -0.06%
Apple CAPS Rating: ****
NOK $5.60 Down +0.00 +0.00%
Nokia CAPS Rating: **