Why Corning Isn't Scared of This Disruptive Threat To Its Newest Cash Cow

There's been a lot of talk over the past few months about the distinct possibility that smartphones of the future will begin using sapphire to protect their faces. MIT Technology Review suggested as much in March, noting that the material is stronger than Corning's (NYSE: GLW  ) ubiquitous Gorilla Glass.

That comes at a cost, though, and sapphire is still too pricey for mainstream adoption among OEMs. Apple has begun using sapphire in the camera lens cover in the iPhone 5. This is notable because Apple also sparked Gorilla Glass adoption in the first place, yet the Mac maker may be contemplating a new material for the front of future iPhones.

Sapphire camera lens covers used in the iPhone 5. Source: Apple.

Gorilla Glass has quickly become an important cash cow for Corning in the past few years, with the specialty materials segment now comprising 17% of sales. That's up from the 6% of sales that the division represented as recently as 2009. Sapphire vendors like GT Advanced Technologies (NASDAQOTH: GTATQ  ) could represent disruptive threats to the Gorilla Glass business if they can offer compelling sapphire alternatives at reasonable costs. GT believes it can apply a thin layer of sapphire to mobile devices as one potential method of reducing costs.

Cover and touchscreen applications of sapphire. Source: GT Advanced Technologies.

It turns out that Corning isn't scared of sapphire. The glass specialist has conducted a number of in-house tests to see how sapphire stacks up with its latest Gorilla Glass 3, with its own product coming out on top.

The study involves placing two devices -- one covered in sapphire and another sporting Gorilla Glass -- into a spinning container full of everyday objects. After a 45-minute twirl, both materials are subjected to a ring-on-ring strength test that applies pressure. Corning says that Gorilla Glass withstands more than 2.5 times as much force.

This was a proprietary study that was presumably stacked in Corning's favor, and third-party tests are yet to be released measuring the two materials. The tumble test of simulating real-world stress is common, but Corning hasn't released a detailed report of its results beyond the video linked above.

Even if sapphire does prove to be a threat in the future, at least Corning is proactively assessing the danger. The company may not be scared yet, but that doesn't mean it won't be in the future.

With the explosive growth of smartphones worldwide, many investors thought they would ride Corning's dominant cover glass to massive investment returns. That hasn't played out yet, as mobile growth has failed to offset declines in the company's core business. In this premium research report on Corning, our analyst walks through the business, as well as the key opportunities and risks facing it today. Click here to claim your copy.


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  • Report this Comment On May 08, 2013, at 5:31 AM, djknow wrote:

    The context of this test shows that GLW is very scared. A strength test to prove scratch resistance reeks of desperation. I understand sapphire material would be used as an overlay on hi-strength substrate so where does strength come in?

    I still don't know if sapphire is better or not, but do know my G-glass screen scratches enough to be annoying.

    I'm embarrassed and mad for Corning to put out such nonsense as proof there isn't reason to be scared. Feels like quite the opposite.

    Are we sure GTAT didn't make that video?

    I like this old company but I'm taking my profit today. Thanks for the ride.

  • Report this Comment On May 08, 2013, at 9:34 PM, banmate7 wrote:

    I have serious money in GLW. I have play money in GTAT. Why? Because GLW is a diversified product company with excellent cash flow, balance sheets, and a proven history of innovation. It has a nice dividend. Moreover, given the economic costs, I doubt sapphire can be an economical alternative to Gorilla Glass soon enough.

    GTAT might not survive if the solar industry doesn't pick up in the next 2 years or so. I understand I might lose my money here. Then again, I also can see a 2x - 4x bagger if things turn around. But short of an improbable turn around in its sapphire fortunes, like it or not, GTAT's fate is tied up with solar dynamics.

    Lastly, this doesn't have to be a zero sum game. I'm hoping both these companies take prosper. I just think it is more likely for GLW than GTAT.

    Best of luck to all.

  • Report this Comment On May 08, 2013, at 9:54 PM, GirlsUnder30 wrote:

    It all depends upon the application. There is no way that Sapphire will completely replace G-Glass, in fact they work really well together on cell phones and tablets but there are some applications where Sapphire is the best solution. Think about how many supermarket scanning beds there are and how many high end wristwatches. Things like that will drive sales before the cell phone market develops completely. You may have missed my blog entry:

    http://caps.fool.com/Blogs/the-awesome-opportunity-with/8013...

    over a month ago when the stock was trading under $3. Anyone heeding my advice then would be chuckling pretty loudly today.

  • Report this Comment On May 08, 2013, at 10:52 PM, banmate7 wrote:

    I did miss your blog entry. But now having read it, I'm not impressed.

    :)

    Kidding aside, you got lucky. You won't most times with such "forecasts". Put enough money down and try your luck again and see what happens.

    Don't get me wrong. I am taking the same bet on GTAT. I'm averaged in at around $4.40, but only with a $5k basis. In contrast, I have my serious money in companies like GLW, MSFT, APPL, DOW, CNI, CAT, and NOV...even AWK...anywhere from $5k - $25k.

    The latter have much higher odds of market beating returns on a higher absolute basis. These companies have proven cash flow & defensible balance sheets, not to mention being key players in a developed industry.

    GTAT is in a catastrophically hit solar industry & is trying to diversify in a tenuous sapphire panel screen market. Therefore, betting any basis on GTAT has high odds to result in a loss. Betting on many such companies is really likely to lose lots of money.

    I'm long on GLW & GTAT. I'm confident on making excellent money on a $25k investment in GTAT as a long. I'm ready for whatever happens to my $5k investment in GTAT, knowing it might disappear...although I confess I fantasize getting a 4x - 5x bagger.

    :)

  • Report this Comment On May 09, 2013, at 7:51 AM, se447785 wrote:

    Anyone who thinks GLW is scared of GTAT is a complete MORON!! Even if GTAT has a better product, GLW could just gobble up GTAT (which has a total market value of under $500M) without thinking twice.

    Another scare tactic by GLW shorts- don't fall for it!

  • Report this Comment On May 09, 2013, at 2:35 PM, stockspud wrote:

    banmate7

    I just read all of GirlsUnder30 blog entries after looking over your comment. There were only three articles and all three of the calls were insightful and mostly right. It's true that there wasn't much analysis under the GTAT prediction but lucky on all three calls, really? By my estimation there are more than 120 CAPS points on those calls alone (plus 20 more points if you include the side comments on AMAT) had you taken the advice when given. That's pretty darn good by my estimation. By the way, where would you put your money? There is nothing on your CAPS so I thought I'd ask.

    8^)

  • Report this Comment On May 09, 2013, at 5:27 PM, banmate7 wrote:

    Stockspud, let her do it again, explaining how much money she put down, how long she expects to hold, and how often she makes such calls. A methodology also would help. Suffice it to say, I stand by what I said.

    I don't know what you mean by CAPS?

    My most recent buys have been NOV, CAT, GTAT, and AWK. I also bought into the following quite some time ago: AA. AAPL. BAC. CNI. DOW. GE. GLW. INTC. JNJ. KO. MSFT. MSI. NVDA. PNM. SXRZF. TEX. TRN.

    Right now I highly recommend NOV, CAT, TRN, APPL, & GLW. Why? All are quality companies that offer proven value. Additionally, the 1st 3 are in emerging North American energy supply chains.

    That's basically my analysis: value investing, reinvesting dividends, in quality companies. Occasionally I buy into some sentiment & growth, like GTAT and AWK. I got lucky on AWK, as I'm up 20% in 3 months or so. I would never push AWK boastfully, exactly because I know I'm lucky so far.

    I actually bought AWK because water is long term blue gold. The company makes profits. Water is key for fracking. But it is a bit expensive at a PE of 20. Again, I plan on holding AWK basically forever...selling only if it becomes absurdly overvalued & there is more compelling value.

    Just to illustrate how I invest, consider my Microsoft investment.

    I bought 500 shares on for $11,831.95 at $23.66 a share. With reinvested dividends, I now have 578.187 shares, worth $18,883.59 at $32.66 a share as of today.

    That is a 60% gain. I similarly did the same with Coca-Cola, as follows:

    Date shares total_cost share_price

    07/05/2006 500.0 $10,811.95 $21.62

    05/02/2013 605.731 $25,492.19 $42.09

    I've offered a value investing methodology. It's simple, effective, and works well in giving decent relative returns on higher absolute amounts of capital. I only put up much smaller amounts of absolute capital for the higher risk of higher relative returns.

    That is why I am wary & skeptical of what GirlsUnder30 is implicitly promoting, at least based on what I read on GTAT. I know GTAT is an even bet right now. It can prosper greatly. But it can fold, much like many solar companies have.

  • Report this Comment On May 09, 2013, at 10:40 PM, banmate7 wrote:

    By the way, on some of my stocks, I've done very poorly. I'm down 32% on Bank of America, down 56% on Terex. I foolishly ignored PEs when I bought, going more on short term sentiment analysis and short term performance.

    I doubled down in Bank of America, as I was down 5:1 at some point. I think it will come back, as it is big & iconic bank, cleaning up its balance sheets, getting back to what it used to do best: commercial banking.

    I won't sell Terex because I refuse to take a 50% bath. It also is a profitable company that should eventually recover. None of these should go out of business.

    But I learned my lesson with these 2 stocks about sticking to value investing and avoiding technicals. Because I've done well overall, I allow myself a risk bet once in a blue moon, like on GTAT.

    At the end of the day...it's more important for me to make 25% safely on $20k than to gamble $5k on a heavy loss or heavy gain. And as I illustrated, you can do much better than 25% on quality stocks with enough time.

    Just my 2 cents.

  • Report this Comment On May 11, 2013, at 9:31 AM, stockspud wrote:

    banmate7

    Interesting picks. I have to say that I've learned from your posts. Do you know GirlsUnder30 personally, how do you know her gender?

  • Report this Comment On May 11, 2013, at 8:29 PM, banmate7 wrote:

    I assumed GirlsUnder30 was a female posting investing advice for the demographic reflected by the alias. Of course, I could be dead wrong. Sorry.

    Again, I'm not attacking this person. I was just advising caution on short term trading.

  • Report this Comment On May 17, 2013, at 3:43 PM, GirlsUnder30 wrote:

    Very amusing. A cynical request has been made to have me state my term for holding GTAT. Using the old axiom, bulls and bears make money but pigs get slaughtered here is my advice:

    1. reduce your long exposure to GTAT at the current prices. If you'll net over a $1.50 on the stock take the gain because we will see a retraction coming soon that will last over a year. I was heavily overweighted in it and plan to reduce my position 80% by June.

    2. The reason for the retraction will be indigestion of its current acquisition and liquidity problems.

    3. Selling the $5 calls through December is a good way to make holding this stock less painful.

    That is what my crystal ball says on the record. If I am correct that will be 5 for 5 predictions that were at least 80% right. If that doesn't mute the naysayers then I'll just stop posting, LOL.

  • Report this Comment On May 17, 2013, at 8:02 PM, GirlsUnder30 wrote:

    For those new to the conversation, read http://caps.fool.com/Blogs/the-awesome-opportunity-with/8013...

    ...and don't forget to hit the "Rec this" button 8^)

  • Report this Comment On May 18, 2013, at 11:55 AM, cloudofjoy wrote:

    G-Glass isn't Corning's only business, and anyone who thinks that Corning is going to sit this one out, is not looking past today. My bet is on the company that has experience that goes back to the invention of the light bulb making machine. If they got their hands on a competitors product, you can bet your last dollar that they have given it a very close examination. They have had G-glass sitting on the shelf for a very long time, waiting for the rest of the world to catch up. Who is saying that they don't have the means to improve G-Glass, and aren't waiting for the right time to tell anyone? Are the other comments written from a snapshot view, instead of considering the big picture? If they can't beat them, they will buy them.

  • Report this Comment On May 22, 2013, at 7:08 AM, GirlsUnder30 wrote:

    Corning does have other businesses but outside of G-Glass, none of them has any competitive moat. I like it long term and it's a decent price but certainly not a best bet. In my opinion, AMAT should outperform it for around the same price.

  • Report this Comment On May 23, 2013, at 4:56 PM, banmate7 wrote:

    GirlsUnder30, how does your "analysis" help? I'm averaged in at $4.46 a share on a $5k basis, currently down $200. Should I wait for that magical $1.50 gain relative to "current prices", never mind a significant spread in pricing caused by volatility?

    A prolonged retraction? Maybe. As I said, GTAT has a decent chance of either going out of business or being bought out, but probably for a less than optimal price. Then again, timely legislation might spur the solar industry, which I believe is GTAT's core area. Sapphire is a gamble.

    This is the nature of a company that is losing money & needs to quickly diversify because its core market is basically inert. Nobody knows what they're going to get here. My guess is that volatility will continue. This can boom or bust.

    Again, my $5k basis is down $200 right now. I am going to hold. In contrast, my $25k basis in Corning is $3000 right now. I am going to hold.

    What are you in for? Basis and total shares. As I keep saying, it's easy to short term trade with baby money.Try it with serious money that backs a serious portfolio.

    AMAT by the way is losing money, projected to have a forward PE of 25, and has a PB of 2.45. It has made a lot of suspect acquisitions over the years. I believe it has lost money year on year for the past year. That said, it is a good company, capable of doing well. It's in semiconductors, display, and solar.

    I just find Corning more compelling in terms of value. I always go with value & proven cash flow, balance sheets, and profits. Read what I wrote earlier about Coca-Cola. 140% return since 2006, turning $10k into $25k.

    AMAT would be losing you money big time over the same period. Actually, same for Corning. But I've averaged in low at Corning because of confirmed value signals.

    I view these things in terms of many years, not a flash trade here and there based on some $1.50 gain. If I bet big money this way on GTAT based on your "analysis", I could easily be down big time in the past few years.

    In fact given performance over since 2006, I would. As I said, we're at a near bottom with GTAT in this context, hence my acknowledged big gamble here. But nobody knows if this is a falling knife or on the verge of a renaissance.

    Anyway, fingers crossed for both of us. Hope this gamble pays off. And I wish you the best in your investing endeavors.

  • Report this Comment On May 23, 2013, at 5:02 PM, banmate7 wrote:

    cloudofjoy, I agree. Corning is a well oiled machine. This is a case where markets have undervalued a great company with a great management.

    But the markets inevitably normalize a stock price. It's happening with Corning. As long as they execute, and there is reasonable value to suggest this, they will outperform.

    I also have little doubt an R&D machine like Corning hasn't already thoroughly looked at sapphire. Either the costs are not compelling or they have a capability to integrate sapphire, if need be...by acquisition or development.

    Corning is my safe choice. GTAT is my gamble. AMAT has to prove some profitability, although I think it will be okay in the long run as well.

  • Report this Comment On May 24, 2013, at 6:46 PM, GirlsUnder30 wrote:

    banmate7

    If you averaged in at $4.46 then you probably picked some in the low $3 range. I would sell the $5 calls on those shares and hold the rest. Long term (two years plus) this stock will outperform the market but I stand by my analysis for this year. This recent acquisition was unnecessary and in my opinion will hurt performance for at least 12 months forward and the stock will trade down on the bad news so I would not be a buyer here. Maybe under $4 but not here.

    Corning is about as oily as you can get, some would say downright greasy. A recent report highlighted Corning as one the lowest percentage corporate taxpayers in the US. They get about $1 a year in loophole tax breaks and some of those loopholes are under scrutiny by the current administration. What do you think will happen to their stock price if those loopholes tighten or vanish? I think AMAT is a much better value than Corning with less risk and more upside potential. Did you know that AMAT has an LCD business with a better cost structure than Corning's?

    This will be my last post in this thread about GTAT, anyone wanting to hear what else I have to say about it should go to http://caps.fool.com/Blogs/the-awesome-opportunity-with/8013...

  • Report this Comment On May 25, 2013, at 4:08 AM, banmate7 wrote:

    I don't trade options. I might consider covered calls on major holdings that stand no real chance of being exercised. That's not what I want to do here.

    AMAT is a better value than Corning? Sheesh. As to tax implications, I think you should do some research. Clearly you don't do sustained, in-depth analysis on fundamentals. There are lots of credible projections of Corning profitability on the basis of %8 - 16% annual taxes. Never mind PE, PB, cash flow, and balance sheets.

    Again, AMAT is good company, but it is not better value than Corning, not on metrics used to do such assessments. Like I illustrated, Corning is making me decent money now, whereas AMAT would have lost me money.

    I looked at your blog. You seem to have a lot of time making Cramer lightning round type comments. Or given your alias, there might be a number of you doing this. Sorry, I'm not impressed. Your brand of investing is short term and based on an emotional sentiment and a veneer of technicals.

    I post what I invest & when. You don't. All it seems to me is that you are trying to attract attention to your blog.

    But I leave others to decide for themselves. I will stick with value investing. I'll hold with GTAT for better or for worse long term.

    And as always...I have a good feeling here...but I admit it's just a feeling, hoping that solar recovers and that GTAT can leverage its front of the supply chain position for other solar manufacturers. Nothing more. Nothing less.

    Best of luck.

  • Report this Comment On May 25, 2013, at 6:47 PM, banmate7 wrote:

    @ GirlsUnder30 One more thought: why would I want to sell the shares I bought at a lower price if I have a long time horizon & expect a much higher price in the future? Then I would have to buy in at a higher price, increasing my average price overall. Does that make sense?

  • Report this Comment On August 06, 2013, at 3:22 PM, banmate7 wrote:

    My $5k basis is worth $6,428.50 as of this posting, a 25% gain. See what buy and hold can do? If I sold $5 calls, I'd also be out of shares that can potentially go up, forcing me to buy in higher.

    Mind you, I still maintain that GTAT could go belly up or...as I am gambling...become a multi-bagger. GTAT has the technology & management to do very well if solar indeed recovers. But this is a big "if".

    In the meantime, my $25k investment in Corning is up by $2000. Safety with larger investments is important to me. But in all cases, I try to preserve a low average share price as much as possible...avoiding buying in and out on something I believe in...as I'm not a good short.

  • Report this Comment On August 20, 2013, at 12:15 PM, banmate7 wrote:

    Now I have a 40% gain, as GTAT price = $6.29.

    Had I followed the suggested option strategy, I'd be chasing growth at this point. Again, why give up a lower average basis just to secure some profit?

    Don't get me wrong. This company can still tank. The financials remain tenuous, as is the solar market in general. Sapphire technologies have still not been heavily adopted.

    In my view, GTAT will still either in big or lose big. I'm committed to the former...fingers still crossed for a multi-bagger. It's an article of faith, rooted in excellent technology & management at GTAT, hoping its markets materialize in time.

  • Report this Comment On September 10, 2013, at 11:04 AM, banmate7 wrote:

    Another interesting update: now my GTAT investment is up 56%. So much for the assertion that their acquisition will hurt for the rest of the year. So much for the short term trading "analysis" offered by some folks here.

    We're 50:50 here. Nobody knows where solar & sapphire will go. If these industries crystallize in the coming year, no pun intended, GTAT will be a home run. If not, a fire sales is possible, with serious loss of basis.

    Fingers crossed. I'll stick with buy & hold here.

  • Report this Comment On September 18, 2013, at 8:22 PM, banmate7 wrote:

    Today I am up 70% in total.

  • Report this Comment On October 04, 2013, at 8:40 PM, banmate7 wrote:

    I am now up %102.

    I think this can lay to rest the short term predictions of GirlsUnder30. Wish that poster would explain themselves in so decisively asserting the direction of GTAT stock for the rest of this year...as well as comments that negatively paint their recent acquisition.

    Moral of the story: short term market predictions are an exercise in randomness...as are predictive quips on complex topics like acquisitions that underpin such predictions. Armies of wall street quants & engineers have trouble making such bold predictions....never mind GirlsUnder30.

    Me? Again, I confess to ignorance. I admit my investment in GTAT is based on nothing but "faith"...albeit a faith anchored in the fact that GTAT seems to have a moat deep in the solar supply chain, now perhaps also in the sapphire market. Yet this thing can still fail & go belly up, although things are looking up.

    Most of my money remains in solid blue chips, where I buy at value. This kind of investing is more deterministic...but it requires time to materialize.

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