Corning (GLW 3.47%) has deep roots as a U.S. company with beginnings in the mid-1800s. Founded as a glass company, Corning has been on the forefront of technology from the outset. From Thomas Edison asking the company to make his glass light bulbs in 1880, to the Gorilla glass and fiber optic glass of today, its specialty products touch people everywhere.
To illustrate Corning's reach into our lives, here are its business segments, as described by the company:
- Display technologies: Glass in LCD/OLED TVs, laptops, desktop monitors.
- Optical communications: Optical fiber, cable for the communications industry.
- Environmental technologies: Ceramic substrates, filter products for emissions controls in the auto industry.
- Specialty materials: Semiconductor optics and proprietary cover glass layers (Gorilla Glass) used on mobile devices, tablets, watches, automotive windshields, interior displays, and other products.
- Life sciences: Glass vessels suitable for pharmaceuticals.
Corning's income streams are diversified
Corning's third-quarter 2019 results, reported Oct. 29, showed year-over-year declines in net income and revenue, though they exceeded Wall Street estimates. Subsequently, the stock has declined by 3.4%, underperforming the S&P 500. Will the downward trend continue, or is Corning due for a breakout?
Revenue of $2.97 billion was down 2.3% year over year, but was consistent with guidance issued Sept. 16, and beat Wall Street estimates. Here are sales results for each business segment:
- Display technologies: $793 million (3Q 2018: $852 million).
- Optical communications: $1.007 billion (3Q 2018: $1.117 billion).
- Specialty materials: $463 million (3Q 2018: $459 million).
- Environmental technologies: $397 million (3Q 2018: $331 million).
- Life sciences $256 million: (3Q 2018: $231 million).
For fiscal year 2019, Corning expects all business segments to be up except optical communications, which is projected to be down 3% to 5% year over year. Demand has slowed in China, though it is growing in the rest of the world as 5G data center build-outs pick up speed.
The display technologies segment is facing some headwinds as people aren't upgrading their devices as often as in previous years, but that changes as technology moves forward. Barring a recession, this segment will do just fine.
How windy are the headwinds?
CEO Wendell P. Weeks said: "Corning is successfully taking actions to offset recent headwinds. At the same time, we remain confident in our strategy and continue to advance our long-term growth initiatives."
So what kind of headwinds could Corning face?
If an economic downturn hits, the company will certainly take a hit. With lower discretionary income, consumers will cut back on technology purchases that contain Gorilla Glass, hurting the company's second largest business segment.
Corning is also vulnerable to the twists and turns in the trade war with China. The company does manufacturing in China, and has a number of clients there, including Huawei. Volatility and tariffs expose Corning to financial risk.
On the plus side, it's positioned at the forefront of 5G data center build-outs, which are a huge market. The company's consistent extensive investment in research and development should keep it as a technological leader as 5G becomes a reality.
Looking forward, Weeks said, "Two recent announcements -- an additional $250 million investment from Apple in Corning's advanced manufacturing, as well as FDA approval of Valor Glass packaging for its first commercial use -- are testament to our confidence in Corning's long-term outlook."
Timing is everything with innovation
Corning has evolved from a simple company to today's successful glass-centric technology company. It is well positioned to enjoy a bright and fundamentally sound future, and pays an attractive 2.86% dividend.
But given the ongoing stock price slide, uncertainty with China, and the slowdown in technology replacement, investors should keep this stock on the radar, but hold off on purchases. I think a better entry point is coming in the next few months as these risks play out.