Currently, among a handful of American companies, there's an age-old rallying cry that's coming back into vogue: Less is more. At Wal-Mart (NYSE: WMT), the "Always Low Prices" pledge drives sales volume and profits. Meanwhile, Intel (Nasdaq: INTC) and AMD (NYSE: AMD), in their endless battle to undercut each other on pricing, have driven the cost of semiconductors through the floor. This in turn encourages semiconductor consumers to find ever more uses for the widgets, driving sales volume and -- you guessed it -- profits.
And of course, there's the subject of today's column: Corning (NYSE: GLW). Once known for its telecom cables of spun glass, Corning is now better recognized for producing ultrathin glass sheets used in the manufacture of LCD television panels and computer monitors. When I tell you that Corning grew its sales 13% in 2007, and improved its earnings at twice that rate, that's the end of the story for some people, and reason enough to bump the stock price up.
The heart of the story
For others, though, it's only the beginning. Similar to the stories at Wal-Mart, Intel, and AMD, every passing year sees the per-unit-price of the high precision glass that Corning manufactures drop. According to Corning, "pricing declined ... 11%" for products made by the firm's Display Technologies division. Corning's glass-making joint venture with Samsung saw prices slide 15%.
But in a virtuous cycle, every drop in price for the components of LCD TVs and LCD computer monitors makes such products more affordable to more potential consumers, stoking demand for LCD TVs at Best Buy and Sears, growing notebook sales at Dell (Nasdaq: DELL) and HP (NYSE: HPQ). The result is almost a given: more sales. Granted, more sales at lower prices, but the former fact outweighs the latter. With volumes of glass shipped rising close to 40% year over year, price declines in the teens barely make a dent in revenue growth at Corning. And the ever more efficient economies of scale keep this firm's profits growing even faster than revenue.
The sequel
As good as this story reads so far, it's far from finished. Partway into the first quarter of 2008, Corning still sees "good momentum" in its display business. Inventories remain tight as customers work to keep up with LCD panel demand, and as fast as unit prices fall, sales seem destined to rise more than enough to offset them. One year from today, I'm looking forward to enjoying the sequel every bit as much as I enjoyed Corning's 2007 report.
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