Corning (NYSE: GLW) is a leading developer of glass and ceramic substrates that are found in liquid-crystal displays, fiber-optic telecommunications equipment, touchscreen devices, automobiles, and life science products.
Today, let's look at three things investors should be watching regarding Corning, as they will provide us better insight into the company.
1. Display technology sales and pricing
Corning earns revenue from a variety of different segments; however, none remains more important than its display technologies business, which contributed 33.6% of its second-quarter sales.
Investors may be most excited about Corning's other applications, but LCD televisions remain the ultimate boom and bust for Corning. LCD glass prices have been falling in tandem with television prices for years as TV manufacturers clamor to find solutions to rising costs, supply chain woes, and fickle consumer spending habits. With little in the way of new technologies to drive sales, (that 3-D TV revolution worked so well, didn't it?) Sony (NYSE: SNE) has produced eight straight annual television segment losses, while Panasonic (NYSE: PC) burdened investors with a sickening $10.2 billion annual loss directly tied to weakness in its display segment.
In order for Corning to head higher, it will need LCD glass prices to stabilize, and it'll need to introduce revolutionary new technologies. Corning's ultra-thin and bendable Willow Glass may offer some interesting applications, but as of now it's all promises on paper without concrete results. The introduction of higher-resolution TVs beyond 1080p could also drive sector growth, but that also seems to be a ways off.
2. Innovation versus margins in the smartphone market
As I noted back in July, investors have no choice but to pay attention to the LCD segment, but it's the "everything else" that makes Corning an intriguing company.
Clearly, the most intriguing product on everyone's mind is the company's practically scratchproof Gorilla Glass, which is used in touchscreen smartphones, including the Apple (Nasdaq: AAPL) iPhone and Samsung Galaxy S-Series. Corning already has a deal in place with Samsung to develop a new type of glass substrate known as Lotus Glass that's thinner, and produces crisper image quality with less energy drain. It's also highly anticipated that Apple will stick with Corning as its glass supplier for the upcoming iPhone 5, although it's been unwilling to share whether it'd be the new-and-improved Gorilla Glass 2.
However, innovation comes with a price, and that price is extremely weak margins. Corning has blamed some of these issues on supply side problems, but weak margins from its specialty materials segment seem to be more the norm than an anomaly. Investor concerns that rising input costs (including labor), as well as falling average selling prices for smartphones, could hamper margins further if Gorilla Glass production expands could indeed be well founded.
3. Acquisitions and investments
I know this almost seems like an operational segment breakdown of Corning, but that's really what's important with following this company. The final factors worth noting involve the company's acquisitions, as well as where investment dollars are going in the telecom sector.
On the acquisition front, Corning has been using its large cash balance and strong cash flow to boost its life sciences and telecom segments. Earlier this year, Corning purchased Discovery Labware from Becton, Dickinson (NYSE: BDX) for $730 million in cash. The move should expand Corning's life sciences division by 40% and put it on track to be a $1 billion revenue generator by 2014. Corning also made a smaller, but still notable, purchase of MobileAccess in 2011 to expand the reach of its wireless networking products.
In terms of investments, telecommunication products offer another avenue for big growth for Corning -- as long as big service providers hold to their word and actually step up front-end infrastructure spending. At the moment, we're seeing a lot of spending on back-end cloud products, but little in the way of fiber-optic products and network solutions. It's imperative, therefore, that you pay attention to how much and where big telecoms plan to spend on expanding their network infrastructure.
Foolish roundup
Now that you know what to watch for, it should be easier to analyze Corning's successes and pitfalls in the future to give you a competitive investing edge.
If you're still craving even more info on Corning, I would recommend adding the stock to your free and personalized watchlist so you can keep up on all of the latest news with the company.
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