Corning’s Display and Specialty Segments Keep Pumping Out the Profits (Glass is Good)
August 12, 2019
Corning reported 2Q results that were slightly better than consensus, but lowered optical segment expectations again, which dampened investor enthusiasm toward the results. Our focus is on Corning’s display and Specialty Materials segments, in terms of glass pricing, display prospects, specialty materials prospects. The Display segment represented ~27.9% of sales, identical to the 2018 2Q mix, and was 9% higher Y/Y and 11% up in net income. Glass pricing was slightly better than company expectations, much of the gain was from volume. Glass supplies remain balanced to tight and Corning’s ability to gain premium pricing over competitors because of their ability to guarantee availability, has helped to keep pricing pressure at historic lows. Corning is more optimistic on glass pricing now than earlier this year, expecting 2.5% to 5% declines for the year as opposed to 4% to 6% earlier.
While panel prices and other component costs have declined over the last two quarters, panel producers do not seem focused on pushing pressure on glass prices as consistent glass availability far outweighed the cost, and that philosophy seems to be continuing, even as the high utilization rates declined in 2Q and will likely decline again in 3Q.
Corning has adapted to the changes in the LCD space by focusing attention on the only area where growth continues, Gen 10.5 fabs, which represents the only capacity growth the LCD space over the next two years. By owning the glass supply chain at 3 of the 6 ultra-large fabs, Corning has guaranteed themselves a few extra years of glass volume growth, but even in the early stages of this capacity growth, the realities of LCD display supply/demand have caused the volume growth to lag, and Corning indicated that the build-out of these Gen 10+ fabs has been a bit slower than they expected. Corning has been careful to build out its own Gen 10+ capacity to match panel producer Gen 10+ timelines, but even a slight delay in those capacity expectations can make a difference to Corning’s display glass prospects, as seen in 3Q guidance, which predicts GLW’s volume growth will not exceed that of the market, despite its push into the only growth segment of the LCD display business.
Corning’s Specialty Materials business (Gorilla Glass) continues to dominate the mobile cover glass space. There has been a steady stream of improvements in Gorilla Glass over the last few years, which allows smartphone brands to use new GG versions as a feature, while still using older versions for lesser priced models, and while this specialty glass is one of the few Corning products that is not a direct sale to end customers, Corning has been able to manage the supply chain well, with only a few instances where the supply chain inventory levels ran ahead of actual demand. Corning’s competitors Asahi with Dragontrail, NEG with Dinorex and Schott with Xensation have not had a significate impact on Gorilla Glass sales.
In flexible OLED displays, Corning’s glass is used for the carrier substrate and for the protective lens, but for foldable OLEDs and colorless PI CPI) replaces the Gorilla Glass. Corning is working on flexible glass but seems to be falling behind Schott’s Ultra-Thin Glass that Samsung is considering as a replacement for CPI. The use of ultrasonic fingerprint sensors that is buried in the display will work in Corning’s favor, if it becomes a broadly used feature, as such sensors work better through glass than metal, incentivizing smartphone designers to use GG on both the front and back of new models. Lastly, the use of Gorilla Glass in other applications, particularly automotive, opens the product up to both in-car conformed displays and potentially structural automotive glass. Corning has been working toward this goal for a number of years, and while the automotive adoption cycles are far longer than anything in the consumer electronics space, the digitization of vehicle displays, the need for additional in-car displays for driver assist processes, and a push toward an increasing amount of data being generated by new vehicles gives Gorilla Glass a variety of new applications, even if the use of GG as an external structural product is never adopted.