Corning held an Investor Day event in New York City on Friday, June 14th, and rolled out new strategic targets for the corporation, but the most important development of the day for the display industry was given by an executive who was not present. Corning’s John Zhang, Senior Vice President and General Manager of Corning Display Technologies, appeared in a video feed to announce that Corning will build two new Gen 10.5 glass plants in the coming year, in Guangzhou and Wuhan, China. While Corning did not discuss the clients for these plants, we know that the Guangzhou plant will be supplying Foxconn’s plant in that city, and the Wuhan plant will supply BOE’s second Gen 10.5 plant there.
Corning Gen 10.5 Glass Plants
Zhang highlighted Corning’s long experience of making Gen 10 glass, saying that the company has manufactured more than 1.5 billion square feet (140 million square meters) of these large substrates for more than ten years. Zhang also announced that Corning had reached long-term supply agreements (Corning’s Executive Vice President and General Manager of Glass Technologies Jim Clappin later revealed the term of these agreements to be ten years) with its customers for this glass supply.
When Corning announced in December 2015 its investment to support BOE’s first Gen 10.5 plant in Hefei, China, it revealed that 2/3rds of the investment was funded by others, and in numerous references to this subject in the last three years, CEO Wendell Weeks has quoted this 2/3 figure are Corning’s requirement for new investment in display. In announcing the new plants, Zhang took this a step further, saying that “>3 out of 4 Investment Dollars” would be coming “from our customers and other stakeholders”, so that the resulting investments would “provide attractive returns for our shareholders”.
As important as this development is for the display industry, it seemed a small note for the overall Corning Investor Day presentation. Zhang’s video of the announcement consumed a mere two minutes of the more than two hours of the event, which covered updates and strategic direction for all of Corning’s major businesses.
The centerpiece of the corporate event was an update of Corning’s strategic growth targets for the next four years. Corning CEO Wendell Weeks led off the event by referring to Corning’s prior goals introduced in October 2015, the 2016-2019 Strategy and Capital Allocation Framework, indicating that the company had met or exceeded its goals for this time period. This included generating $26-30 billion in cash flow from operations and strategic divestments, making more than $10 billion in new investments to grow its businesses, and delivering more than $12.5 billion to shareholders in the form of dividends and share buybacks.
For the next four years, Corning announced a new Strategy and Growth Framework, and Weeks outlined the main goals:
At a business level, despite the investments in Gen 10.5, Corning’s strategy over the next four years indicates a continued push to focus on its non-display businesses. As outlined in this slide from the presentation showing the goals for each major sector, Corning expects to grow revenues and profits in all of its major businesses, except Display.
Corning Goals for Business Segments, 2020-2023
Jim Clappin presented the main review of Corning’s Display business, which started with a congratulatory review of Corning’s achievements in this industry. Clappin noted that Corning was the first glassmaker to produce each new generation of glass substrates, up to the latest with Gen 10.5. Corning’s dominance of the industry was illustrated in the next slide presented by Clappin, comparing Corning results with its two largest competitors (DSCC believes that Competitor A in the slide is AGC, and Competitor B is NEG).
Corning Revenue and Operating Income vs. Competitors
In recent years, Corning has walked a fine line in describing the technology battle between LCD and OLED. While Corning clearly has a preference for LCD, since it requires two pieces of advanced glass while OLED only requires one, Corning also sells its advanced Lotus glass for OLED, and the company has been cautious about downplaying a technology that appears to be winning in the display industry. In his presentation, Clappin threw away that caution and put Corning’s position squarely on LCD, with a slide showing that OLED captured only 1% of the TV market in 2018, and that the growth of 8K favors LCD. He said “we think that most consumers who don’t watch their programs in dark rooms will prefer the brighter LCD sets,” and indicated that Corning expects that OLED will continue to remain “a small fraction of TV unit sales” (DSCC’s outlook is consistent with this view, as we expect OLED to grow to 13 million units by 2023, which would be about 5% of the TV market in units, but OLED will capture a significantly higher share of TV revenues and profits during this time).
Clappin continued to discuss Corning’s view that the environment for glass prices continues to improve. Corning has consistently cited three reasons for glass pricing improvement: glass supply/demand, competitors’ low margins, and the continued need for reinvestment. Clappin said that “Corning expects glass supply to continue to be balanced to demand, or even tight”, and showed a slide of annual price declines improving. Clappin noted that “if the trend line of our price declines continues, we may see low-single digit annual price declines,” but did not give any additional reason for this outlook.
Corning View of Display Glass Price Declines, 2014-2019 and Beyond
After Clappin reviewed the Display Business, John Bayne, Senior Vice President and General Manager of Corning Gorilla Glass described his business prospects. Bayne also started on a congratulatory note, indicating that Gorilla Glass captured revenues more than 10 times that of its nearest competitor, and updating an often-quoted Corning stat that Gorilla Glass has been installed on more than 7 billion devices worldwide.
Bayne described the main Gorilla Glass target as doubling sales from its 2016 revenues of $1 billion to $2 billion in 2023, even without unit growth in the key device markets, by increasing the amount of revenues per device. The first part of this approach is the continued improvement in Gorilla Glass. Bayne said that Gorilla Glass 6 survives a drop from a height five times higher than the original Gorilla Glass, and Corning can capture a higher price because of this. Nevertheless, phones still break because “as fast as we have improved the glass, phone makers have found ways to use those improvements to in the design space.”
Besides higher prices for more advanced Gorilla Glass, Bayne noted that phones increasingly use glass for the back as well as the front, because glass has a greater electromagnetic transparency than metal, and Bayne noted that close to 100% of premium phones have glass backs. Bayne showed a recently released advertisement by Samsung about the wireless charging on its Galaxy S10 to highlight this benefit.
Bayne touted Corning’s Gorilla Glass DX and DX Plus products, which employ a composite which allows for anti-glare and anti-reflection surfaces while maintaining excellent scratch resistance. DX has been adopted on a few watch models, but Bayne hinted at the barriers to its expansion by saying “as we drive down the cost curve, we expect adoption”.
Bayne gave several examples of Corning generating greater revenues per device by capturing more value:
Later in the day’s presentation, Corning’s Vice President and General Manager of Automotive Glass Solutions, Mike Kunigonis, presented the prospects for Gorilla Glass in the automotive space. Corning did not describe a specific goal for Gorilla Glass in auto, instead grouping the Gorilla Glass business with its Environmental Technologies business supplying ceramic substrates for gas particulate filters. The combined businesses are expected to double sales to the automotive sector from $1.3 billion in 2018 to $2.6 billion in 2023.
Kunigonis noted that displays had evolved from simple to interactive, from small to large, from low to high resolution, and from flat to curved, driving the demand for increasingly advanced glass. Kunigonis described Corning’s advantage in its cold forming process, which allows for coatings and finishing to take place with flat glass, which is then curved into shape in the application. While this may indeed provide a benefit, it compensates for Corning’s relative lack of hot forming, which has been used by AGC to establish a substantial position in the auto glass interior market.
Corning View of Auto Glass Opportunities
Presentations from Corning’s other businesses deserve a short mention. Corning expects its Optical Communications business to grow twice as fast as the passive optical market, and its Life Sciences segment to also grow at double the industry rate. Corning will launch Valor Glass for pharmaceutical packaging, and described that business as having the “potential to become a multi-billion-dollar franchise”.
In the Q&A session that followed the presentations, CFO Tony Tripeny responded to a question by indicating that Corning had financial hedges on the yen out to 2023, and the company feels confident in its hedging strategy. Jim Clappin responded to a question about display glass share by indicating that since Corning has captured three of the four Gen 10.5 opportunities in China (CSOT in Shenzhen is the other one, supplied by AGC), Corning is taking most of the market growth.
In summarizing the company’s position, CEO Weeks claimed that Corning is “more resilient than at any other time in our history,” which dates back to the company’s founding in 1851. I have only known Corning in depth since I started work there in 2005 when it was recovering from the drastic losses of the “telecom meltdown” in the early 2000s. During my ten years working at Corning, the company was dominated by its display business, and largely dependent on display for profits. Since then, Corning has substantially improved its other businesses, and while display remains the largest profit generator, the company clearly has other engines for profit growth.
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