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Corning Inc. (GLW) - known as Corning Glass Works until 1989 - has a long and rich history dating back to 1851.
For instance, the California Institute of Technology's famous 200-inch telescope mirror at the Palomar Observatory was cast by Corning between 1934–1936, out of low-expansion borosilicate glass.
And of course, people my age remember the clear Pyrex bowls and floral-patterned CorningWare cooking pots that were part of the holidays and other family gatherings through the years. The consumer products line was sold in 1998.
Corning = Hidden Tech Company
Corning has been a hidden tech company for a while now. It was approached by Apple (AAPL) to develop a robust display screen in 2007 for its upcoming iPhone. Later, other companies also adopted its Gorilla Glass screen. The company remains a leading manufacturer of the glass used in liquid crystal displays today.
In addition, Corning is the world’s biggest producer of fiber-optic cable, and played a major role in inventing the technology in 1970. It created the first “low-loss” optical fiber — which is needed to transmit data over long distances.
The company has ramped up its production capabilities in recent years to meet soaring demand for fiber-optic cables coming from governments, telecom companies, and big tech names like Amazon (AMZN), Google (GOOGL), Microsoft (MSFT), and Meta (META).
Corning is a materials science giant with differentiated glass products for televisions, notebooks, mobile devices, wearables, optical fiber, cars, and pharmaceutical packaging. It also participates in the environmental business, with a focus on emission substrates for gasoline and diesel engines, as well as producing polysilicon for the solar industry. And it produces vaccine vials for the life sciences industry.
And crucially, Corning is a key enabler of 5G networks, with a product portfolio that’s aligned toward the worldwide secular trends of increasing connectivity and efficiency.
The trend is continuing for Corning. Today, it is transforming itself from a rather unknown technology firm into a completely unknown (by investors) play on artificial intelligence (AI).
Corning and AI
Today, Corning is a $38.15 billion market capitalization company. It operates in several key markets:
- Optical Communications: Providing fiber optic solutions for telecommunications and data centers.
- Display Technologies: Producing the LCD glass “substrates” needed for TVs, PCs, mobile devices, vehicles and high-tech gear.
- Environmental Technologies: Producing ceramic substrates and filters for emissions control in vehicles.
- Specialty Materials: Offering advanced glass solutions for mobile devices.
It’s those first two businesses that I’m focused on at the moment.
Management is very confident about its future growth, as revealed in its “Springboard Framework,” which is designed to grow annualized revenue by $3 billion over the next three years. It also wants to achieve a 20% operation margin by the end of 2026.
Corning forecasts that the Springboard plan will do this thanks to favorable cyclical and secular macro trends that combine four main areas: Optical Communications, Display, Automotive, and New Platforms.
In addition to new opportunities with traditional telecoms providers, Corning plans to capitalize on the budding generative AI opportunity for its Optical Communications business. The company forecasts that the AI opportunity will drive “significant sales growth starting in 2024.”
To address this opportunity, Corning has leveraged all three of its core technologies and three out of four manufacturing and engineering platforms to develop a new suite of products to address the challenges of density of compute power, complexity of GPU (graphics processing unit) interconnections, and speed of installation for generative AI.
Corning claims its products can offer 60% higher density. Perhaps even more compelling is that the products can be installed four times faster, needing less skilled labor. That’s why the company expects its enterprise business to grow at a compound annual growth rate (CAGR) of approximately 25% for several years.
A few weeks ago, Corning management gave an update on its progress so far.
In Optical Communications, enterprise sales are expected to grow by more than 40% year over year in the third quarter, driven by the continued strong adoption of new optical-connectivity products for generative AI used inside data centers.
The company also showcased a new set of products to interconnect AI-enabled data centers, which support Lumen Technologies’ (LUMN) build of a new network - marking the first outside-plant deployment of Corning’s new generation AI fiber-and-cable system.
Buy GLW Stock
After below-trend fiber demand in 2023, customers are indicating they are deploying fiber at a higher rate than they are purchasing fiber. They have no plans to decrease deployments in 2024, when they are no longer able to draw on inventories. This suggests a second-half upside.
Corning expects carrier sales to recover in the second half of 2024, given that the inventory depletion phase is nearing its end in most optical niches. Overall, Corning believes Optical Communications is in the early phases of a multi-year build cycle.
This is due to major innovation projects underway to take advantage of four “significant secular trends”: broadband; 5G 'densification'; cloud computing; and advanced AI.
Optical fiber revenue rose 20% sequentially in the second quarter, behind tremendous sales for its data center products - particularly for AI. Optical is Corning’s largest segment, and has the best growth profile. It’s nice to hear management expects 25% CAGR for data center fiber through 2027.
In its 170 years of operation, the company has always been an innovator, including inventing the aforementioned glass optical fibers and ceramic substrates for catalytic converters. That innovation is a direct result of Corning’s ability to use its scale to invest heavily in research and development — $1 billion or more per year — and spread these expenses across its five segments.
Centralizing research and development allows it to manufacture products for a materially lower cost than its competitors, while using this investment to maintain an innovation lead that results in leading share positions in its end markets: optical fiber, display glass, cover glass, and emissions substrates and filters.
With the shares around $45, GLW stock is a buy below $48.
