It's made of pyroceram.
A remarkable new glass ceramic
material with exciting new properties.
Corning is a company that's been
around for a long time.
Well known for its highly durable
cookware with cute designs, the
company that made Pyrex and Corning
Ware now manufactures glass for
cars, fiber optic
cable and smartphones.
The way I would describe Corning to
someone who's never heard of the
company before is I guess I would
start by asking them to pull their
iPhone out and explain to them the
glass on that iPhone comes from
Corning and then I'd point to the TV
in the room and say well the glass
from that comes from Corning.
The company that started 168 years ago
as Corning Glass Works is now
valued at $27 billion.
Corning's story is
all about innovation.
Since it started in 1851, a
lot of things have been invented.
Many of them were made
of or involved glass.
People think of glass as single material
and that's not a very good way
to think about it.
It's better to think of it as
a platform that can be tuned for
particular applications.
One of the company's earliest
innovations was the bulb-shaped glass
incasement for Thomas
Edison's incandescent lamp.
As electric light became commercially
available demand grew quickly.
Corning figured out how to mass
produce the bulbs helping bring electric
light to the world.
In the early 1900's, it discovered new
ways to make glass stronger and
heat-resistant. This led to products
like Pyrex and CorningWare.
A line of glass cookware still
being made over 100 years later.
Although the company divested these
products in 1998, Corning's name
still resonates with these brands.
Corning over the years has
transitioned from many different products.
It's a company that has constantly
evolved depending on where glass is
needed the most.
Through the rest of the 20th
century, it manufactured glass for
everything from television sets to the
windows and every manned American
spacecraft mission from the Mercury
program to the space shuttle.
It even created a ceramic filter
that can catch pollutants before they
escape a car's exhaust pipe, which
would become a worldwide standard to
help cut down on car emissions.
Then, Corning got into
the communication space.
So in the 1960s Charles Kao
published a paper that said if
a sufficiently clear optical pipe was
invented the laser could be used
to send information down that pipe
and overcome the bottlenecks that
copper offered for communications.
In the 1970s, the company invented
the first low-loss fiber optic wire,
which used use glass
instead of copper.
The wire was capable of carrying
65,000 times more information than
traditional copper wire.
Corning has been a
public company since 1945.
The stock has been steady for decades
but then took off when the dot.com
boom created huge demand for its
super fast fiber optic cable.
It plummeted to an all
time low when the dot.com
bubble burst.
In 2007, it introduced
a bendable glass fiber.
Allowing it to reach places like
high rises in major cities.
And since 2008 the stock has
maintained a slow steady climb upward.
Today Corning is no longer described simply
as a glass maker but as a
technology company that makes specialty
materials for industrial and scientific applications.
It manufactures products at 108 plants,
in 15 countries and employs 51,000 people.
Corning has changed as a company many
many times over the years that it's been in existence.
It just kind of ebbs and flows
depending on the demand for the products
that Corning supplies these
glass products into.
The company reports revenue and five
business segments with fiber being
the largest at 37 percent.
You know it started out as
a technology you needed for submarine
transmissions super long distances then moved
to long haul on land and
then into metro areas.
Now we're seeing fiber to the home.
The roll out of fiber for 5G
networks and tremendous use of optical
communications in data centers.
Verizon recently agreed
to purchase 12.4
million miles of optical fiber from
Corning to grow its 5G network.
At a minimum cost of $1.05 billion.
This increase in demand forced Corning
to expand its fiber production capacity.
We're also announcing that we are
expanding the world's largest and
lowest cost fiber optic plant right
in North Carolina adding another
quarter of a billion dollars to a
2 billion dollars we've got invested today.
Another big part of Corning's business
is display glass, which made up
29% of its sales in 2018.
Corning LCD glass is used on
TVs, laptops, computer monitors and tablets.
Corning has gone through a lot
of evolutions over the last several
decades. Fiber and telecommunications were one
of the primary drivers in
the late 90s and early aughts and
then around 2003, 2004 they built this
sizable display glass business as LCD
TV became the dominant TV.
That segment had become the biggest.
Over the last 18 months telecommunications
has regrown to become the biggest segment.
Many attribute Corning's success
to its manufacturing techniques.
It created Fusion Forming in 1964.
It involves lava hot glass flowing
down seven stories in mid-air into
one long sheet, which is then cut
into whatever shape and size that
customers need.
The process has not been seen
by many outside of Corning.
Well what we're gonna do is
get rid of all these buttons.
And just make a giant screen.
Then in 2007, about six months before
the first iPhone was released ,
Steve Jobs made a call to the CEO
of Corning and asked the company to
create glass that could withstand scratches
and breakage for a new Apple
product. Corning quickly developed Gorilla Glass
and it's been used on
every iPhone since.
Mr. Weeks how many screens are
you making for the iPhone 8?
I do not speak at all
about what goes on with Apple.
In 2017 Apple announced it would invest
200 million into Corning R and D.
A move analysts saw as a plan to
add glass to the back of iPhones for
wireless charging.
Sure enough it now offers iPhones with
glass on the front and the back.
but Gorilla Glass isn't
just on Apple products.
It's also used by Samsung Nokia
Google Motorola and LG among others.
Corning says Gorilla Glass has been
installed on six billion devices
since its debut in 2007.
So Gorilla Glass is important according
it's about 12 percent of their
overall revenue but that compares to
39 percent for the Optical
Communications segment and 27 percent
for the display glass segment.
So it's not as big as those two
segments but it is more profitable than
average. So it maybe represents 15 percent
or so of gross profits for
Corning.
And what's interesting about Gorilla is
the innovation that went into
making Gorilla has actually allowed it
to go into other potential
markets like automotive.
And so it's really been able to
become a primary form factor for
multiple markets all starting with the
little innovation in the 80s and
really brought to market
with the iPhone.
As smartphones in fiber optics continue
to evolve so must Corning.
It spent 15% more on R and D
in 2018 than it did the previous year.
The company already makes flexible glass
for TVs and cars but it
recently announced it's working on a
new flexible glass product, which
hints that Apple may be
working on a foldable phone.
Samsung and Huawei recently unveiled
their foldable phones but with
plastic-based displays.
Samsung announced it would delay the release of the Galaxy Fold after demo units malfunctioned.
I think the real question is how
we come out with a glass that's
optimized for the flexibility and performance
needed in a full built
foldable phone.
We think that we'll be able
to deliver within a couple years.
Corning also makes glassware for
labs in the pharmaceutical industry.
These represent Corning
smaller revenue segments.
In 2017 it announced that it was
collaborating with Mirkin Pfizer on a
new damage-resistant glass for medical
products made in the U.S..
It's called valor.
These three companies are announcing
that pharmaceutical class packaging
will now be made in America.
That's a big step.
That's a big statement.
Corning's headquarters are still located in
Corning New York about four
hours from Manhattan.
A majority of the town's
residents work at Corning.
The company town is one of
the last of its kind.
In fact it still operates a
work whistle eight times a day.
to let its workers know when to
wake get to work take lunch.
and go home.
It says people are drawn to work
for Corning because it continues to
innovate. Even after 168 years.
as the need for glass demand weekends
in some areas and grows in others.
Units whether it's TVs, PCs, monitors,
phones, tablets none of those in
markets are growing on a unit basis.
So for Corning they need
to do two things.
One is hope that people buy bigger
devices and so far that's what
they've been doing.
Phones have expanded in size TVs are
expanding two to three inches a
year. That's driving the overall
opportunity for Corning because they
don't look at units
they look at area.
And so as long as the
area grows Corning will grow.
The company made $11 billion in revenue
in 2018 despite slow growth in
TVs, tablets and smartphones.
Right now it has a lot of exposure
to display glass so what we've seen
historically if we roll the clock back a
few years is when TV demand is
weak. Maybe around 2007, 2008 and in
the financial crisis then we saw
Corning weak as a result of that.
So that's an example of where
the stock hasn't done so well.
On the other hand right now we
see a lot of growth in Optical
Communications the last several years
and that positive growth in
Optical Communications is a bit a
good driver for the company.
Corning has a specific strategy for
long-term growth called the 3,4,5
approach.
We divide our focus
up into three categories.
The three core technologies ceramics
optical physics and glass science
there are the four
proprietary manufacturing platforms.
And then we combine that three in
our four to go after five primary
markets 80% of the opportunities that
we pursue need to use capabilities
in at least two of the three categories
that I just outlined and then we
repurpose and we reapply our capabilities
within each of those to go
after the next opportunity we scale those
up and we improve the strength
of our manufacturing advantages.
And that cycle repeats
and repeats and repeats.
But what about competition.
It's hard to compete with
Corning's entire spectrum of products.
But it does have competitors
within different business segments.
Corning I would argue doesn't
have any pure competitors.
You have to go segment by segment and
so if you think about the glass
segment there's multiple large
Asian glass suppliers.
However Corning has a tremendous
advantage on manufacturing and so
forth. And so most of the competitors
in the Asian market tend to play
fair and nicely with Corning and
so Corning's build to maintain share
pricing and so forth over the
decades in the glass business.
The same thinking applies to the
company's outlook even if one segment
doesn't do well it still has four
others that could help grow revenue.
They're highly exposed to display
glass and TV as well.
We see that young people watch shows
more on iPads and phones than they
do on big TVs.
So that might reduce the demand for
global glass over time even though
we haven't really seen
that happening yet.
But then again you know on the
positive side the company has exposure to
all kinds of new product opportunities
like self-driving cars are going
to have a lot of display
glass we think inside of them.
Chances are you own at least one device
that has Corning glass in it a
TV a smartphone a tablet your car.
Even if you don't see it, Corning
fiber optic cable runs much of our
telecommunications and is poised
to grow even more.
So for connected cars, you think
about the connection between the
occupants or between the car and
the rest of the world.
I think 5G plays a big role
here and I think because those
communications are going to be important
wherever you take your car
you're likely to see over time
5G deployments move outside large cities
and along highways and into rural areas
so that always on network is
available to passengers.
So there are a
variety of technical challenges.
Right now we have so many opportunities that
we go after that we have to
think hard about which are most
attractive for us and our shareholders over time.
And it makes it
a really exciting time.
