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Why Corning Glass Remains an 800-Pound Gorilla

As part of its plan, Corning will offer price-competitive Gorilla Glass products that will offer higher quality than the standard soda lime glass used today. In addition, Corning will use a China-specific branding campaign to market Gorilla Glass in the leading smartphone market in the world.

In addition to Gorilla Glass, Corning now owns Samsung Corning Precision Materials after buying out Samsung's 43% stake. This will add around $2 billion in annual sales to Corning's display technologies segment while operational synergies will result in $350 million incremental net profit after tax.

This transaction comes with a 10-year supply agreement, where Corning Precision Materials will provide glass substrates to Samsung's products. This agreement strengthens Corning's glass substrate manufacturing and safeguards Corning's interests against cyclical downturn.

Additionally, Corning will leverage its strong market position to benefit from increasing average screen size due to the adoption of large-sized screens on TVs, mobiles, notebooks, and tablets. The increase in average screen size positively impacted Corning's volume, with the company reporting year over year percentage volume improvements in the mid-twenties in fiscal year 2013. It grew by 10% year over year in 2013, and this growth momentum will sustain in 2014 as well.

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Volume improvement helped Corning reduce the negative impact of the glass price dip. Furthermore, the company will benefit from operational synergies derived from this transaction. Corning will derive cost synergies from a combination of manufacturing assets and a reduction in its ongoing capital expenses.

Overall, Corning proves to be a long-term investment opportunity especially with the SCP transaction, which will add high incremental value to both its top line and bottom line. This transaction will also add strong shareholder value because as the free cash generated from this deal will be utilized for share repurchase. An incremental $2 billion in share repurchase will be executed as part of this deal.

In addition, Gorilla Glass will provide strong growth momentum to Corning's revenue in fiscal year 2014, with strong growth coming from new markets like automotive and touch notebooks.


At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Rohit Gupta works in investment banking, buy- and sell-side equity research and ops management.
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