Corning’s (GLW) shares are have perfomered consistently in the last few months. However, the potential scenario of losing Apple as its customer to GT Advanced Technologies (GTAT) may change that trend. If reports are to be believed, Apple's (AAPL) next iPhone will come with a sapphire display, instead of Corning's Gorilla Glass, and this can largely hurt Corning's revenue going forward. In addition, the company also has many other headwinds and should be avoided at current prices.
A chink in the Armor?
Majority of Corning’s sales were dominated by record purchases in display and the high demand in LCD glasses, mainly because of the increase in market demand for bigger size screens in televisions. The numbers in fourth quarter being up to standards, The company’s management remains quite satisfied with the performance. The company’s management, however, does expect decline in the prices of LCD.
GT Advanced Technologies’ sapphire display’s foray into the market has hurt Corning’s gorilla glass sales massively. One could tell it wasn’t very surprising that Corning’s gross margin dipped well below expectations. Corning’s nervousness has been quite obvious over the past year at the thought of losing out Apple to their rivals, GT Advanced Technologies.
A potential disaster
Corning’s nervousness was made even more obvious after well reputed sources like Forbes and Canaccord reported that the next iPhone will almost certainly have the Sapphire Display, however, it still hasn’t been confirmed officially. Senior Vice President of at Corning, Tony Tripney recently blasted the Sapphire Display technology, making claims about why Gorilla Glass is still a better option than the Sapphire Display. Tripney said:
1) Sapphire is about 10 times more expensive than Gorilla Glass slates.
2) Sapphire is about 1.6 times heavier than Gorilla Glass.
3) Sapphire transmits less light than Gorilla Glass.
4) Sapphire is so hard that manufacturing proper screens out of it requires pricey machines.
5) Gorilla Glass can take 2.5 times as much pressure as a sapphire screen before breaking.
6) Sapphire display will shatter easily as compared to Gorilla Glass.
Most of the statements above are seen as a desperate attempt to retain Apple. It’s obvious because the claims are largely vague and baseless, and have been proved wrong. This is widely seen as a last-ditched attempt to save Apple from the grasp of GT Advanced Technologies.
Contrary to the claims
Corning’s senior VP has based his claims on the false belief that the iPhone 6 will have a display that’s purely sapphire. A new technique, which involves fusing the sapphire laminate sheet and the cover glass together, that has been utilized by Apple, which would mean the display is not going to be purely Sapphire glass. Contrary to claims 1,2 and 3, Apple will not manufacture the pure sapphire displays for its next phone, that job is in the hands of GT Advanced technologies who acquired twin creek during the end of 2012 and it developed a process called the cannonball technology which produced sheets of sapphire that are thinner than human hair.
Moreover, the cost is not “10 times” the cost of Gorilla glass as is being claimed by Corning. The cost of a sapphire sheet is approximately $9 to $12, compared to Gorilla glass which is $3.
Proving claims 1 and 3 wrong, production of sapphire will not be so expensive. Their customers are loyal, they will not stop buying Apple even if they charge a few more Dollars. The large scale production will bring down the overall cost in the future.
Scratches weaken phone’s screen, which make it more prone to shattering, in which case Sapphire will be a better option because of its scratch resistant abilities for more careful users who rarely drop their phone. For users who drop their phone often, Gorilla glass is the better option for them. This also proves Tripney’s last 2 points wrong.
A Sapphire iPhone Is Very Likely
The two major problems with using sapphire in smartphones are high cost and oil affinity. However, if you take a look at Apple's recent patent filings, you will be convinced that the Cupertino giant has solved these problems. Apple recently patented a technique which involves fusing a thin sapphire laminate sheet with cover glass. This means that Apple will not have to manufacture pure sapphire displays for the iPhone 6, which will ultimately bring down the cost of sapphire displays.
The Bottom Line
Considering the fact that Corning has offered a solid return of approximately 55% over the year, I believe that this is the perfect time to sell. Future looks bleak for Corning, considering the fact that Corning is likely lose Apple to GT Advanced Technologies. Thus, investors should consider selling Corning and buying GT Advanced Technologies.