2019 Shareholder Letter | Corning

To Our Shareholders:

In 2019, Corning fulfilled its commitment to you, our shareholders, as we marked the successful completion of our Strategy and Capital Allocation Framework. Over the last four years, we delivered strong shareholder returns while building you a stronger, more resilient company. The path wasn’t always smooth. But this is Corning – we do what we say we’re going to do. Challenges arise, and when they do, we’re honest about the problems, straightforward in our analyses, and resolute in our actions to stay on track.

As a company that has operated during three centuries, Corning is no stranger to holding the course through tough times, and we enter our new Strategy & Growth Framework with the same resolve. We’re realistic about our current environment. We have a tremendous set of opportunities before us. We have a powerful strategy. And the structural steel is in place to ensure the company is stronger than any challenges we face. Each business and function within our organization has a clear understanding of what we are working toward to reach our sales and profitability growth goals over the next four years.

We are a company that has been innovating to solve tough technology challenges and improve the
lives of people all around the world for 169 years. We are confident that our capabilities and industry relationships will create additional value for you as
we move forward.

2019 Financial Performance

Before I delve into our strategy, I’d like to share Corning’s financial results from last year. Our core sales were $11.7 billion, up 2% from 2018, driven by growth in Environmental Technologies, Specialty Materials, and Life Sciences. Core earnings per share were $1.76. During 2019, we set new four-year targets for growth and capital allocation, we increased our dividend, and we demonstrated our ability to generate significant operating cash flow even with market performance below our expectations. Strong capital stewardship is a cornerstone of our management approach.

Once again, we outperformed our underlying markets in each business segment. We grew Environmental Technologies sales 16% against a backdrop of declining car sales. We grew Specialty Materials sales 8% while smartphone units were down. In Life Sciences, we exceeded industry growth rates on the strength of new bioprocess and advanced cell culture products. In Display Technologies, our glass volume grew at a mid-single digit rate even though TV unit sales were down. And, in Optical Communications, we outperformed the passive optical market, which declined.

We entered 2019 with strong momentum following two years of solid growth, and that growth continued in the first half of the year. In the second half, we felt the impact of challenging global market conditions, particularly in Display Technologies and Optical Communications.

In Display Technologies, we experienced a temporary supply chain adjustment. Set makers purchased panels more conservatively, which drove panel maker utilization reductions in the second half. As panel makers purchased less glass, our volume declined accordingly.

In Optical Communications, after sales increased 13% year over year in the first half, they declined 16% in the back half. Changes in spending by two large customers accounted for a significant portion of the year-over-year decline.

We acted quickly to mitigate lower-than-expected second-half demand in both Display Technologies and Optical Communications. While everyone in the company relentlessly executed by making careful program choices, controlling spending, and increasing operational efficiencies, our profitability declined along with factory utilization due to decreased volume.

We expect to return to sales and profit growth in the second half barring external disruptions that could severely affect our ability to conduct normal business operations. In Display, we see indicators that the supply chain correction has ended, and we expect to resume volume growth in 2020, with the majority reflected in the second half. We also plan to start production at our next Gen 10.5 plants, which will support faster-than-market growth as they ramp. In Optical, we expect year-over-year growth in the second half, driven by projects for 5G, fiber-to-the-home, and hyperscale data center deployments. As volumes in both businesses increase, so will our factory utilization, improving the profitability of the corporation.

Framework and Execution Results

The successful completion of our four-year Strategy and Capital Allocation Framework represented a major milestone for the company.

We met or exceeded the strategic goals we set in 2015 while returning more than $12.5 billion to shareholders during the four-year period, including increasing dividends per share by 67%.

We also made significant progress in each of our Market-Access Platforms, with continued strong progress in the final year of the plan despite second-half headwinds. In 2019, we made commercial and regulatory progress on Corning Valor® Glass, a breakthrough glass for the life sciences industry. We opened a dedicated factory for our burgeoning automotive glass business and grew our order book significantly. We also advanced several compelling innovations in Corning® Gorilla® Glass and Optical Communications.

Overall, we advanced our strategic position in each of our markets and continued technology investments focused on high-impact inventions:

  • In Automotive, accelerating gasoline particulate filter (GPF) adoption drove more than $250 million in 2019 sales. We delivered the industry’s first AutoGrade™ Gorilla Glass for 2D and 3D interiors along with our proprietary Corning® ColdForm™ Technology. We also commercialized these inventionsacross the auto ecosystem with industry leaders, including Visteon Corporation, LG Electronics, BOE, and GAC.
  • In Optical Communications, we continued to transform the way the world connects by enabling 5G and hyperscale data center solutions with industry leaders – exemplified by collaborations with Intel, Verizon, CenturyLink, and Altice Portugal. We also earned global recognition for products such as RocketRibbon™ extreme density cable, which enables up to 30% faster installation in hyperscale data centers.
  • In Mobile Consumer Electronics, we increased Corning content on – and in – mobile devices with Amplify screen protectors, decorative backs, and durable solutions for wearables. Gorilla Glass has now been used on more than 7 billion devices worldwide thanks to the expanded adoption of Gorilla Glass 6 and advanced glass innovations for smartphones, wearables, and other devices. We extended our industry leadership with nextgeneration cover glass solutions and deepened customer commitments, including an additional $250 million investment from Apple’s Advanced Manufacturing Fund to support Corning’s processes, equipment, and materials integral to the delivery of next-generation consumer devices.
  • In Life Sciences Vessels, we signed commercial agreements with three major pharmaceutical companies, building on the announcement that a leading pharmaceutical manufacturer received FDA approval of Valor Glass for use as a primary package for a marketed drug product. We also exceeded $1 billion in sales in our Life Sciences segment as adoption of our industry-leading bioprocess and advanced cell culture products continued, driving our organic growth.
  • In Display, we created richer entertainment experiences through display glass innovation, including the launch of Corning® Astra™ Glass, which was selected by Chengdu CEC Panda Display Technology Co. for use in the growing oxide display market. We continued our leadership in Gen 10.5, increasing output at our first Gen 10.5 plant to support the market shift to large-size TVs.

Our businesses in each of these markets have the potential to contribute to double-digit earnings growth in the coming years, which means we have many horses pulling the wagon.

Looking Ahead: Strategy & Growth Framework

As I noted earlier, Corning has successfully managed across multiple business cycles during our 169-year history, and this cycle will be no different. We expect 2020 to be, in many ways, the mirror image of 2019 – with challenging market and customer dynamics in the first half and an expected return to growth in the second half as both Display Technologies and Optical Communications improve and strong growth continues in Environmental Technologies, Specialty Materials, and Life Sciences. As this happens, we expect the company to return to growing sales and profitability.

Looking to the longer term, we expect to drive significant organic growth and create additional value for shareholders under our new Strategy & Growth Framework. Specifically, from 2020 to 2023, we expect to deliver 6% to 8% compound annual sales growth and 12% to 15% compound annual earnings growth. We also expect to expand operating margin and return on invested capital. We’ll continue to use our cash to grow, extend our leadership, and reward shareholders. We plan to invest between $10 billion and $12 billion with a focus on organic growth. And we intend to return $8 billion to $10 billion to shareholders through a combination of dividend increases and opportunistic share repurchases.

Under our new Framework, from 2020 to 2023, we seek to increase annual sales by $3 billion to $4 billion and improve profitability, driven primarily by our strategy to create – and sell into – new product categories that enhance our customers’ offerings. That provides a path to growth – even in challenging markets. We’re not just counting on everybody buying more stuff; we’re putting more Corning into the products people already buy.

Our technology and commercial progress reinforce our position for growth and market momentum. We are excited by the breadth and depth of the opportunities we have created in each of our markets. Here is a closer look at the Market-Access Platform opportunities that support our four-year 6% to 8% sales growth CAGR target:

  • In Automotive, we remain on track to double sales by the end of 2023. In emissions control, regulations continue to increase our opportunity per car, and our GPF technology positions us as the industry leader. In auto glass, designers increasingly rely on interior glass as a point of differentiation. Our proprietary technology uniquely meets their needs. We also see upside in glass components for head-up displays and autonomous vehicles. Successfully ramping our new Hefei factories is key to our success.
  • In Optical Communications, our technologies will play a key role in both 5G and hyperscale data center deployments. Our new suite of products for 5G and preconnectorized solutions for data centers will play a vital role in the acceleration of these key industry trends. We are also making adjustments to how we run the business, with operational improvements in product development and delivery, inventory management, and overall accountability. We will continue to align production output and working capital to current customer demand. That type of focus and improvement takes hard work, but I’m encouraged by the team’s dedication and progress.
  • In Mobile Consumer Electronics, our sales continue on a path to doubling, driven by Gorilla Glass performance innovations that push the state-of-the-art forward. Acceptance of our DX and DX+ durable covers for smartwatches is outstanding, and innovations for foldables are making progress. We believe that 5G could stimulate smartphone unit growth and also increase the number of phones with our glass on the front and the back.
  • In Life Sciences Vessels, our leadership continues to drive growth at more than twice the industry rate. We are leaders in products for cell-based medicine, which is one of the most promising and fastest growing life sciences segments. Additionally, Valor Glass provides a new standard for drug packaging.
  • In Display, we expect to see further stabilization as panel maker utilization increases, TV screen size continues to increase, and our new Gen 10.5 plants come online.

For investors, it’s important to note that the majority of capital necessary to deliver on our Strategy & Growth Framework goals has already been deployed. And our technology and commercial progress position us to capture the significant opportunities we see.

Closing Thoughts

Our sustained investments in technology and people, and our ability to create some of the most consequential material innovations in history, are what make Corning a leader in the markets we serve. It’s why our cover glass has been featured on more than 7 billion mobile devices worldwide since the launch of Gorilla Glass. It’s why we’ve steadily increased our competitive advantage in display glass over the last 35 years. It’s how we’re extending 50 years of automotive leadership to keep winning in the newest category of emissions control. It’s also why top pharmaceutical and biotech companies are turning to Corning for their production and protection needs. And it’s why we’re able to utilize 50 years of Optical Communications expertise to transform the way the world connects. Today, few competitors can match our expertise in any of our core capabilities, and when we combine capabilities, we become truly formidable.

We have not only maintained our competitive advantage over decades—we’ve increased it. And we will continue to do so during the next four years. We have never been satisfied with what is currently possible. We have never been attracted to what is easiest. We have never substituted short-term returns for long-term value, which gives us the focus and intensity to persevere through challenging times.

We are all deeply committed to the success of this institution and to working every day to maintain the trust of shareholders. We are grateful for your partnership on our journey to bring life-changing innovations and products to the world.




Wendell P. Weeks
Chairman, Chief Executive Officer, and President