We give Corning (GLW) credit for being in the right place at the right time in terms of their optical business, catching the AI data center wave with ultra-high density connectors and fiber.  While we hope that this leverage continues, we are still on the fence as to whether data center growth will continue at this rate for the foreseeable future.  That said, we go back to the two businesses that are the reasons we follow Corning, their display glass business and their specialty materials business.  The display business has survived a number of precarious moments, such as the fear that flexible OLED would cut into the company’s LCD glass substrate business, or the end of LCD display production by the two major panel producers in South Korea, Samsung Display (pvt) and LG Display (LPL), so we spend some time looking at these segments, letting AI play out a bit more before jumping on or off the data center bandwagon.
Figure 1, Figure 2, and Figure 3 show Corning’s display division sales on a long-term basis, and segment margins on both a long-term and 5-year basis.  The charts show that 2022 was a correction year for much of the CE space after the surge in demand during the COVID pandemic and the inventory build that fed such demand, Corning’s display segment recovered in 2023 and continues to follow a positive trendline.  During 2023 the company announced a substrate glass price increase (~20%), the first since mid-2021, helping to bring prices in-line with rising production costs due to inflation.  This has helped to bring display segment margins back to more normal levels after hitting 5-year lows in 3Q 2022.  Since then display sales have been relatively steady as the price increase held and inventory levels remain normal.
Display margins have also recovered, to the mid 20’s and more recently the upper 20’s, with every quarter this year at least 2% higher than the 5-year average quarterly margin.  We expect margins to remain under 30%, but as Corning’s highest margin business, it is critical that display margins remain in the mid to upper 20% range.  The company projects that display margins will be at least 25% for the full year on between $900m and $950m in sales but indicated that they expect sales to come in at the high end of that range, likely pushing margins above 26% once again. 
On a longer-term basis we see the display segment maintaining sales in the $3.7 to $3.9b range and margins between 26% and 27%.  While we expect substantial growth will be difficult as the display space itself remains in stasis, as long as Corning is able to maintain consistent volumes the display business should continue to generate substantial margins.  We note that Corning management also noted that as the only US display glass supplier, those panel producers looking to increase their US ‘content’ to offset trade restrictions have only Corning as an alternative.
The Specialty materials segment at Corning saw a strong quarter with sales setting a new company record, which we suspect might include some additional Apple (AAPL) business, apropos of the announcement made in August in which Apple committed $2.5 billion to Corning’s Harrodsburg production plant, making it the exclusive supplier of cover glass for all iPhone and Apple Watch products, part of Apple’s commitment to invest $600 billion in US manufacturing over the next four years.  That said, as OEM Gorilla Glass is refined outside of Corning[1] sales of Gorilla Glass do not always correlate to smartphone sales.
Corning’s Specialty Materials segment saw the same sales and margin contraction that affected the display space in 2022, but about a year later as smartphone shipments continued while other CE products slowed.  Specialty materials’ margins have been improving since, currently reaching 18.2% on record sales, which we believe would typically be at or near the high end of the long-term range.  However we expect that the Apple deal might give some room for margin expansion as Corning not only supplies cover glass for the iPhone and Apple Watch but is also the finisher  for Apple.  This should lead to some margin improvement over time as Apple moves all of its cover glass production to Harrodsburg and that facility no longer produces any raw glass for OEMs.
While we are certainly cognizant of the effect AI and data center build outs are having and will have on Corning’s sales and profitability, we are less sure about the long-term sustainability of that growth and look to Corning’s other CE related businesses for steady sales and profitability.  While growth might be a struggle for the display segment, it is a reliable source of sales and income for the company, and as the Trump administration will likely continue to hammer on CE brands to source from US companies, Corning has the competitive upper hand for the next three+ years.  Specialty materials carries a bit more risk in that it is focused primarily on the smartphone segment, but the concept of using more glass per device seems to be keeping demand growing despite the ups and downs of the smartphone market.


[1] The ion exchange strengthening process is done at the OED level

Before we go further, September is almost an irrelevant month this year.  We know that shipments were up as brands added to inventory levels and panel producers pushed out as much product as possible.  We also know that there was a change in October.  As demand  slowed, brands pulled back orders, and panel producers lowered utilization in order to hold panel prices as steady as possible.  As noted above, that strategy has been working for many panel types, with only minor price degradation, but it has not been working as well for TV panels where brands are concerned that they might have built inventory level too high. This makes October the relevant month, where we expect to see lower shipments and lower sales, especially for those panel producers that specialize in TV set panels.  WE don’t expect a blood bath, but it will certainly be a more decisive month  than September, which was sort of a “What, me worry” month.
The metrics for the month (September) are:

• Shipments were up 4.1% m/m, up 5.0% y/y, but down 2.2% on a cumulative y/y basis.
• TV shipments were flat m/m while all other categories were up between 1.4% (Monitors) and 5.6% (tablets)
• All, including total shipments were up y/y, although monitor panels and total shipments were down on a cumulative y/y basis.
• Most large panel producers saw m/m sales gains, with LG Display (LPL) the strongest, and most small panel producers seeing sales flat or down m/m.

Display panel pricing, for the most part was flat for the month of October, with TV panel pricing the only category that saw movement (↓2.1% m/m), albeit within our forecast range. Our November forecast is almost identical to October, with a bit of an increase on TV panel downward pressure and less on mobile panel pricing.  We show both October pricing and forecast for each panel category below and also show October Y/Y and an additional metric that shows cumulative prices y/y, indicating how much better or worse the year is at this point relative to last year.

As we have noted previously, panel producers, particularly Chinese panel producers who control the LCD panel market, have been taking a different path this year.  Rather than letting panel prices fall to improve demand when buyers hold back orders, they are lowering utilization rates.  This has created a more stable pricing environment for IT panels (Monitors, Notebooks, Tablets) but has not worked as well for TV panels where TV brand buyers have faced considerable uncertainty concerning holiday demand.  Panel producers have lowered utilization rates temporarily in October but are hoping that brands will pull in some early 2026 orders before year in order to take advantage of lower TV panel prices.  Some of that optimism comes from the upcoming 11/11 holiday in China, although the  most recent holiday sparked little incremental demand, and the knowledge that the Winter Olympics will take place in early February.  However thus far brands have been holding out orders, assuming that TV panel prices will continue to fall.

We thought, after weeks of price gains that pushed prices above trendlines once again,  that DRAM pricing might take a breather last week.  We were wrong, in fact the price of DDR4[1] continued to rise making last week the fourth week in a row with price increases over 10% and pushing DDR4 to its high point for the year.    Little has changed fundamentally as the broad switch by DRAM producers from DDR4 to DDR5 continues, along with demand for HBM, which is capturing capacity that might still be producing DDR4, leaving the market tight.  It is expected that DDR4 prices will continue to rise into 2026.  The current spot price of $17.68 is the high for this year, up from $2.93, reached on 3/5/25, for a gain of over 500%.


[1] DDR4 16Gb 2Gx8
 

OMDIA has put together a list of the worldwide top 1000 channel ecosystem partners that includes system integrators, VARs, consultants, managed service partners, managed security professionals, and no-telco service providers.  In order to make the list, firms had to earn $28 million in annual sales, but inclusion[1] was not limited only to sales as geographic presence, employee count, on-line following, and strength of partnerships were also part of the evaluation, although we are not sure how one might measure ‘strength of partnerships’.
As might be expected the list is unbalanced, with the top 30 partners generating the same amount of sales as the remaining 970, some $546.6 billion out of $1.07 trillion US (~51%) and employing 6.09 million workers out of the 10.56 million employed by the entire list (58%).   Here’s how each group looks:


[1] Certain types of organizations, such as distributors, vendors, telcos, SaaS companies, and independent software vendors (ISVs), were excluded from the rankings, so that the list would focus on professional services and not IT manufacturing and development.. 

We note that on an unweighted basis North America, as a headquarter location, appears 43.3% of the time, while APAC 33.3% and Europe 23.3%.  If the headquarters data are weighted according to rank, North America appears 38.5%, APAC 32.9%, and Europe 28.6%. 
More regional detail is shown in Figure 1.
Here are the top 30 in order[1]:


[1] Partner types were assigned to this list based on what service area constituted the majority (50%+) of a given partner’s revenue.

​As part of the list of the top 30 OMDIA includes a brief description (75 words) of each company.  Not surprisingly they all began to sound the same after the first few, so we had our AI check to see what keyword appeared most often.  Obviously ‘global’ was at the top of the list, mentioned in every description, followed by ‘consulting’ in 25  of the 30.  ‘Cloud’ was mentioned in half and ‘transformation’ in just under half.  ‘AI’ was mentioned 9 times (surprisingly less than we would have thought) and ‘cybersecurity’ was mentioned 7 times. 
All in, the top 30 list contained a few names we did not know, but for the most part one might have been able to guess a good chunk of the top names on the list.  We thank OMDIA for providing the list. 

From the consumer standpoint AR/VR headsets are confusing.  VR headsets are bulky and isolating but some have the ability to ‘see’ the real world through cameras that mimic eyesight.  AR headsets are not isolating and typically less ‘weighty’, making them a more practical alternative for everyday use, but there are now two flavors of smart glasses, those with a display and those without, which seem to have replaced what were once thought to be AR glasses.  The reality of these variations is that many consumers are unsure what they are buying and what they might be used for.  Expecting smart glasses to be able to project a walking path for the user a few steps ahead will prove to be disappointing if one purchases smart glasses without a display, as directions can only be verbal, but easily met using smart glassed with an internal display.
Unit volume data and forecasts for each of these devices is also confusing, especially as the importance of each category has changed radically over the last year.  VR headset growth has slowed this year as the user base for VR tends to be limited to gamers.  Those purchasing VR headsets for a ‘virtual experience’ are likely to still be a bit disappointed in headset performance as the software does not seem to be able to create a true ‘virtual leap of faith’ for all users.  AR headsets are almost not a thing as they have morphed into smart glasses with displays, and smart glasses without displays are essentially a more mobile extension of a smartphone.  With all of these changes in a short period of time it is no wonder why estimates and forecasts are a mishmash of data and do little to give consumers much information.

Growth estimates for these categories are equally obtuse as the newer categories are coming off of a very small base last year and product combinations are different for each brand, but it is almost a moot point given that Meta (FB) dominates most of the categories with over a 60% share on a general basis.  Throw in the Chinese market, which shows different product acceptance patterns than the US and that mishmash becomes a large pile of poorly assembled data.
At the same time consumers are confused about what they are buying and what they can do with each device.  Now that ‘AI’ is stamped on every box, consumers are rushing to buy smart glasses so they can walk down the street, get directions to the nearest CVS, be directed by their glasses to the nasal spray aisle and have the AI purchase for them using their CVS bucks to lower the price.  Unfortunately smart glasses are not quite at that point yet, and if you purchased a pair without a camera, you would have to listen to turn-by-turn directions rather than see them virtually, and integrating your glasses into CVS’s system is far above current capabilities, so you would be forced to ask for directions to the nasal spray and actually wait on line to pay.
Given the strong sales of smart glasses in China mentioned earlier, one would believe consumer excitement to be at or building to a fever pitch and that is the case on large Chinese retail sites like JD.com (JD) where the volume of transactions for smart glasses has increased by 10x, but there is a catch.
JD.com and Tmall (BABA) are reporting that while sales are very strong return rates are around 30% for smart glasses, with the primary reported reason being “Lack of functional practicality”.  An example would be that Xiaomi’s recently released AI glasses, which sold 70,000 units during their first week of release, faced a return rate on the Douyin (pvt) platform was ~40%.  Consumers were disappointed by the fact that the glasses were essentially earphones with a camera and left the consumer to still rely on their smartphone, although a bit more time reading the spec sheet might have given an indication of the device’s capabilities.
Where brands now have to be very careful is to make sure they are not leading consumers down a path of disappointment by over-promising capabilities during a period of market enthusiasm, as that disappointment will live on with consumers even as the products grow more sophisticated.  Meta seems to get the idea with their recently released Ray-Ban display smart glasses that don’t promise to create a virtual experience but provide the functionality that gives them value, the opposite of Apple’s (AAPL) Vision Pro XR headset, which over-promised and under-performed.  Don’t promise the world, just find things that make smart glasses useful to consumers, and they will beat a path to your door…

Smartphone functionality doesn’t change much although this year AI, both embedded and standalone, has enhanced a number of smartphone functions.  Smartphone brands are always looking for new features to push those with older phones to upgrade to the latest model but rarely do those features actually mean much.  More cameras and bigger cameras has been a focus for smartphone designers over the last few years but there was a limit to how many cameras are needed for average picture taking and that feature set has begun to fade.  As noted ,AI is the new darling of the smartphone space but seems to be having trouble generating enough value that consumers would be willing to pay extra for it, and that is the goal of any new mobile feature.
There is one feature that has been gaining attention.  One that has actually been around since 2011 but was not in a position to be accepted by consumers at that time.  That feature is a second smartphone display.  Brands have been experimenting with these additional displays, typically on the back of the phone for years but until the advent of foldable phones they were considered novelties with little attraction for consumers.  Now that smartphone buyers are more familiar with secondary screens and the controlling software has become more sophisticated, these additional displays have become more popular.

Xiaomi (1810.HK) has been researching the concept and recently released the Mi 17 smartphones series, including the 17 Pro and the 17 Pro Max, both having secondary displays.  The 17 series (the Xiaomi 17 has only one screen) has been extremely popular already selling (1 week) 20% more than the previous generation (no dual screen) at this point in time.  Sales of the phones in the first 5 minutes of release set a new record and the phones (1 week) have already sold 1 million units, also a record.  This has given Xiaomi the confidence to state that the next series (Xiaomi 18 line) will also have dual screens and that the company is adding to its R&D budget, above the $140m US it has already spent, to research more dual screen functions and Xiaomi expects to release live translation to the 17 series by the end of this month and will add new features each month going forward.  

​As with many smartphone features there is a need for competitors to tag along as rivals add new features, and while some brands have been burned by dual screen failures in the past, we expect others will follow.  Logically the secondary displays will get larger in the same way other features have, and we see the ultimate end point being a smartphone with displays covering both the back and front, essentially an all-display phone.  We believe this would be overkill and a distinct cost burden, although currently 6.8” flexible OLED displays can be had for less than $20 in quantity.  It is not out of the realm of possibility.

​LG Electronics (066570.KS) offered 101.815 million shares of its Indian subsidiary to the Indian market in an IPO valued at ~$1.3 billion US, which turned out to be not only a feather in the company’s hat, but a windfall for those investors who participated in the offering.  The deal was priced at the top of the projected range (₹1,140 per share or ~$12.95 US) and opened at ₹1,715 on the BSE and ₹1,710.10 on the NSE ($19.43 - $19.48), a roughly 50% gain over the offering price.  It closed at   ₹1,689.40 ($19.19 US) on the BSE and at ₹1,689.90 ($19.20 US)  on the NSE.
The deal was oversubscribed (Institutional) by over 166 times and at the closing day 1 price the company was valued at ~$13.1 billion US, considerably above the market cap of LG Electronics itself.  The Indian subsidiary has no debt and an ROE of 37% for its most recent fiscal and manufactures, (85% of its products are produced by the subsidiary in India), assembles and sells (~14.5 million units/year) appliances (Refrigerators, Washers, Microwave ovens, TVs, Monitors, laptops, A/C, HVAC, and commercial displays) and CE products.  The capital raised will likely go toward LGE’s broad overall growth plan, although we expect more detail will come out during the company’s 3Q conference call later this month.

DDR4 prices took a breather for the summer but have continued to increase as the markets remain tight.  While demand remains strong for DDR4 and DDR5, capacity has been shifted to HBM by major suppliers, yet Samsung Electronics’ (005930.KS) preliminary results indicated that even with the difficulties Samsung has had with HBM, the commodity memory business continues to flourish, and prices continue to rise.  Most major DRAM producers have halted quotes in order to take advantage of rising prices, a world away from last year’s constant battle with price declines.  Over the last 4 weeks DDR4 DRAM (16GB 2GBx8 3200 Mt/sec) has increased in price by 49.5% and is up 318.4% YTD.  Even DDR3 (4GB 512Mx8 1600 MT/sec), which has largely been phased out of all but legacy systems, was up 30.6% over the last four weeks and is up 228.2% YTD.  The chart says it all…

The most recent breakdown in trade negotiations between the US and China, which resulted in China reinstating strict restrictions on the exportation of rare earth materials, has focused considerable attention on how this change might affect prices of various CE products going forward.  While this is certainly a point to be reckoned with, we also took a look at the increases seen in certain other metals that are key to the internal pricing for components and sub-systems in CE devices.  The rare earth issue is one of on/off, whether there is enough inventory of these materials to maintain supply or not, while the price of other metals is more ongoing and could continue to affect CE prices without regard for supply.
Aluminum, Carbon, and Iron make up ~53% of the weight of an average smartphone, while gold, silver, platinum, and palladium make up less than 1%, yet those four precious metals make up ~90% of the value of the metals in a smartphone, making them the most sensitive to price changesl.  Based on the increases we have seen in these four precious metals to date, the value of metals in a smartphone, even assuming all other metals are flat for the year (including ‘other’), the current value of metals in an average smartphone has increased by 44% to date. 
As to the impact of that increase on the overall cost of producing a smartphone, we note that the model of the phone has a large influence on the sensitivity to the  increase in precious metal prices.  We have seen estimates between $1.13 (from 2020) and $5.00 for the value of metals in a typical smartphone, so we use both $3.00 and $5.00 to represent the low and high end of the range. Using the $3 base and only applying the precious metal increases, the precious metal base increases to $4.23.  Using the $5.00 base, the precious metal cost rises to $7.01.

While the impact to a smartphone BOM is relatively small, certain components hold the major share of those precious metals.  PCBs are at the top of the list with gold, platinum, and silver appearing in electrical contacts, pins and board edge connectors, along with plating for through-holes, traces, and pads.  Palladium is used in some MLCCs (Multilayer Ceramic Capacitors) and most ICs have some precious metal content, so those components are more likely to see price increases due to precious metal price increases, rather than the phone framework itself.
All in, the increase in precious metal prices should have only a minor effect on smartphone BOM and CE products in general but will put additional pricing pressure on some specific components if precious metal prices are sustained.  However,  rare earths make up extremely small amounts of CE product weight and value.  They are primarily sourced from China and the US government and private companies maintain relatively small rare earth stockpiles (1,300 Tons), leading to estimates that rare earth inventory would last ~2 months based on current usage statistics if no new purchases were initiated. Certain rare earths might last for less as they are not heavily stockpiled, while some light rare earths can be purchased from Australia, Estonia, and Vietnam but the amounts are relatively small and require refining in most cases.

​This leaves the rare earth trade situation almost entirely in the hands of the Chinese, who are using it as leverage in their tariff negotiations with the US.   The US military, automotive, and consumer electronics spaces are most at risk and while the price of precious metals gets most of the press, in another 60 or 90 days things could become more critical if the situation is not resolved.  It’s one thing for consumers to have to postpone the purchase of a new smartphone or laptop because of shortages, but it has more far-reaching implications for the automotive space and even greater implications for the military.