CorningGlass PDF

For the exclusive use of Harvard Business School on 17-Aug-2016.
December 4, 2012
Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Siu Choon Koay • siuchoon.koay@bernstein.com • +852-2918-5722
Lu Bian • lu.bian@bernstein.com • +852-2918-5736
Display Glass: Initiating Coverage – Finally Facing Its

Customers’ Value-Destroying Economics
Coverage Initiation
30 Nov 2012 TTM EPS P/B
Closing Target Rel.
Ticker Rating CUR Price Price Perf. 2011A 2012E 2013E 2011A 2012E 2013E Yield
GLW O USD 12.23 15.20 -21.4% 1.79 1.28 1.22 0.9 0.8 0.8 2.5%
5214.JP (NEG)* U JPY 470 350 -55.2% 39 22 15 0.5 0.5 0.5 3.2%
5201.JP (Asahi Glass) U JPY 628 440 -19.8% 82 54 53 0.9 0.8 0.8 4.2%
034220.KS (LGD) U KRW 34,600 31,000 14.9% -2,163 380 3,159 1.2 1.2 1.1 NA
LPL U USD 15.88 14.31 19.0% -1.00 0.18 1.46 1.2 1.2 1.1 NA
2409.TT (AUO) M TWD 12.35 11.70 -28.1% -6.94 -5.37 -1.23 0.5 0.7 0.8 NA
AUO M USD 4.12 4.02 -24.7% -2.39 -1.85 -0.42 0.5 0.7 0.7 NA
3481.TT (CMI) O TWD 13.00 13.40 -15.3% -8.81 -3.62 -0.03 0.5 0.7 0.7 NA
MXAPJ 452.42 33.43 35.22 38.99 NA NM NA 3.1%
SPX 1416.18 96.09 102.34 111.96 NA NM NA 2.2%
O – Outperform, M – Market-Perform, U – Underperform, N – Not Rated
* Nippon Electric Glass (NEG) FY ends in March. 2012 refers to fiscal year end in March 2013.
Highlights
We are initiating coverage of Display Glass, launching on the three public companies involved in the
business – Corning Inc., Nippon Electric Glass (NEG), and Asahi Glass Co. (AGC). Our industry thesis
points to a continued difficult operating and valuation environment, with declining revenues and
profitability if companies cannot out-innovate price declines. We are generally bearish on the entire sector,
although we find Corning is much better positioned in both the existing business and future growth
opportunities. It is also undervalued relative to the value embedded in Corning’s franchise.
• We believe the display glass industry has some challenging times in store as TFT-LCD technology
innovation and margin capture through larger motherglass has ceased and the companies in the
segment are fully exposed to their customer’s poor economics.
− Although all of our companies have diversified business lines and are working hard to grow these other
businesses, the bulk of the profits (90%+ of operating profits) still come from the TFT-LCD display
segment, where the economics are structurally challenged.
− The display glass industry has traditionally been economically profitable (with average ROIC-WACC
of 5%) but has seen its margins suffer from ASP declines amidst a rigid cost structure. As a result,
excess returns have dropped closer to zero in the last 12 months.
Asian IT Hardware
− Display glass stocks have been battered over the past 4 years, currently trading at book multiples of
0.5-0.8x. We believe this is due to the fact that they are now fully exposed to the value-destroying
economics of their only customers, the TFT-LCD panel manufacturers.
− Since the YoY topline growth rates of the glass makers and its major customers, the TFT-LCD panel
makers are similar, and glass maker profitability and EBITDA margins are heading towards their
customer’s average profitability across the crystal cycle, we expect valuations of both industries to
continue to converge.
See Disclosure Appendix of this report for important disclosures and analyst certifications.
December 4, 2012
• We forecast that despite cost improvements through continued process innovations and glass
thickness reductions, display glass margins in the existing business will continue falling at historical
rates. We believe EBITDA margins could be reach zero within 7-8 years for the industry, and
sooner for NEG and AGC unless revenues and profits from successful diversification make up the
slack.
− Display glass is still relatively profitable with cash margins of ~60% compared to TFT-LCD panel
manufacturers cash margins of 20-30%. However, ASPs have been declining on average 15% YoY for
the past 7 years, in line with panel ASP declines. Costs have only dropped 6% YoY resulting in
shrinking margins.
− Areal demand for glass is anticipated to grow at a 10% CAGR in 2012-15. However, with ASPs
approaching cash margins faster than volume growth, we anticipate a compression in absolute profits
for the weakest players.
− Display glass manufacturers can derive cost savings from a combination of cost controls, process
efficiency improvements, and glass thickness reduction, but it is not clear if these improvements can
lead to higher than historical cost reduction trends to arrest margin compression.
• However, some longer-term opportunities for new sources of high-margin revenue do exist,
including hardened cover glass, high-performance glass for high-resolution applications, and
flexible glass.
• Among the three display glass manufacturers, we believe Corning and its JV with Samsung,
Samsung Corning Precision (SCP), is best positioned to capture the upside of these opportunities,
and is most protected from the current structural decline. As glass margins decline, we expect non-
display segments to hold up Corning’s top and bottom-lines.
• Given current valuations, we think this longer-term upside is not incorporated in Corning’s stock
price, and we rate Corning Outperform, with a DCF-driven valuation corresponding to a 0.9x 2013
PBV multiple. This results in 24%upside from market values.
− Corning has the highest margins relative to peers AGC and NEG. This margin buffer, together with
product leadership in substrate and cover glass, its partnership with Samsung, and diversification in
revenues from non-display glass make Corning more resilient and a better choice on the long-term
revival of the sector.
• For AGC and NEG, we believe there are further downside risks as margins continue to erode from
current levels, and we don’t see as clear a path to successful and profitable diversification for these
two companies. Hence we rate both of them Underperform.
− However, AGC and NEC stock prices have dropped significantly, and short-term consensus
expectations, if met, could lead to a technical rebound which could generate up to 15% temporary
upside.This possibility does not change our long-term view on these two companies.
Asian IT Hardware
• If historical margin trends persist, NEG would be the first to see negative margins. We assign a
DCF-supported 0.4x 2013 P/BV multiple to NEG, and 0.6x to AGC, leading to 26% downside from
current levels at NEG and 30% at AGC.
− We are not divergent with consensus on near term EBITDA prospects, but believe structural trends in
ASP erosion and difficulty in cost improvement will persist longer term, resulting in higher than
expected long-term margin declines for these two companies. Guided by our multi-year projections, we
believe a lower valuation multiple is justified than currently.
2
December 4, 2012
Investment Conclusion
Exhibit 1
Display Glass Coverage Initiation Summary
Ticker Name Mkt Cap Rating Stock 12-M Consensus 11/30/2012 SCB Delta Current FY Next FY SCB Consensus LTM
(USD M) Currency SCB TP TP Price to Target SCB Cons. SCB Cons. Multiple Multiple Div. Yield
Display Glass EBITDA (USD) EBITDA (USD) P/BV
GLW Corning 18,074 O USD 15.20 14.77 12.23 24.3% 2,481 2,660 2,857 2,954 0.9x 0.9x 2.5%
5214.JP Nippon Electric Glass 2,833 U JPY 350 454 470 –25.5% 917 986 811 920 0.4x 0.5x 3.2%
5201.JP Asahi Glass Co. 8,796 U JPY 440 601 628 –29.9% 2,670 2,719 2,809 2,814 0.6x 0.8x 4.1%
Source: Capital IQ, Bernstein analysis and estimates
Corning Inc. (GLW) – Outperform – Target Price: $15.20

Despite a bleak industry outlook, we believe Corning has structural advantages of lower areal cost due to its
manufacturing process, operational efficiency, economies of scale, and pricing premiums from its
technology and quality edge. Corning enjoys consistently higher margins relative to peers which we believe
can be sustained. Being the largest in the industry with ~50% global areal shipment share, Corning also is
much better in R&D, making it the partner of choice for Samsung with SCP and the recent OLED-Lotus
Glass JV. In cover glass, we expect Corning’s lead with its Gorilla Glass will continue with growth in the
mobile applications market. Amidst eroding margins in display glass business, Corning’s diversification in
its revenue base (47% revenue from non-display glass in 2011) will attenuate margin compression trends.
Corning may see some near term compression from faster ASP erosion from its new client contracts that
reference market pricing and reduced fees from SCP from mutual agreements to reduce royalty rates. SCP
also faces future competition from LG Chem for its LG Display business. In Corning’s non-display glass
business, we anticipate fairly stable prospects with moderate growth rates and margin improvement.
Asahi Glass Co. (5201.JP) – Underperform – Target Price: JPY 440
AGC utilizes the float process which incurs higher manufacturing costs due to additional polishing steps to
achieve the same quality as the fusion process. This results in lower margins compared to NEG and
Corning. However, the float process allows a better spec glass for OLED, providing AGC with product
differentiation. AGC has more exposure to Taiwanese panel clients (AU Optronics and Innolux), which are
currently struggling financially and have weaker revenue prospects relative to Korean competitors’. On the
positive side, AGC is diversified with exposures to automobile and construction glass, chemicals and
ceramics, which make up 68% of 2011 group revenues. AGC also has a substantial share of the cover glass
market with its Dragontrail product. AGC is where we differ the most with the Street as our estimates for
the medium term are more pessimistic than consensus.
Nippon Electric Glass (5214.JP) – Underperform – Target Price: JPY 350
Asian IT Hardware
NEG is the least diversified company among the three display glass companies, with the highest revenue
exposure to display glass segment with ~80% in IT and electronics devices (the bulk in display glass). This
subjects NEG to a more direct impact from industry price erosion amidst cost rigidities. NEG has a lower
cash margin as well, due to its lack of scale and distance from customers, given almost all of its plants are
located in Japan. We believe these put the company at risk as the industry pricing pressures persist. Being a
price follower, NEG also does not have as much control over topline dynamics. NEG’s product portfolio is
not particularly competitive – with only leadership in thin glass and marginally in cheaper soda-lime cover
glass, but exposed to PDP which is shrinking in demand, and lagging in OLED glass portfolio.
On the positive side, NEG has about 30% (and rising) of its shipment serving LGD, which is one of the
faster-growing clients, albeit being eventually diluted to second source by LG Chem. NEG also has lower
operating expenses, enabling it to enjoy margins comparable to AGC’s, but lower than Corning’s.
3
December 4, 2012
TFT-LCD Panel Companies (for reference):

LG Display (034220.KS, LPL) – Underperform – Target Price: KRW 31,000
LG Display has had the fastest rerating, given its financial strength and capability for technological
improvement that peers are unable to replicate. However, we believe investor sentiment on the name has
gotten well ahead of fundamentals, and hence we rate LG Display Underperform. We apply a multiple of
1.1x NTM BV, calculated from the implied fair value multiple from forward consensus estimates. We also
rate the ADR Underperform.
AU Optronics (2409.TT, AUO) – Market-perform – Target Price: TWD 11.70
Although the stand-alone display business is on the upswing, the highly unprofitable solar business is
dragging the whole company down. We value AUO at 0.7x NTM BV, which is the implied fair value from
our multiple calculations. We also rate the ADR Market Perform.
Innolux (3481.TT) – Outperform – Target Price: TWD 13.40
We believe the uncertainty and overhang over the upcoming equity raise is keeping the stock at depressed
valuations relative to its fair value. We value CMI at 0.7x NTM BV, which we believe is a fair multiple
given the absence of merger synergy catalysts, current mid-term ASP and utilization trends, and in line with
our implied multiple calculations.
Details
This display glass initiation note provides in-depth analyses supporting our main investment conclusions:
• How has the display glass industry evolved, where is it now, and where is it headed? (Page 5)
• A review of where topline growth has come and where we expect it to come in the future – are the new
applications important enough to drive material revenue growth? (Page 10)
• How do these companies make money, and how is the money-making machine under threat? (Page 17)
• How do these companies trade as stocks, and what are the trading dynamics? How valuations and
expectations compare to that of their main customers, the TFT-LCD panel makers? (Page 24)
• What are company-level fundamentals, how these companies differ by manufacturing technologies, cost
structure, and non-display glass product portfolio? (Page 31)
• In an appendix, we have included some background on the application and manufacturing technologies:
• What are the existing and new applications that could drive further growth in the industry? (Page 53)
• What are the glass making technologies for TFT-LCD, OLED, touch and flexible displays, and how are
our coverage companies positioned? (Page 65)
Asian IT Hardware
Although all of our companies have diversified business lines, the bulk of the profits come from the TFT-
LCD display segment. Thus, the focus of this initiation note is on the display glass business. In future
research, we will certainly deepen our company-level understanding, covering more thoroughly the non-
display glass businesses and our view on these as revenue and profit drivers.
4
December 4, 2012
I. How Did the Display Glass Industry Get to Where It Is Now, and Where Is It Going?
The companies we are initiating on today are,at heart, old-line, old-school industrial companies with long
and storied histories (Corning was founded in 1851, Asahi Glass in 1907, and Nippon Electric Glass in
1949). These aren’t fast-growing startups or the next big thing that will upend the status quo in an industry.
On the other hand, all of these three companies have been around for a long time and remain viable because
they have had the ability to identify what the next big thing would be, and capitalize on it using its decades
of accumulated knowledge in glass and glass making. Glass may seem to be something relatively simple to
make, but in reality is one of the more technology and IP-intensive products out there.
The three companies have successfully transitioned over the decades from housewares through industrial
glassware, light bulbs, automotive glass, optical glass, fiber optics, CRTs, all the way into their current (but
increasingly challenged) cash cow, TFT-LCD glass.
Before the turn of the century, the three companies we’re initiating on today, Corning, Asahi Glass (AGC),
and Nippon Electric Glass (NEG), were very different. The flat panel display industry was in its infancy, and
available products were extremely expensive. For our coverage companies, the proportion of revenues (and
profits) coming from TFT-LCD glass was tiny. Major product drivers were fiber optics (Corning),
automotive and industrial (AGC), and CRTs (NEG).
But technology evolution at the panel makers has driven down manufacturing costs, and the glass makers
stepped in with their decades of knowledge and manufacturing experience to provide a fundamental
component of the display, the motherglass substrate, used in the backplane and in the color filter.
In the early days of the TFT-LCD industry (in the last century), the dynamics of capacity increase were
driven by outright market entry. First, the Japanese perfected the technologies to the point of
commercialization, followed by the Koreans, and then by the Taiwanese. At that point, glass technology was
relatively primitive, and small motherglass sizes (G1, G2, and G3) were pretty much all that was available
cost-effectively.
As the industry developed, a wave of industry consolidation and mergers (primarily at Taiwanese and
Japanese panel makers) established an industry “equilibrium” where barriers to entry were effective in
preventing new entrants, and competition shifted to capacity growth, scale, and market share. This period in
the industry, from 2001 to 2007-2008, was characterized by massive capacity build-ups, with areal growth
rates in the 80-100% range per year in the early years. The capacity growth was not through building bigger
fabs with the same glass size, but by keeping sheet capacity relatively constant and increasing the
motherglass size (glass generation). The culmination of this progression was Sharp’s G10 Sakai plant, put
into mass production in late 2009.
It was not unusual during this period for a single fab (e.g. LG Display’s P7) to increase total available
capacity by 25-30%. The supply shocks from fab capacity additions were massive. Fortunately, the areal
cost improvement brought by the larger motherglass size was sufficient to reduce costs and ASPs to drive
demand at the level of the capacity additions, strongly mitigating the ceteris paribus oversupply from this
Asian IT Hardware
capacity increase.
The glass makers took full advantage of this capacity arms race. The race required bigger and bigger
motherglass, which involved technology innovation and capacity expansion at the glass makers. But within
the glass makers, an equilibrium evolved where it was clear that competing on price was unnecessary and
destructive – the IP and technology innovation required to make bigger and bigger motherglass was
something the glass companies could charge their customers for, since even as areal ASPs increased, the
TFT-LCD panel makers still benefitted from economies of scale.
This competitive equilibrium was incredibly profitable for all three players – as average motherglass size
increased, the proportion of higher-margin revenues was increasing. This was an unusual and fortunate
situation. Not only were the new technologies (bigger motherglass) commanding a higher margin, they were
doing so as they occupied an even bigger share of revenues – Nirvana!
5
December 4, 2012
Further, the competitive intensity between the three players was a true Gentleman’s Club. Corning has
always been the biggest player in the industry, and as we discuss below, the lowest-cost producer, both from
scale and its more advanced technological capabilities. Their customers of course would prefer lower prices,
but would be willing to pay a premium for quality, cost, and delivery (QCD), meaning that price-based
competition would have its limits. Corning set ASPs, but AGC and NEG knew full well that the incremental
share gains from competing on ASP would be lower than the ensuing margin compression, and thus tended
to “fly under Corning”, offering better pricing in order to maintain and gain share, but not offer concessions
large enough to materially impact their margin.
The TFT-LCD glass business up to about 2007-2008 was a classic “strategic moat”. Entry was inhibited by
technological barriers, the customers needed the product at all costs and were willing to pay for it, and
competition among players was polite, everybody knew better than to kill the goose that laid golden eggs.
Making money was like shooting fish in a barrel.
However, as is always the case in technology, the party has to come to an end. Increasing motherglass did
provide economies of scale, but these economies had diminishing marginal returns. The gains to the panel
makers from each successive glass generation were decreasing. From 2008 onwards these decreases of
marginal return to motherglass scale were such that incremental glass sizes did not provide enough of an
investment incentive to build bigger fabs. Coupled with changing consumer preferences towards smaller,
higher resolution screens for portable and mobile products, these two effects have stalled capacity-driven
cost reductions. Hence, forecasts for TFT-LCD capacity additions are more measured than the actual in the
recent past (Exhibit 2).
Exhibit 2
Exhibit 2
Total TFT-LCD Capacity and Growth Rate
Total TFT-LCD Capacity and Growth Rate
300 70%
250 60%
50%
200
40%
Capacity (Millions of
150
30%
100
20%
50 10%
0 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E
Total Capacity (LHS) Growth Rate (RHS)

Asian IT Hardware
Source: Display Search, Bernstein analysis
As a result, motherglass size innovation has stalled and unit shipment growth moderated. The first effect
means that glass companies are no longer able to command a premium for their products based on
motherglass size. Before the 2008 transition, glass makers could always showcase their newest glass size,
charge customers for it, and the customers had no choice but to buy it if they wanted to take advantage of
the economies of scale of bigger motherglass. However, when motherglass size stopped growing, price
negotiations involved nothing that new – they were just offering last season’s garments, and the only way to
compete then is through price. ASP declines have become more pronounced since this inflection point.
6
December 4, 2012
Also, as capacity growth moderated, unit shipment growth slowed down. Coupled with faster ASP declines,
this has put the TFT-LCD glass industry as we know it in secular decline, with tepid revenue growth and
shrinking margins.
Both the panel makers and the glass makers are fully aware of this, even though they are loath to admit it.
We are now in a more mature phase, where supply (and demand) growth is moderating. In this new world,
the role of technology shifts to providing improved panel and pixel technologies for new and existing
applications (e.g. tablets, 3D TVs, high-frame rate and high-resolution screens), and the development of
new display technologies, such as OLED.
Hence, we expect an increase in innovative activity in search of new growth opportunities. New form
factors, new applications, and new product categories will tend to proliferate in the near future. The glass
companies are on to this with a vengeance – hardened cover glass, ultra-thin and flexible glass, and high-
performance glass for high-resolution applications and OLED are the next big thing and they are actively
making investments in these and other areas relating to display.
Let’s face it, the TFT-LCD glass business had a very good run, and the glass companies took full advantage
of their technology capabilities, IP barriers, and competitive environment to transform themselves (once
again) into “new” kind of glass companies, the same way they have done so in decades past and in earlier
technology transitions. But that run is coming to an end, and the key question for these companies is what’s
next? And for investors the key question is what’s next coming quickly enough and in volume to allow the
companies to transition into a new growth path? In other words, can the glass companies reinvent
themselves now that this cash cow is done for?
Given that display glass is currently the major revenue and profit driver for the companies in our coverage,
in this note we mainly focus on glass applications for TFT-LCD, OLED, touch and cover glass, and flexible
glass. We de-emphasize the discussion of applications in CRT and Plasma since these technologies are
facing obsolescence, and discuss only briefly applications for other uses (automotive, fiber optics, plate
glass, etc.). The companies in our coverage also have businesses that are non-glass related, which we
discuss in some detail in the company-specific sections.
If the as-is TFT-LCD display glass business is in “sunset” mode, what’s next for topline growth?
Although the growth opportunities in the “as is” TFT-LCD glass business are not as attractive as in the past,
there is still going to be continued growth, although not at the same rates. We anticipate the largest driver
for industry areal demand in the coming years will remainTVs,contributing 55% of 2012-15 absolute
incremental areal shipment, of which 42% is LCD and 13% OLED. These are followed by notebook PCs
(16%), tablets and smartphones (15%) and PC monitors (11%). Most of the areal growth is driven directly
by unit growth, with dimension growth only adding marginally to monitors. Small form factors such as
smartphones and tablets although seeing increased in size for high-end, would still see average shipment
hovering around present mainstream dimensions (Exhibit 3).
Asian IT Hardware
At the company level, Corning’s ASPs are expected to hold slightly better than peers given its product
portfolio which is more differentiated across a broader spectrum. However, we anticipate LG Chem as a
new entrant supplying LGD would see some of SCP’s shipment growth reverse as a result, resulting in NEG
and AGC appearing to have faster shipment growth during certain periods (Exhibit 4).
7
December 4, 2012
Exhibit 3
Industry Areal, Unit and Dimension Growth Forecast
Exhibit 3
Industry Areal, Unit and Dimension Growth Forecast
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
LCD TV Notebook Monitor Small LCD TV Notebook Monitor Small LCD TV Notebook Monitor Small
Areal Growth Unit Growth Dimension Growth
2013 2014 2015 2016
Note: Small refers to smartphones and tablets. OLED TV excluded as growth 2015-16 with not meaningful growth rates.
Source: Display Search, IDC, Strategy Analytics, Bernstein estimates
Source: Display Search, IDC, Strategy analytics, Bernstein estimates
Exhibit 4
Company Revenue, Areal ASP and Shipment Growth Forecast
Exhibit 4
Company Revenue, Areal ASP and Shipment Growth Forecast
15%
10%
5%
0%
-5%
-10%
-15%
Corning NEG AGC Corning NEG AGC Corning NEG AGC
Revenue Areal ASP Areal Shipment
2013 2014 2015 2016
Source: Bernstein estimates, Display Search
The next phase of absolute display glass growth, and the source of upside for our coverage companies will
be dominated primarily by OLED and touch cover glass, which will have quite a bit of runway from further
Asian IT Hardware
adoption of tablets, smartphones, and touch-based notebooks. Flexible display glass is a longer-term
proposition, but we expect it to grow rapidly as adoption increases. OLED glass and flexible glass have a
smaller base relative to TFT-LCD substrates and touch cover glass, thus enjoying much higher growth rates.
Among companies, Corning has a portfolio that is the widest, encompassing OLED (Lotus Glass), flexible
(Willow Glass) and touch cover glass (Gorilla Glass). NEG has leadership in thin glass suitable for 3D TVs
and also low-cost soda-lime cover glass. AGC, through differentiation in float process, has a leading OLED
glass product, Dragontrail hardened cover glass, and thin glass.
We generally prefer Corning’s portfolio to date given shipment leadership in TFT-LCD substrate and cover
glass, and also its JVs with Samsung where it has product specifications tailored to a powerful client and
partner. However, Corning has gaps in low-cost soda-lime cover glass and float OLED glass which gives
NEG and AGC niches to build share from. Depending on how receptive OEMs are to these various
technologies, their uptake in end markets would essentially slow ASP declines, driving differences in
company performance and our investment recommendations (Exhibit 5 and Exhibit 6).
8
December 4, 2012
Exhibit 5 Exhibit 6
Exhibit 5
Revenue Growth by Display Glass Technology
Revenue Growth by Display Glass Technology
Display Glass Technology Differentiation by Company
Corning NEG AGC
60% TFT-LCD ~50% areal 22% areal 24% areal

shipment share shipment share shipment share
including SCP
50%
OLED Lotus Glass Development Float OLED
(JV with
40% Samsung)
Cover Gorilla Glass Soda-lime Dragontrail with
30% Glass / with ~60% cover glass ~30%
Touch aluminosilicate presence aluminosilicate
areal shipment areal shipment
20% share share
Flexible/ Willow Glass, Thin glass 0.1mm thin
10% Thin EAGLE XG Slim leadership; 3D float glass
TV applications
0%
Source: Bernstein analysis, company websites
-10%
2013E 2014E 2015E
TFT-LCD OLED Cover Glass/Touch Flexible

Asian IT Hardware
9
December 4, 2012
II. Topline Drivers for Display Glass – What Are the Sources of Current and Future Revenue?
Demand for display glass is driven entirely by uptake from display panel companies. The major customers
of display glass are Samsung Display, LG Display (LGD), Innolux (formerly known as Chimei Innolux,
CMI), AU Optronics (AUO), and Sharp (Exhibit 7). These “big five” account for approximately 80% of
available TFT-LCD areal capacity, with the rest dispersed among a dozen or so smaller players.
Exhibit 7 7
Exhibit
Top Five TFT-LCD
Top Five TFT-LCD Panel Makers
Panel Makers ArealAreal Capacity
Capacity
70,000
60,000
50,000
40,000
Area Capacity
30,000
20,000
10,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E
Samsung LG Display CMI AUO Sharp
Source: DisplaySearch, Bernstein analysis and estimates

Source: Display Search, Bernstein analysis and estimates
TFT-LCD glass is sold and priced per sheet, but the metrics of interest are areal shipments and ASPs. As
expected, panel companies seek to diversify their supply sources, and they tend to source from at least three
out of the four largest display glass manufacturers – Corning/SCP, AGC, NEG and AvanStrate (Exhibit 8).
These four glass makers supply 99% of all available TFT-LCD glass.
Exhibit 8
ExhibitSubstrate
8 Glass Source by TFT-LCD Panel Manufacturers (Q2 2012)
Substrate Glass Source by TFT-LCD Panel Manufacturers (Q2 2012)
100%
75%
50%
Asian IT Hardware
25%
0%
AUO CMI LGD Samsung Display
Corning SCP AGC NEG AvanStrate Other
The four
Source:main
Display drivers of glass
Search, Bernstein analysisrevenue growth are unit shipment growth, device dimension growth, ASP,
and technology innovation that reduces glass demand (for example, touch solutions not requiring a separate
glass sheet, such as in-cell or on-cell, or non-glass substrates). We saw approximately 324 million m2 of
areal display glass demand in 2011, anticipated to grow 9% YoY in 2012.
10
December 4, 2012
About 60% of areal demand comes from LCD TV. In the foreseeable future, LCD TV will still dominate
areal demand growth for display glass, as notebook PCs, tablets and small panel devices (smartphones) are
growing off a much smaller areal demand. LCD TV unit shipment is anticipated to grow 6% CAGR in
2012-15, tablet 23%, smartphone 16% and monitors roughly flat. OLED will be growing very fast, but
contribution will still be under 10% of glass areal demand by 2015.
Aside from shipment growth, areal demand will be driven by dimension growth in devices. Although there
are physical limitations that would theoretically limit growth for TV (home sizes) and mobility devices
(notebook and smartphones), there is still potential for dimension growth. If prices fall sufficiently, pick-up
of adoption for large screen sizes will accelerate. We anticipate dimension growth to contribute ~2% p.a. to
areal demand growth in 2012-15, where monitors have the highest growth rates.
A third driver of areal demand growth is technology innovation that reduces glass demand, such as the
introduction of one-glass-solution (OGS), in-cell and on-cell panels for touch devices. These technologies
would reduce the number of panes of glass required in devices by one or more layers. If prices continue to
fall, these technologies may become viable for mass adoption. OGS, in-cell, and on-cell are more relevant
for smartphones and mobility products, which strive for lighter and thinner form factors, than for TVs,
where the benefits of making thinner panels aren’t as crucial.
We incorporate our assumptions for these three drivers of areal demand for display glass together, and
estimate that global areal demand growth would average 10% CAGR in 2012-15 (Exhibit 9 – Exhibit 11).
These growth rates are in line with expected industry capacity growth, from both new investments and
incremental investments that improve capacity and yield from existing operations. They are also much lower
than the (sometimes) triple-digit growth rates experienced in 2001-2007.
Exhibit 9 Exhibit
Exhibit 10
10
Exhibit 9
2012-15
2012-15 Unit
Unit Growth
Growth Forecast
Forecast Glass Areal
Glass Areal Demand
Demand 2012-15
2012-15 CAGRCAGR Forecast
Forecast
25% OLED TV 20%
Tablets 15%
20%
10%
Smartphones
2012-15 CAGR
5%
15%
0%
10%
Notebooks -5%
LCD TV
Asian IT Hardware
5% -10%
LCD TV Small
Monitors
0%
Unit Growth Dimension Growth In-cell/On-cell/OGS
200 400 600 800
2012 Shipment (Mil. Units) Note: Including cover glass
Note: Including coverglass
Source: Display Search, Strategy Analytics, IDC, Bernstein analysis
Source: Display Search, Bernstein Analysis Source: Display Search, Strategy Analytics, IDC, Bernstein analysis
11
December 4, 2012
Exhibit 11Exhibit 11
Substrate Glass Areal Demand Growth by Application
Substrate Glass Areal Demand Growth by Application
600
500
Areal Demand (Millions of
400
300
200
100
2010 2011 2012E 2013E 2014E 2015E
Public Display OLED TV LCD TV Notebook PC PC Monitor Handset and Tablet
Note: Ex-cover glass

Note: Ex-cover glass
Source: Display Search, Bernstein estimates and analysis
Source: Display Search, Bernstein estimates and analysis
The other major driver of topline growth is ASP for display glass. Over 2008-2011, we have seen ASPs for
the top four glass manufacturers drop 14% YoY, set against 20% YoY growth in areal demand. This
compares negatively to YoY drops below 10% before 2007, when motherglass size innovation was still
providing pricing power to the glass makers.
Currently glass cost makes up about 21% of panel cell cost and 12% of panel module cost, and as such any
pricing pressure on TFT-LCD inevitably filters through to glass ASPs (Exhibit 12 and Exhibit 13).
Exhibit 12 Exhibit 13
Exhibit 13
Exhibit
Substrate Glass12 ASP Trends GlassGlass
CostCost
vs.vs.TV
TVPanel Module
Panel Module CostCost
(2012)(2012)
Substrate Glass ASP Trends
10,000 100%
9,000 90%
8,000
80%
7,000
70%
6,000
ASP (JPY/
5,000 60%
4,000 50%
3,000 40%
2,000
30%
1,000
20%
10%
E
05
06
07
08
09
10
11
12
20
20
20
20
20
20
20
0%
20
Asian IT Hardware
r . l t r
Corning SCP ss ray ilte izer rys el r IC igh rte etc.
la Ar r F lar d C er C ive ckl nve B,
NEG AGC G r
e
th Co
lo Po ui
q th Dr Ba I
PC
O Li O
Note: Refers to Display Technologies division for Corning (ex-Special
Materials), Electronics and Display division for AGC and firm-wide for NEG,
SCP. Note: 32” 1080p G8 CCFL
Source: Company disclosures, Display Search, Bernstein analysis Note: 32” 1080p G8 CCFL
Source: Company disclosures, Display Search, Bernstein analysis Source: Display Search, Bernstein analysis
ASPs are usually set quarterly by private agreements between supplier and panel manufacturers with
reference to market prices. There are slight differences between individual customers but typically each
quarter would involve new discussions on price. Corning is typically the first mover, where they would set a
price and go to market with that price. Peers would have to price under Corning to get share. When there is
a situation of oversupply the premium between Corning and the others tends to erode. After prices are set,
there is little intra-quarter change.
12
December 4, 2012
Co-location of glass manufacturing and panel fabs also mean that fluctuations in shipment share cannot be
too aggressive. However, recently, Corning has also started negotiating a fixed shipment share with clients
and having pricing reference market prices through a fixed formula. Corning’s approach aims to reduce
price cutting by competitors that ultimately erodes its shipment share given it is the first mover. The
objective is to stabilize its slide in shipment share and price premium over time. It remains to be seen how
effective this is.
TFT-LCD glass industry is highly concentrated and four companies control 99% of supply
From the supply side, a handful of companies dominate display glass. The four largest are Corning and its
Samsung JV SCP, AGC, NEG and AvanStrate (which is not listed). For 2012, Corning and SCP combined
have about 50% of shipment share, AGC 25%, NEG 22% and AvanStrate 5%. Technology and capital
barriers have been effective to prevent entry of others into the segment – the same four players have been
around since the beginning of the industry.
Because of the (previously) highly attractive industry economics, the TFT-LCD segment has attracted many
suitors, including Schott, Saint Gobain, and LG Chem, and also attempts by panel makers to backward
integrate into glass to capture the margins. All of these efforts to date have not been successful. Based on
current projections and our industry understanding, these four would likely dominate the display glass
market in the foreseeable future without significant shipment disruption anticipated at this point
(Exhibit 14).
Exhibit 14
Exhibit 14 Substrate Glass Areal Shipment Share by Company
Substrate Glass Areal Shipment Share by Company
100% 5% 5% 5% 5% 5% 5% 5%
90%
17% 17% 21% 21% 22% 22% 22%
80%
70%
60% 24% 25% 25% 26% 25% 24% 24%
50%
40%
31% 34% 30% 28% 26% 25% 25%
30%
20%
10% 23% 20% 19% 21% 22% 23% 23%
0%
2008 2009 2010 2011 2012E 2013E 2014E
Corning SCP AGC NEG AvanStrate Other
Note: Others include LG Chem, IRICO, Xufei, CNBM

Note:
Source: Display Others Bernstein
Search, include LG Chem, IRICO,
analysis and Xufei, CNBM.
estimates
Asian IT Hardware
Source: Display Search, Bernstein analysis and estimates
Capacity for display glass has grown on average 15-30% YoY during 2008-2012E, with AGC and NEG
~30% on average, and Corning/SCP and AvanStrate ~15% (Exhibit 15 and Exhibit 16). The more
aggressive expansion of AGC and NEG has resulted in some market share expansion at the expense mostly
of Corning, which has declined from 54% of shipment share in 2008 to 49% in 2012.
Given how connected the supply chain is for display glass relative to TFT-LCD panel (essentially all of
display glass goes to TFT-LCD panel manufacturers), we observe a strong correlation in supply-demand
balances between these two industries.
13
December 4, 2012
Substrate Glass
Substrate GlassAreal Capacity
Areal Capacity by Company
by Company Substrate Glass
Substrate Areal
Glass Areal Capacity
Capacity YoYYoY Growth
Growth by Company
by Company
450 70%
400 60%
Areal Capacity (Mil sq. m)
350 50%
300 40%
250 30%
200 20%
150 10%
100 0%
50 -10%
E
08
09
10
11
12
13
14
15
20
20
20
20
20
20
20
20
2008 2009 2010 2011 2012E
Corning/SCP AGC NEG AvanStrate Other

Corning/SCP AGC
NEG AvanStrate
Note: Ex-cover
Note: Ex-cover glass glass
Source: Display Search, Bernstein analysis Source: Display Search, Bernstein analysis
Source: Display Search, Bernstein analysis Source: Display Search, Bernstein analysis
Exhibit 17 shows our capacity, demand and supply demand balance for glass and for TFT-LCD (previously
published and discussed in TFT-LCD: Supply-Demand Imbalance and Poor Profitability to Persist in 2012,
Adjusting Target Prices Downward). Glass oversupply has worsened since 2009 and continues to create
pricing pressure, and the two supply-demand indicators have been moving in lockstep over the last couple
of years.
Exhibit 17
Substrate Glass Industry Supply Demand
Exhibit 17
Substrate Glass Industry Supply Demand
120 30%
100 25%
20%
Supply Glut (%)

80
15%
60
10%
40
5%
20 0%
0 -5%
Q1’08 Q2’08 Q3’08 Q4’08 Q1’09 Q2’09 Q3’09 Q4’09 Q1’10 Q2’10 Q3’10 Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q4’12 Q2’12
Asian IT Hardware
Glass Capacity (LHS) Glass Demand (LHS) Glass Supply Glut (RHS) TFT-LCD Supply Glut (RHS)
Capacity planning for glass and TFT-LCD industries is deeply intertwined. Both industries effectively have
to match growth in capacity in lock-step in order to avoid one end of the supply chain growing faster or
slower than the other end. Generally, for every unit areal increase in TFT-LCD panel capacity, we observe
roughly 2x areal increase in substrate glass capacity given two layers of substrate glass is required per panel,
excluding cover glass.
14
December 4, 2012
However, historically we have observed times where TFT-LCD panel capacities front run glass, and as a
result capacities of glass to panel could be as low as 1.7x. This was generally the case prior to 2008, when
glass companies were a lot more disciplined about increasing capacity, and tended to lag capacity additions
relative to TFT-LCD. This provided additional pricing support and negotiating power with the glass makers.
Tank generations for substrate glass and fabs for TFT-LCD panels line up over time. Over the period of
2009-12, we have seen the introduction of more G8 capacities in TFT-LCD, mirrored almost exactly by
glass G8 capacity growth (Exhibit 18).
Exhibit 18
Exhibit 18Substrate Glass vs. TFT-LCD Panel Capacity by Fab Generation
Substrate Glass vs. TFT-LCD Panel Capacity by Fab Generation
Substrate Glass Q1 2009
TFT-LCD Panel Q1 2009
Substrate Glass Q2 2012
TFT-LCD Panel Q2 2012
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
G1 G2 G2.5 G3 G3.25 G3.5 G4 G5 G5.5 G6 G7 G8 G10
Note: Only include substrate glass, ex-cover glass

Source: Display
Note:Search, Bernstein
Only include analysis
substrate glass, ex-cover glass.
This suggests thatSearch,

Source: Display anyBernstein
over-estimation
analysis in TFT-LCD planning would affect glass directly. We confirm this
from the correlation of supply gluts between glass and TFT-LCD. Glass capacity build-out is a guessing
game of how utilizations will pan out for TFT-LCD panel manufacturers a year forward, and which
competitor to invest in given that co-location of glass and TFT-LCD panel fabs leads to longer-term
commitments than those involving purely merchant arrangements.
Proximity of TFT-LCD and display glass along the hardware value chain means pricing weakness at TFT-
LCD panels is directly transferred to glass. On a YoY basis, all ASPs decline, how much is a matter of cost
structure improvements, the financial condition of the panel makers, and technology innovation that leads to
ASP support (e.g. larger motherglass). On average, we see that ASP drops are similar over the past 7 years
between TFT-LCD and glass, at 15% YoY (Exhibit 19).
Exhibit 19
Substrate Glass vs. TFT-LCD Panel Areal ASP and Cash COGS YoY
Exhibit 19
Substrate Glass vs. TFT-LCD Panel Areal ASP and Cash COGS YoY
Asian IT Hardware
40%
20%
0%
-20%
-40%
-60%
2006 2007 2008 2009 2010 2011 2012E
TFT-LCD Panel ASP TFT-LCD Areal Cash COGS Glass Areal ASP Glass Areal Cash COGS
Source: Bernstein analysis, Display Search, company disclosures
15
December 4, 2012
The pricing relationship does not surprise, given glass owes its existence to TFT-LCD panels. If capacities
and tank-fab generations are so tightly linked for the two industries, we expect the economics to also have
the same relationship. However, ASP declines do not match perfectly for the two industries as peculiarities
beyond supply-demand imbalances, such as new technologies (e.g. bigger motherglass, high-performance
glass for high-resolution applications), yield issues, and negotiation dynamics may result in divergent ASP
evolution.
Although “innovation” may promise higher ASPs (or at least a milder decline), we have seen from the
experience of PCs and TVs that declining ASPs is a trend that is here to stay. There may be room for
high-end niche products but the average price will likely suffer commoditization and strong competition
beyond the initial phase. In order to maintain or increase ASPs, a strong and continuous stream of
innovation would need to be committed to stay ahead of the technological curve, usually only feasible by
the industry leader with scale and scope.
Our choice in this space would be Corning. Even though it is as exposed to the economics of its customers
as its competitors AGC and NEG, its innovation pipeline and technological strengths make it the most likely
to support profitability over its peers.
What are current substrate glass ASPs projections going forward? Over the last 7 years, we have seen
average declines of -15% YoY. DisplaySearch is projecting that ASP drop would slow to -9.3% YoY until
2015, and moderate to -6.3% YoY from 2015 until 2017. Combining these assumptions with topline areal
growth of 10-12% YoY, we estimate at best low single digit revenue growth rates for the industry. If ASPs
follow historical trends of -15% YoY, we anticipate revenue would see negative 6% growth. Under this
worst case scenario, ASPs would continue dropping until the point where marginal production costs would
yield zero EBITDA margins, after which ASPs could not go any lower. In general, our bias is to consider
the higher YoY declines to be more likely than DisplaySearch’s more optimistic forecast.
Asian IT Hardware
16
December 4, 2012
III. The Economics of Display Glass Business – Who Makes Money, and How?
The cost of display glass production is primarily driven by depreciation (i.e. capital expenditures), raw
materials, personnel, and energy costs. Energy costs are significant in the display glass manufacturing
process as silica grains (sand) first need to be turned into a molten slurry which requires high temperatures.
Variable costs (including personnel) contribute about 45% of cost base, while fixed costs (the remaining
55%) is primarily driven by depreciation given how capital intensive the industry is. The biggest driver of
raw material cost is silica grains (sand) that make up 70% of raw materials cost (Exhibit 20).
Exhibit 20
Glass Manufacturer Cost Structure
Exhibit 20
Glass Manufacturer Cost Structure
21%
100%
7%
80%
26%
60%
15%
40%
11%
4%
20% 13% 3%
0%
Raw Materials Packaging Outsourcing Energy Costs Personnel Depreciation Repair Other Costs
Variable Cost Fixed Cost
Source: Bernstein estimates and analysis
One of theBernstein
Source: overarching themes
estimates and analysis in display glass is that as areal ASPs plunge, costs would have to fall a
commensurate amount just to maintain margins. As glass ASPs fall, margins are incrementally squeezed.
Taking a look at the components of glass cost – depreciation from new capacity installation, personnel,
energy – we find most items unlikely to fall and can only increase unless manufacturing technological
breakthroughs can be achieved to derive incremental efficiencies.
In the near term, raw material costs may see some scale back as display glass becomes thinner over time,
deriving some savings from material costs and from the increased capacity that is available given that
thinner glass is made by basically running the process at higher throughputs. There are some economies of
scale from manufacturing bigger glass sizes, as production process is scalable to a certain degree.
Several factors drive differences in cost base for glass manufacturers. Choice of manufacturing process is
among them. Corning, NEG, and AvanStrate use the fusion process (or a close variant), which does not
require polishing as there is no contact during forming and has better accuracy and consistency on
Asian IT Hardware
thickness. The float process, relied on by AGC, used in contrast produces some undulation with insufficient
planar uniformity, creating higher defect rates, and a polishing step which increases costs. Among
manufacturers, Corning’s technological lead is also known to translate in a more efficient production
process, lowering marginal costs. It is our understanding that Corning has the lowest fixed and variable cost
structure of all the players.
We have seen that over time, cash margins across all companies have fallen. The biggest driver of declining
cash margins is dropping ASPs; cash costs on the other hand have stayed relatively unchanged and are not a
key driver in margin compression. Longer-term, we anticipate this structural trend to continue, until the
marginal cost of production approaches zero (i.e. EBITDA margins come close to zero). We do not see any
structural reason for the deceleration of cash margin compression, which in the near term would constitute
the biggest challenge for the sector.
17
December 4, 2012
Of course, we expect the companies in our coverage to do the utmost to arrest or slow down the ASP
declines, but the economics of the mature display glass business do not suggest to us that margin expansion
from the core business is possible in a sustainable way. The linkages to TFT-LCD panel downstream
customers play an important role on the structural decline of margins. We compare how areal ASPs have
evolved relative to areal COGS for both glass and TFT-LCD panels. The trends bear a striking similarity –
both areal ASPs have driven down margins, suffering from a more rigid COGS structure.
Despite declines, EBITDA margins for glass are still far richer than those for TFT-LCD panels, as the sector
had traditionally a higher margin starting point relative to panels. Over the past 7 years, we have seen glass
areal cash COGS fall less compared to TFT-LCD panels (-6% vs. -11% YoY). Areal ASPs for glass has been
falling at -15% YoY, at similar rate to panels. This implies that if current trends were extended, we would
see glass margins increasingly compressed, although it would take a while before glass margins norm to
TFT-LCD panel levels.
Cash margins for display glass currently stand at 70-80% of revenue, which means there is still substantial
compression before they approach TFT-LCD panel cash margins at 10-30%. This margin allowance
guarantees display glass will perform better financially than TFT-LCD panels in the mid-term.
Glass pricing is influenced by economics in TFT-LCD panels. Having just one type of customer means the
display glass business has little room to maneuver when it comes to pricing power. Before 2007 the
economics were in favor of the glass makers, as they were able to charge higher areal margins based on
technology and product innovation as motherglass sizes increased. Since 2008, however, this pricing power
has eroded as capacity expansion slowed down and there was no economic rationale to build fabs with
bigger motherglass than G8 or so.
Hence, the only source of pricing power is going to come from the companies managing the competitive
environment in their favor, by signaling pricing moves so that price-driven competition is at a minimum.
This has been the case to date, although the loss of the economics in their favor has frayed that Gentleman’s
Club somewhat, with NEG “defecting” and aligning closer to LGD, and LGD trying to keep SCP at bay
through its collaboration with LG Chem in being a supplier of TFT-LCD glass. Regardless of the new
competitive environment, we do not believe pricing declines for glass would be faster than those
experienced by TFT-LCD if history is any guide (Exhibit 21 through Exhibit 24).
Exhibit 21
ExhibitCorning’s
21 Substrate Glass Areal ASP and Cash Cost
Corning’s Substrate Glass Areal ASP and Cash Cost
9,000
8,000
JPY Per sq. Meter
7,000
Asian IT Hardware
6,000
5,000
4,000
3,000
2,000
1,000
05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 Q11 Q11 Q11 Q11 12 12 12

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1 2 3 4 1Q 2Q 3Q
Areal ASP Areal Cash Cost Areal ASP - Areal Cash Cost
Note: Display Technologies division, ex-cover glass. Corning chosen as disclosures more accurately reflect substrate revenues.
Source: Company disclosures, Bernstein analysis
Note: Display Technologies division, ex-cover glass. Corning chosen as disclosures more accurately reflect substrate revenues.
18
December 4, 2012
Exhibit 22
Exhibit 22
TFT-LCD Panel Industry Areal ASP and Cash Cost
TFT-LCD Panel Industry Areal ASP and Cash Cost
2,500
2,000
1,500
USD per
1,000
500
2Q 5
05
4Q 5
05
2Q 6
06
4Q 6
06
2Q 7
07
4Q 7
07
2Q 8
08
4Q 8
08
2Q 9
09
4Q 9
09
2Q 0
3Q 0
10
1Q 0
2Q 2
12
11
3Q 1
4Q 1
11
0
1
1
1
1
1
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
4Q
2Q
1Q
Areal ASP Areal COP Areal Cash COP
Source: Company disclosures, Display Search, Bernstein analysis
Source: Company disclosures, Display Search, Bernstein analysis
Exhibit 23 23 Exhibit
Exhibit 2424
Exhibit
7-Year Avg.
7-Year Areal
Avg. ArealASP, Cash
ASP, Cash COGS
COGS YoY YoY Change
Change Display Glass
Display Glass EBITDA
EBITDAMargin
Margin
0% 80%
70%
-2%
60%
EBITDA Margin
-4% 50%
-6% 40%
30%
-8%
20%
-10% 10%
0%
-12% 2005 2006 2007 2008 2009 2010 2011 2012E
-14%
Corning NEG
-16% AGC TFT-LCD Average
Note: TFT-LCD refers to average of CMI, AUO and LGD. Corning refers to
Display Technologies excluding Specialty Materials and royalties income from
SCP.
Source: Bernstein analysis, company disclosure, Display Search
Source: Bernstein analysis, company disclosure, Display Search
Source: Bernstein analysis and estimates, company disclosure, Display
Source: Bernstein analysis and estimates, company disclosures, Display Search
Search
Asian IT Hardware
If the current trends persist, the “as-is” display glass business is greatly challenged and we could see the
industry hitting a margin wall even as demand grows. Although starting with a higher EBITDA margin base,
faster ASP erosion than reduction in costs means the glass industry will see margin compression in coming
years.
We simulate what this would look like to industry profits given historical ASP, cost and projected demand
trends. We find that it would take a mere 8 years before the industry enters negative EBITDA margin
territory. We have modeled the average margins for the industry as a starting base, where some players may
see a faster margin erosion if starting from a lower starting point (Exhibit 25).
19
December 4, 2012
Exhibit 25
Simulation of Industry Profit Erosion
2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Base Case Price & ASP YoY -15% -15% -15% -15% -15% -15% -15% -15% -15% -15%
Cost Cost YoY -6% -6% -6% -6% -6% -6% -6% -6% -6% -6%
Areal ASP 1.00 0.85 0.72 0.61 0.52 0.44 0.38 0.32 0.27 0.23
Areal Cash Cost 0.37 0.35 0.33 0.31 0.29 0.27 0.26 0.24 0.23 0.21
Margins Cash Margins 63% 59% 55% 50% 44% 39% 32% 25% 17% 8%
OPEX Ratio 13% 13% 13% 13% 13% 13% 13% 13% 13% 13%
EBITDA Margins 50% 46% 42% 37% 32% 26% 19% 12% 4% -5%
Demand Areal Demand YoY 10% 10% 10% 10% 10% 10% 10% 10% 10%
Areal Demand 1.00 1.10 1.21 1.33 1.46 1.61 1.77 1.95 2.14 2.36
Absolute Rev 1.00 0.94 0.87 0.82 0.76 0.71 0.67 0.62 0.58 0.55
YoY -6% -7% -6% -7% -6% -6% -6% -7% -6%
EBITDA 0.50 0.43 0.36 0.30 0.24 0.18 0.13 0.07 0.02 -0.03
YoY -14% -15% -17% -20% -24% -30% -42% -69% -213%
Bull Case Price & ASP YoY -10% -10% -10% -10% -10% -10% -10% -10% -10%
Cost Cost YoY -6% -6% -6% -6% -6% -6% -6% -6% -6%
Areal ASP 1.00 0.90 0.81 0.73 0.66 0.59 0.53 0.48 0.43 0.39
Areal Cash Cost 0.37 0.35 0.33 0.31 0.29 0.27 0.26 0.24 0.23 0.21
Margins Cash Margins 63% 61% 59% 58% 56% 54% 52% 50% 47% 45%
OPEX Ratio 13% 13% 13% 13% 13% 13% 13% 13% 13% 13%
EBITDA Margins 50% 48% 47% 45% 43% 41% 39% 37% 34% 32%
Demand Areal Demand YoY 12% 12% 12% 12% 12% 12% 12% 12% 12%
Areal Demand 1.00 1.12 1.25 1.40 1.57 1.76 1.97 2.21 2.48 2.77
Absolute Rev 1.00 1.01 1.02 1.02 1.03 1.04 1.05 1.06 1.07 1.07
YoY 1% 1% 1% 1% 1% 1% 1% 1% 1%
EBITDA 0.50 0.49 0.47 0.46 0.44 0.43 0.41 0.39 0.37 0.35
YoY -3% -3% -3% -3% -4% -4% -5% -5% -6%
Note: Starting point for cash/EBITDA margins based on average of Corning, NEG, and AGC.
Source: Bernstein analysis and estimates, Display Search, company disclosures
How the companies in our coverage respond to this inevitability will define our view of the investment
opportunities the stocks present to investors. In our view, the industry is not necessarily doomed, as
disruptive innovations can increase the wallet size for the display in the finished product, be it a notebook
PC, a tablet, or a smartphone. Innovation would slow ASP erosion (as we do with the bull case in
Exhibit 25) and if sufficiently significant, may reverse current trends as did the introduction of smartphones
for the handset industry. In that scenario, glass makers can continue to innovate with higher performance
glass and glass applications where it can charge a higher margin as the panel makers can in turn command a
higher premium in their own offerings.
There are levers to pull to slow cash margin erosion, which we will be watching closely. Glass
manufacturers have been able to derive economies of scale from manufacturing larger panes of glass.
Asian IT Hardware
Efficiency improves for glass makers as the process is scalable, allowing for a bigger areal output over
period of time. This scaling up of glass sizes has been the trend in the past few years but is a facing
slowdown, and is no longer providing any material margin lift.
TFT-LCD panel manufacturers are still burdened by huge depreciation cost for their new G8 fabs, and
sometimes face competition from fully-depreciated smaller generation fabs such as 2-up in G5.5 or 6-up in
G6. As a result of these dynamics, we anticipate limited economies of scale from the trend of dimension
increment.
Another avenue for lowering cost has been the reduction of glass thickness, which is a more technologically
intensive product and potentially commands higher price premium. Glass inputs such as silica is priced by
weight, while glass output is priced by area. Any reduction of thickness would directly translate into a
reduced input in raw materials, which comprise roughly 13% of cost base. Today, glass produced is about
20
December 4, 2012
0.5mm, but technologically, much thinner glass is already feasible, pending mass adoption by OEMs.
Assuming a drop in 0.1mm, that’s a 20% reduction in raw materials. The “holy grail” in this trend is
ultrathin glass, of thickness of 0.1mm or even thinner, which would allow the manufacture of ultrathin and
bendable displays. However, this will require completely different manufacturing processes (roll-to-roll)
which would need to be adopted by the panel makers. At this point, we see limited appetite for such
endeavors, but this is a trend to watch and a major contributor to potential upside in the industry.
There is substantial differentiation in profitability across display glass companies. Corning to date has seen
the highest margin performance, followed by NEG and AGC. We attribute Corning’s margin premium to its
manufacturing process, economies of scale, production efficiency (in particular much better uptime statistics
than peers), and in the beginning, Corning’s size leadership, being the first to develop and commercialize
the next new larger motherglass generations, and capture the first-mover premium. Cash margins for
Corning have been ~20% higher than peers, translating into a similar differential at the EBITDA margin
level. Cash margins have fluctuated over the past couple of years but since 2010 have seen steep declines.
This has not directly translated into lower EBITDA as other adjustments have compensated for that, and
cash cost are still a small percentage of total costs. As a result of still relatively rich EBITDA margins,
companies are still committing substantial capex. This is to keep up with the absolute areal demand growth
in TFT-LCD. Corning has traditionally been the industry leader in R&D and capex (although AGC has
caught up recently as well). Corning’s R&D expenditure is focused on development of glass substrates for
high performance displays and OLED applications while capex is focused on construction of TFT-LCD
glass substrate facilities in China and Japan (Exhibit 26 through Exhibit 34). Of particular interest is
Corning’s declining R&D investment as a percent of revenue (Exhibit 31). Although this may appear
ominous, it is really the combination of revenue growth and monetization of the earlier display glass R&D
investments, and not particularly worrisome in our view. Corning continues to be the leader in R&D in the
industry.
Exhibit
Exhibit 26 26 Exhibit 27
Exhibit 27
Display
Display Glass Cash
Glass Cash Margin
Margin Display Glass
Display GlassOperating Margin
Operating Margin
90% 60%
80%
50%
70%
Operating Margin
60% 40%
Cash Margin
50% 30%
40%
20%
30%
20% 10%
Asian IT Hardware
10%
0%
05 06 07 08 09 10 11 2E
20 20 20 20 20 20 20 20
1 05 06 07 08 09 10 11 12
E
20 20 20 20 20 20 20 20
Corning/SCP SCP NEG

Corning/SCP NEG AGC
AGC TFT-LCD
Note: Refers to Display Technologies division for Corning (ex-Specialty

Note: Refers to Display Technologies division for Corning (ex-Special Materials and exclude royalty income from SCP), Electronics and Display
Materials), Electronics and Display division for AGC and firm-wide for NEG, division for AGC and firm-wide for NEG.
SCP. TFT-LCD is average of CMI, AUO, and LGD.
Source: Company
Source: disclosures,
Company Bernstein
disclosures, analysis
Bernstein analysis
21
December 4, 2012
Exhibit 28 Exhibit 29 Exhibit 30

Corning: Cash Margins vs. Utilization
Exhibit 28 Exhibit
AGC: 29 vs. Utilization
Cash Margins Exhibit 30
NEG: Cash Margins vs. Utilization
Corning: Cash Margins vs. Utilization AGC: Cash Margins vs. Utilization NEG: Cash Margins vs. Utilization
100% 80% 80%
90% 70% 70%
80% 60% 60%
Cash Margins
Cash Margins
Cash Margins
70%
50% 50%
60%
40% 40%
50%
30% 30%
40%
y = 0.38x + 0.48 20% y = 0.32x + 0.33 y = 0.43x + 0.23
30% 20%
R2 = 0.36 R2 = 0.56 R2 = 0.49
20% 10% 10%
10% 0% 0%
0% 0% 50% 100% 150% 0% 50% 100% 150%
0% 50% 100% 150%
Utilization Utilization
Utilization
Source: Bernstein analysis, Display Search, Source: Bernstein analysis, Display Search,
company
Source: disclosures
Bernstein analysis, Display Search, company disclosures company disclosures
Source: Bernstein analysis, Display Search, Source: Bernstein analysis, Display Search, company disclosures
company disclosures
R&D
NEG:to Revenue
Cash Ratio
Margins vs. Utilization SG&A (ex-R&D)
SG&A (ex-R&D) to Revenue
to Revenue Ratio Ratio
8% 20%
7%
6% 15%
5%
4% 10%
3%
2% 5%
1%
0% 0%
2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011
Corning SCP Corning SCP

NEG AGC NEG AGC
Note: Refers to Display Technologies division for Corning (ex-Specialty Note: Electronics and Display division for AGC and references firm-wide and
Materials), and firm-wide for NEG, SCP, AGC. for Corning (ex-Specialty Materials), SCP and NEG.
Source: Company disclosures, Bernstein analysis Source: Company disclosures, Bernstein analysis
Source: Company disclosures, Bernstein analysis Source: Company disclosures, Bernstein analysis
Asian IT Hardware
22
December 4, 2012
Exhibit 33
Exhibit 33
Exhibit 3434
Exhibit
Capital Expenditure to Revenue Ratio Depreciation toto
Depreciation Revenue Ratio Ratio
Revenue
Capital Expenditure to Revenue Ratio
80% 25%
20%
60%
15%
40%
10%
20% 5%
0% 0%
2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011 2012E
Corning SCP Corning NEG

SCP AGC
NEG AGC
Note: Refers to Display Technologies division for Corning (ex-Specialty

Note: Refers to Display Technologies division for Corning (ex-Specialty Materials), Electronics and Display division for AGC and firm-wide for NEG,
Materials), Electronics and Display division for AGC and firm-wide for NEG, SCP.
SCP.
Source:
Source: Companydisclosures,
Company disclosures, Bernstein
Bernstein analysis
analysis
Source:Company
Source: Company disclosures,
disclosures, Bernstein analysis
Bernstein analysis
To summarize, scale and a competitive production process where technology innovation was translated into
larger motherglass have produced better cash margins for display glass makers in the past. Having better
margins for stronger players will allow more aggressive updating of technology, differentiating products to
produce higher ASPs. This trend is running its course and a new, higher margin and value-add product
offering need to take the place on the “as-is” business in order to put the industry in a new growth trajectory.
In this process, we favor Corning along most metrics of relevance – R&D to sales, technology capability,
execution capability, and industry leadership. Since NEG and AGC have lower margins than Corning,
industry margin erosion will mean these companies have to respond and innovate quicker just to stay where
they are. We expect capacity growth for glass to still move in lockstep with TFT-LCD panel manufacturers
from continued growth in demand, and do not anticipate divergence from the past.
Asian IT Hardware
23
December 4, 2012
IV. Valuation and Trading Sensitivities – What Drives Stock Returns and Valuations?
In the past 7 years, display glass has been one of the more profitable segments of the display supply chain
with average economic profits (defined as ROIC minus WACC) at about 5% (Exhibit 35). This stands in
contrast with TFT-LCD panel makers which are on the other end of spectrum of economic profit at -5%.
Correspondingly, we have seen P/BV trading multiples for display glass stocks average around 2.5x over the
past 7 years, mostly due to higher valuations in the earlier years (3-4x P/BV).
Post 2008 financial crisis, the slump in valuations has been persistent. This is despite a growing BVPS due
to positive earnings over the past years for all three companies. We attribute this to our view that the
industry economics have worsened and we are past the high-growth, margin expanding period driven
primarily by motherglass size innovation.
AGC’s BVPS has been stable despite profits due to negative FX translation adjustments on weakened JPY.
Book multiples for the sector have been on a steady decline and are most recently 0.5-0.8x. Of the three
display glass stocks, Corning is trading at the highest multiples, with 5-year average at 1.7x book while
AGC/NEG has been trading at 1.2-1.3x book (Exhibit 36 through Exhibit 41).
Exhibit 35
P/BV vs. Economic Returns for TFT-LCD Segments (2005-1H12)
Exhibit 35
P/BV vs. Economic Returns for TFT-LCD Segments (2005 – 1H12)
3.0x
Driver IC
2.5x Liquid Crystal
Display Glass
Polarizer
LED CCFL 2.0x
P/BV
1.5x
Backlight
TFT-LCD Panel 1.0x
Color Filter
0.5x
0.0x
-6% -4% -2% 0% 2% 4% 6% 8%
ROIC - WACC
Source: Capital IQ, Bernstein analysis
Exhibit 36
Economic Profit, Op Margin and P/BV
Exhibit 36 IQ, Bernstein analysis
Source: Capital
Economic Profit, Op Margin and P/BV
15% 6.0
10%
Asian IT Hardware
5.0
5%
4.0
0%
-5% 3.0
P/BV
-10%
2.0
-15%
1.0
-20%
-25% 0.0
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q12
2Q12
1Q11
2Q11
3Q11
4Q11
ROIC-WACC (LHS) Operating Margin (LHS) P/BV (RHS)
Source: CapitalIQ, Bernstein analysis
24
December 4, 2012

Corning: P/BV NEG: P/BV AGC: P/BV
Corning: P/BV NEG: P/BV AGC: P/BV
5.0x 3.5x 2.5x
4.5x
Current = 0.8x Current = 0.5x Current = 0.5x
3.0x
4.0x 2.0x
3.5x 2.5x
3.0x +1SD = 2.6x +1SD = 1.9x +1SD = 1.5x
2.0x 1.5x
2.5x
Avg. = 1.7x 1.5x Avg. = 1.3x
2.0x 1.0x Avg. = 1.2x
1.5x 1.0x
1.0x 0.5x -1SD = 0.9x
0.5x 0.5x
-1SD = 0.8x -1SD = 0.7x
0.0x 0.0x 0.0x
May-11
May-08
May-09
May-10
May-12
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
May-08
May-09
May-10
May-12
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
May-11
Nov-11
May-08
May-09
May-10
May-12
Nov-07
Nov-08
Nov-09
Nov-10
May-11
Source: Bloomberg, Capital IQ, Bernstein analysis Source: Bloomberg, Capital IQ, Bernstein analysis Source: Bloomberg, Capital IQ, Bernstein analysis
Source: Bloomberg, Capital IQ, Bernstein analysis Source: Bloomberg, Capital IQ, Bernstein analysis Source: Bloomberg, Capital IQ, Bernstein analysis
Exhibit 41
Exhibit
Exhibit40
40
Basic EPS
Exhibit 41
BookValue
Book Value Per
PerShare
Share Basic EPS
1000 16 160 4.0

900
Book Value/Share (USD)
14 140 3.5
Book Value/Share (JPY)
800
Basic EPS (USD)

12 120 3.0
700
Basic EPS (JPY)
600 10 100 2.5

500 8 80 2.0
400 6 60 1.5
300 40 1.0
4
200
2 20 0.5
100
0 0 0 0.0
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11
AGC (LHS) NEG (LHS) Corning (RHS) AGC (LHS) NEG (LHS) Corning (RHS)
Note: FY05 refers to FYE03/2006 for NEG Note: FY05 refers to FYE03/2006 for NEG
Note: FY05 refers to FYE03/2006 for NEG. Note: FY05 refers toBernstein
FYE03/2006 for NEG.
Source: Capital IQ, Bernstein analysis Source: Capital IQ, analysis
Source: Capital IQ, Bernstein analysis Source: Capital IQ, Bernstein analysis
On a returns basis, Corning has consistently outperformed AGC, which in turn outperformed NEG
Asian IT Hardware
(Exhibit 42). But all three display glass stocks have fallen roughly 20-60% over the past three years as
sector outlook weakens. Although profitable, EPS has not been at all stable, having large fluctuations YoY.
Revenue and EBITDA estimates have also fluctuated over the past two years among sell-side analysts but
have since mid-2011 seen aggressive downward rerating. From mid-2011 until late 2012, revenue estimates
have come down 15-25%, and EBITDA by 15-50% (Exhibit 43 to Exhibit 48). The bottom lines for the
three companies reflect primarily the display glass business, which is the more profitable business and
contributes the bulk of net income relative to non-display glass businesses.
EPS volatility makes it difficult to value these companies on an earnings multiples basis. As earnings
expectations plunge on a forward basis for NEG, we see that P/FE hikes. Similarly, on a trailing basis,
price-to-LTM earnings or enterprise value to EBITDA both observe volatility expected from a bumpy
historical EPS trend. As a result, we value these companies on a book basis which provides more stability,
advised by our DCF model to derive book multiples. We employ a 10-year horizon in our DCF (Exhibit 49
through Exhibit 51).
25
December 4, 2012
Exhibit 42
Indexed Stock Price
Exhibit 42
Indexed Stock Price
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Mar-12
Nov-05
Sep-06
Nov-06
Sep-07
Nov-07
Sep-08
Nov-08
Sep-09
Nov-09
Sep-10
Nov-10
May-06
May-07
May-08
May-09
May-10
Sep-11
Nov-11
May-11
Jan-12
Jul-12
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Sep-12
Nov-12
May-12
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Corning AGC NEG
Source: Bloomberg, Bernstein analysis

Corning: Fwd Yr Revenue Estimates NEG: Fwd Yr Revenue Estimates AGC: Fwd Yr Revenue Estimates
Corning: Fwd Yr Revenue Estimates NEG: Fwd Yr Revenue Estimates AGC: Fwd Yr Revenue Estimates
10000 450 1450
Mean Consensus Rev ($ mil.)
9500 1400
400
9000 1350
8500 350
1300
8000
300 1250
7500
1200
7000 250
1150
6500
200 1100
6000
Sep-11
May-11
May-10
Sep-10
May-12
Sep-12
Jan-11
Jan-10
Jan-12
Sep-11
May-11
Sep-12
May-10
Sep-10
May-12
Jan-11
Jan-10
Jan-12
Sep-11
May-11
May-10
Sep-10
May-12
Sep-12
Jan-11
Jan-10
Jan-12
FYE03/13 FYE03/14
2012E 2013E
2012E 2013E
Source: FactSet, Bernstein analysis

Source: FactSet, Bernstein analysis Source: FactSet, Bernstein analysis
Exhibit 46 NEG: Fwd Yr EBITDA Estimates AGC: Fwd Yr EBITDA Estimates
Exhibit 46 Yr EBITDA Estimates
Corning: Fwd Exhibit 47 Exhibit 48
Corning: Fwd Yr EBITDA Estimates NEG: Fwd Yr EBITDA Estimates AGC: Fwd Yr EBITDA Estimates
230 230
Mean Consensus EBITDA ($ mil)
4000
210 210
190 190
Asian IT Hardware
3500
170 170
150 150
3000
130 130
110 110
2500
90 90
2000 70 70
50 50
Sep-10
Sep-11
May-11
1500
May-10
May-12
Sep-12
Jan-11
Jan-10
Jan-12
Sep-10
Sep-11
May-11
May-10
May-12
Sep-12
Jan-11
Jan-10
Jan-12
Oct-10
Apr-11
Oct-11
Apr-10
Apr-12
Oct-12
Jan-11
Jan-10
Jan-12
Jul-10
Jul-12
Jul-11
2012E 2013E 2012E 2013E
2012E 2013E
26
December 4, 2012
Exhibit 49
P / FE Exhibit 51
Exhibit 50
Exhibit 49 Exhibit
P/LTM 50
Earnings Exhibit
EV / EBITDA51
P/FE P/LTM Earnings EV/EBITDA
19.00 25x 70x
17.00 60x
20x
15.00 50x
P/LTM Earnings
EV / EBITDA
13.00 15x
P / FE
40x
11.00
10x 30x
9.00
7.00 20x
5x
5.00 10x
Nov-12
Mar-11
Jan-11
Mar-12
Nov-10
May-11
Jan-12
Jul-11
Sep-11
Nov-11
May-12
Jul-12
Sep-12
Nov-12
Mar-11
Jan-11
Mar-12
Nov-10
May-11
Jan-12
Jul-11
Sep-11
Nov-11
May-12
Jul-12
Sep-12
Nov-12
Mar-11
Jan-11
Mar-12
Nov-10
May-11
Jan-12
Jul-11
Sep-11
Nov-11
May-12
Jul-12
Sep-12
Corning AGC NEG
Corning AGC NEG
Corning AGC NEG
Source: Bloomberg, Capital IQ, Bernstein analysis
Source: Bloomberg, Capital IQ, Bernstein analysis Source: Bloomberg, Capital IQ, Bernstein analysis
Source: Bloomberg, Capital IQ, Bernstein analysis Source: Bloomberg, Capital IQ, Bernstein analysis
When looking at day-to-day price changes, we see that the display glass stocks are still primarily correlated
to the local indices, next among themselves (only NEG-AGC, less so Corning), and finally with TFT-LCD
panel manufacturers (Exhibit 52).
Exhibit 52
Correlation Coefficient for Day-to-day Price Changes January 2005 to November 2012
Correlation Coefficient Corning NEG AGC AUO CMI LGD
Display Corning
Glass NEG 0.12
AGC 0.12 0.67
TFT-LCD AUO 0.17 0.34 0.32
Panel CMI 0.13 0.26 0.25 0.58
LGD 0.15 0.38 0.38 0.47 0.30
Indices Nikkei 0.11 0.64 0.71 0.43 0.33 0.48
SPX 0.64 0.09 0.12 0.08 0.07 0.13
MXAPJ 0.25 0.52 0.57 0.53 0.41 0.52
Taiex 0.19 0.43 0.44 0.67 0.56 0.49
Kospi 0.20 0.50 0.54 0.50 0.38 0.64
The high correlation with local indices is perhaps driven by each company’s non-display glass revenue
contributions that are more dependent on their local economies. For example, half of AGC’s revenue (but
only a sliver of its profits) is driven by construction and automotive glass.
Asian IT Hardware
Looking at how glass stocks trade relative to financial performance, we find that the strongest relationship is
observed from correlations with QoQ revenue changes. This may perhaps be driven by the volatility of
earnings that investors find hard to read, and resort to just trading based on topline performance. We also
find correlations dropping when we add a one-period lag to stock price reaction to prior quarter results.
Essentially, this points to a fairly tight stock price movement to anticipated revenue, perhaps guided by
consensus. Of the three stocks, Corning’s QoQ average stock price changes have the highest correlation
with QoQ revenue, followed by AGC and then NEG (Exhibit 53 through Exhibit 56).
27
December 4, 2012
Exhibit 53
Correlation Coefficient for Stock Price vs. Financials (2005 – YTD 2012)
Contemporaneous Period One-period Leg vs.Results
QoQ Corr. Coeff. with Stock Price Rev EBITDA EPS Rev EBITDA EPS
Corning 0.71 0.51 0.32 0.01 0.00 0.02
NEG 0.40 0.38 0.07 -0.03 0.05 0.06
AGC 0.60 0.54 -0.06 0.10 0.23 -0.05
Note: One-period lag compares average price QoQ to income statement item QoQ from prior quarter. Stock price based on average for quarter.

Corning QoQ Stock Price vs. Revenue NEC QoQ Stock Price vs. Revenue AGC QoQ Stock Price vs. Revenue
Corning QoQ Stock Price vs. Rev NEG QoQ Stock Price vs. Revenue AGC QoQ Stock Price vs. Revenue
50% 50% 40% 60% 25% 50%
40% 40% 30% 40% 20% 40%
30% 15% 30%
30% 20% 20%
20% 10% 20%
20% 10% 5%
10% 0% 10%
10% 0% 0% 0%
-10% 0% -20% -5% -10%
0%
-10% -20% -10% -40% -10% -20%
-30% -15% -30%
-20% -20% -60%
-40% -20% -40%
-30% -50% -25% -50%
-30% -80%
-40% -60% -30% -60%
May-06
May-08
May-10
May-12
Sep-05
Jan-07
Sep-07
Jan-08
Sep-09
Jan-11
Sep-11
Jun-11
Oct-10
Feb-06
Oct-06
Feb-08
Oct-08
Feb-12
Jun-09
Feb-10
Jun-05
Jun-07
Oct-10
Jun-05
Feb-06
Jun-07
Feb-08
Jun-09
Feb-10
Jun-11
Oct-06
Oct-08
Feb-12
Rev QoQ Stock Price QoQ
Rev QoQ Stock Price QoQ Rev QoQ Stock Price QoQ

Source: Bloomberg, Bernstein analysis Source: Bloomberg, Bernstein analysis
Source: Bloomberg, Bernstein analysis Source: Bloomberg, Bernstein analysis
How do glass company valuations compare to those of its major customers, the TFT-LCD panel
makers?
An important and very relevant question that sheds light on our valuations for the glass companies is how
these compare to those of their major customers, the TFT-LCD panel makers. Relative to TFT-LCD panels,
display glass historically traded at a premium as margins have been higher and there was margin expansion
extracted from increase in motherglass size innovation. These dynamics have reached their limit, and as a
result revenue and margins now confront the full economics of downstream TFT-LCD panel manufacturers,
unless significant innovation slows this process.
Display glass manufacturers are not as exposed to the volatile crystal cycle, although they participate in a
highly commoditized and cyclical industry. Although TFT-LCD panel ASPs are highly volatile, driven by
Asian IT Hardware
crystal cycle supply-demand dynamics, glass ASPs are part of the panel maker’s COGS, which are
somewhat less volatile than panel maker ASPs. On average, glass corresponds to about 12% of panel maker
COGS, depending on product, glass size, and end application. This can be observed from panel and display
glass areal ASPs and cost curves, where volatility focuses on panel ASPs (Exhibit 21 and Exhibit 22). In
other words, even though the TFT-LCD panel makers are exposed to fluctuating profitability, this is driven
by the difference between volatile ASPs and relatively rigid cost structure, which varies more slowly, and
usually in a downward slope.
In the long run, we believe average display glass valuations will norm toward average panel valuations (over
a crystal cycle) as the two sectors increasingly reflect one another. Smoothed revenue and unit shipment
growth closely mirrors glass shipment growth, although in shorter (e.g. quarterly) time frames we can see
substantial variation from inventory build-ups and draw-downs at both the glass maker and the panel maker.
Hence, given that glass ASP declines are close to panel maker ASP declines, revenue growth rates for both
28
December 4, 2012
glass makers and panel makers would be similar. On a profitability basis, EBITDA margins at the panel
makers have fallen over the years, and have stabilized in the 10-15% range, although with great volatility.
As glass ASPs keep falling faster than cost reductions, eventually EBITDA margins will also reach those
levels, and at that time midpoint valuations of the glass makers and the panel makers should be similar.
Panel valuation is highly volatile and currently we are at an upswing with book multiples of 0.5-1.3x
(Exhibit 57 – Exhibit 59). We anticipate that ASP recovery and supply additions would again start to
deflate panel margins in the near future, followed by trading multiples, although panel cyclicality may take a
few years to play out. In the past 2 years, book multiples for panel manufacturers have traded at 0.3-1.4x P/
BV, with an average of 0.7x P/BV. We expect the midpoint multiple for the panel makers to continue its
downward slope, heading towards 0.5x P/BV over the next couple of years.
Exhibit 57
Innolux: P/BV AU Optronics: P/BV
LG Display:
Exhibit 57P/BV Exhibit 58 Exhibit 59
LG Display: P/BV Innolux: P/BV AU Optronics: P/BV
3.0x Current = 1.3x 1.4x Current = 0.5x 2.5x
2Y Max = 1.1x Current = 0.5x
2Y Max = 1.4x 1.2x
2.5x 2Y Min = 0.3x 2Y Max = 1.0x
2Y Min = 0.6x 2.0x
1.0x 2Y Min = 0.4x
2.0x
0.8x 1.5x
Avg. = 0.7x
1.5x
Avg. = 1.2x 0.6x
1.0x Avg. = 0.9x
1.0x 0.4x
0.5x
0.5x 0.2x
0.0x 0.0x
0.0x
Nov-11
May-08
May-09
May-10
May-12
Nov-07
Nov-08
Nov-09
Nov-10
May-11
Nov-11
May-08
May-09
May-10
May-12
Nov-07
Nov-08
Nov-09
Nov-10
May-11
Nov-11
May-08
May-09
May-10
May-12
Nov-07
Nov-08
Nov-09
Nov-10
May-11
Source: Bloomberg, Capital IQ Source: Bloomberg, Capital IQ Source: Bloomberg, Capital IQ
Source: Bloomberg, Capital IQ Source: Bloomberg, Capital IQ

Source: Bloomberg, Capital IQ
In the short-term, display glass would likely continue trading on revenue growth as we have observed, and
uncorrelated with TFT-LCD panels or the crystal cycle (Exhibit 52). With glass ASP being continuously
eroded, we believe there are still downside risks for some companies. We employ a multi-year DCF to
account for this ASP erosion on the bottom line. We assign 0.4-0.9x P/BV range in our valuations with an
average of 0.6x and Corning at 0.9x from its better positioning, cost structure, and product portfolio. These
multiples are roughly in-line with midpoint TFT-LCD panel averages, even though there are few more years
of healthy margins for display glass.
Investors may not value the premium in margins relative to panels if they expect continued structural ASP
Asian IT Hardware
and margin erosion. The rerating of display glass stocks since mid-2011 is perhaps reflective of this
realization that ASP and margin compression observed in glass is purely structural, and does not have as
much of a cyclical component like those of the TFT-LCD panel makers.
Even within our long-term bearish perspective, is there potentially a shorter-term trade for AGC
and NEG?
Our long-term view on the display segment is bearish, and our target prices and valuation multiples reflect
that. But is it possible that the market has gone “ahead of itself” and is assigning multiples to AGC and
NEG that may indicate an “overly” bearish view given the possibility of short-term surprises to the upside?
From a trading perspective, shorter-term expectations (6-9 months out) may be indicating some (temporary)
upside relative to current valuations. We attempt to quantify the upside were these stocks to see a rebound
based on shorter-term trading horizon.
29
December 4, 2012
We use historical forward consensus data relative to book multiples to derive fair trading multiples based on
current consensus for our display glass coverage stocks (Exhibit 60 and Exhibit 61). We have previously
used this statistical technique to assign valuation multiples to our TFT-LCD panel coverage, and the
methodology is detailed in TFT-LCD: Valuations Hitting Bottom? Reassessing Downside Risk and Upside
Potential.
ExhibitExhibit
60 60 Exhibit 61 61
Exhibit
AGC P/BV
AGC P/BV vs.vs.Consensus Forward
Consensus Forward Multiples
Multiples NEG NEG
P/BV P /vs. Consensus
BV vs. Forward
Consensus Forward Multiples
Multiples
30% 1.8 60% 2

1.6 50%
25%
1.4 1.5
20% 40%
1.2
15% 30%
P / BV
1
P / BV
1
10% 0.8 20%
0.6 10%
5% 0.5
0.4
0%
0% 0.2
-10% 0
-5% 0
Jan-09 Jan-10 Jan-11 Jan-12
Jan-09 Jan-10 Jan-11 Jan-12
FY EBITDA Margin FY+1 EBITDA Margin

FY EBITDA Margin FY+1 EBITDA Margin
Rev Growth FY+1/FY P/BV (RHS)
Rev Growth FY+1/FY P/BV (RHS)
Source:Source:
Bernstein analysis,
Bernstein Factset,
analysis, Bloomberg,
Factset, Bloomberg, Capital IQ
Capital IQ
Source:Source: Bernstein analysis, Factset, Bloomberg, Capital IQ
Bernstein analysis, Factset, Bloomberg, Capital IQ
From 2009-2012 YTD data of one-year consensus forward expectations (EBITDA margin and revenue
growth), we can assign a book multiple of 0.6x for NEG and 1.0x for AGC, based purely on this shorter
investment horizon (Exhibit 62). Of course, these “samples” were taken from a period where book
multiples were richer for these companies, perhaps not unwarranted given trading is also backward looking.
From this analysis, we estimate NEG and AGC could have some short-term upside possibilities in the 15%
range, not enough to change our longer-term underperform ratings.
Regardless, we consider this potential upside purely a short-term trading opportunity which does not change
our longer-term view on the economics of this business or the prospects of NEG and AGC. Also note that
Corning’s analysis assigns a far higher multiple than our own multiple (and consensus) expectations, which
indicates there may be even more short-term upside from our current valuations.
Asian IT Hardware
Exhibit 62
Summary of Implied Book Multiples from Current Consensus Estimates
Consensus EBITDA Margin Consensus Rev CAGR Implied Current
2012 2013 2012-13 Avg. P/BV P/BV
Implied P/BV 1.2x 1.4x 1.3x 1.3x 0.8x
Corning Consensus 33.7% 35.1% 6.8%
NEG Consensus 27.1% 26.2% -3.5%
AGC
Consensus 19.0% 19.1% 3.6%
Source: Bloomberg, Factset, Capital IQ, Bernstein analysis and estimates
30
December 4, 2012
V. Coverage Company Review – We Prefer Corning to NEG and AGC
In this section, we discuss specifics around the three display glass companies, including non-display glass
segments, joint-ventures, and our views on how these companies would fare relative to industry trends laid
out in earlier sections.
Corning Inc. (GLW) – Outperform – Target Price: $15.20
Positives: Higher margins, partnership with Samsung (TFT-LCD, OLED), cost efficiencies, Gorilla Glass
growth, diversified revenue base
Negatives: Continued ASP declines from new client agreements, uncertainty about the contribution of
non-TFT-LCD glass business to bottom line, LGD switching from SCP to LG Chem
Corning, together with its joint venture Samsung Corning Precision, is the largest global supplier of display
glass. The company also produces specialty glass, ceramics, optical fiber, cable systems, and advanced
materials for the scientific, semiconductor and environmental industries. Corning operates its business
through five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty
Materials and Life Sciences.
• Display Technologies manufactures glass substrates for active matrix LCDs that are used primarily for
notebook computers, computer monitors, TVs and handheld devices such as smartphones. Display
Technologies is the largest segment in terms of revenue and operating income. In 2011, the segment
generated 40% of Corning’s total revenue and a disproportionate amount of the bottom line. Over the past
7 years, Display Technologies has on average contributed 98% of Corning’s net income.
• Specialty Materials includes cover glass, ceramics, and fluoride crystals. Currently the key driver of the
segment is Corning’s protective, damage-resistant Gorilla Glass used primarily in smartphones but also in
tablets and other applications. Gorilla Glass is used by over 30 major brands in more than 750 product
models and is featured on more than a billion devices worldwide. In 2011, Gorilla Glass generated $710
million of revenue, and guidance for 2012 is to reach $1 billion in revenue. The whole segment
represented 14% of Corning’s 2011 revenue, and an estimated 16% of 2012 revenue.
• Telecommunications produces optical fibers and cable, and hardware and equipment products for the
global telecommunication industry. The Telecommunications segment represented 26% of the
consolidated revenue in 2011, and an estimated 27% of 2012 revenue.
• Environmental Technologies manufactures ceramic substrates and filter products for car and truck
pollution-control system. The segment represented 13% of Corning’s 2011 and 2012 revenue.
• Life Sciences supplies scientific laboratory products, drug-discovery tools and bioprocess solutions to
end users. The segment represented 8% of Corning’s 2011 and 2012 revenue.
The distribution of Corning’s revenues and net income show that Display Technologies contributed 80% of
the group’s bottom line in for the first nine months of 2012. Performance this year has seen non-Display
Asian IT Hardware
Technologies gradually contributing a bigger pie relative to Display Technologies, which had traditionally
contributed ~90% of group bottom line. Net Income for Display Technologies includes equity income from
SCP and royalty income primarily from SCP. Among divisions, Specialty Materials is estimated to be
money-losing for the past 7 years although momentum for turnaround is positive (Exhibit 63 through
Exhibit 65).
Although prices have declined since 2005, Display Technologies has been able to maintain decent
profitability, mostly from technological edge in motherglass size expansion, cost advantages and economies
of scale. Growth decelerated in 2008-09 and again in 2011-12 due to weak macro environment and ASP
31
December 4, 2012
pressures. Weaker performance in Display Technologies was partly offset by the improvement in both sales
and operating margins of the telecommunications segment in 2011, albeit small in contribution. Specialty
Materials have maintained high growth over the past two years, but were still making losses in 2011.
Exhibit 63
Corning Segment Revenue and Net Income (2011)
Exhibit 63
Corning Segment Revenue and Net Income (2011)
3.5 $3.1
3.0
$2.3
2.5 $2.1
2.0
USD bil.
1.5 $1.1 $1.0

1.0 $0.6
0.5 $0.2 $0.1 $0.1 $0.0
0.0
-0.5 $0.0 -$0.1
Display Technologies Telecommunications Life Sciences All Other
Revenue Net Income

Exhibit 64
Exhibit 64 Corning Segment Revenue (2005-2012E)
Corning Segment Revenue (2005-2012E)
9,000
8,000
7,000
Rev. (USD mil.)
6,000
5,000
4,000
3,000
2,000
1,000
0
2005 2006 2007 2008 2009 2010 2011 2012E
Display Tech Sp. Materials Telcos
Environmental Life Sciences All Other
Source: Company disclosures, Bernstein estimates

Source:
Exhibit 65Company disclosures, Bernstein estimates
Exhibit 65Corning Segment Net Income (2005-2012E)
Asian IT Hardware
Corning Segment Net Income (2005-2012E)
3.5
3.0
2.5
2.0
USD bil.
1.5
1.0
0.5
0.0
-0.5
2005 2006 2007 2008 2009 2010 2011 2012E
Display Technologies Telecommunications Environmental Technologies Specialty Materials Life Sciences All Other
Note: 2012 based on 9M

Note: 2012 annualized
based on 9M annualized.

32
December 4, 2012
Display Technologies. Corning developed flat panel display glass technology in the 1970s, but first began
volume production of displays in 1984, catering to products with small passive LCD panels such as digital
watches and calculators. In the mid-1980s, the company developed TFT-LCD glass suitable for active
matrix displays, which were incorporated into the first notebooks in 1990, selling into the first generation
(or Gen 1) of TFT-LCD panel fabs in Asia. Notebooks were the primary driver of TFT-LCD display demand
until the late 1990s, when TFT-LCD monitors arrived. TVs, for which Corning began shipping glass in
1997, took over as the biggest source of glass demand in 2003 and have remained so since.
Corning, together with Samsung Corning Precision, controls about half of the world’s TFT-LCD glass
supply. Corning derives its long-term competitive advantages from R&D, alongside scale. Corning uses its
proprietary fusion process to produce TFT-LCD glass, while licensing some of the technology to
competitors such as AvanStrate and NEG. The question of what Corning licenses to its competitors remains
unknown. Compared to other flat glass making processes, such as the float process used by AGC, glass
produced by the fusion process requires no polishing. Even compared to competitors using the same fusion
technology, Corning has a lower cost structure as a result of economies of scale, higher glass yield and
shorter downtime during repairs. Because of Corning’s better Quality, Cost, and Delivery (QCD), panel
makers are willing to pay a small premium (3-5%) for Corning’s glass, as the high quality glass increases
the total process yield of panel makers.
Although the capital intensity and the technological uncertainty that characterize the industry create high
barriers to entry, the sector is currently experiencing overcapacity (alongside TFT-LCD panel
manufacturers) and pricing pressure passed along from the end product market. In order to cope with these
challenges, Corning has focused on innovation, which is, in our view, the way out from the continued
commoditization of the base business.
Corning started developing thinner glass a few years ago to improve pricing power and defend its market
position. In June 2010, Corning launched EAGLE XG Slim glass substrates that reduce the thickness of
glass up to G5 from 0.5mm to 0.4mm. Most glass manufacturers start with 0.5mm substrates and use
chemicals to reduce thickness. The new product formed by the fusion process allows glass manufacturers to
produce light weight devices at lower cost, without the need to chemically polish or thin the glass,
improving finish quality. Thinner glass lowers the unit cost per substrate and frees up melting capacity,
which is the major bottleneck of the fusion process. Going forward, Corning plans to further reduce
thickness to 0.3mm and to broaden the product line to include generation sizes that support larger displays.
Corning, including SCP, currently has a total of 80 plants with an annual capacity of 184.2 million m2 of
TFT-LCD glass. The plants are split between Japan (11%), Korea (64%), and Taiwan (25%). 144.5 million
m2, or 78% of existing capacity, is allocated to producing glass sizes G7 or above (Exhibit 66).
Due to the intensified price competition in TFT-LCD glass and the increasing shipment of smartphones and
tablets, Corning is aggressively shifting some existing TFT-LCD production lines to their hardened cover
glass product, Gorilla Glass. 18 plants in Asia including 8 in Kakegawa, and all 7 plants in North America
with a total annual capacity of 30.6 million m2 are being converted to produce Gorilla Glass (Exhibit 67).
Asian IT Hardware
In 2012, Corning and Samsung signed an agreement to spend up to $600 million in a number of stages over
the next few years to set up a new equity joint venture in Wuxi, China. The new entity will supply G8 glass
substrates to Samsung Suzhou LCD plant in China. Production is expected to begin at the end of 2013. This
investment will be 50/50 owned by Samsung and Corning. The initial funding of $100 million in equity will
come from dividends paid out of SCP, with the remainder from loans from SCP to the new venture and will
not have guarantees from Corning, and the risk exposure will be primarily on SCP.
33
December 4, 2012
Corning LCD Glass Production Facilities (including SCP) Corning Gorilla Production Facilities
Annual Capacity (000’ Sq meter) Country Site Plants Capacity* (000’ m2)
Country Site Plants Gen. 2011 2012 2013 USA Kentucky 7 6,120
Japan Kakegawa 4 7+ 9,216 9,984 9,984 Japan Kakegawa 8 8,393
Japan Sakai 4 7+ 10,080 10,710 10,920 Korea Kumi 2 2,293
Korea Kumi 4 5 4,603 4,855 4,939 Taiwan Tainan 8 13,824
Korea Tanjong 8 5 12,083 12,745 12,965 25 30,630
Korea Tanjong 4 6 6,247 6,589 6,703
Korea Tanjong 34 7+ 85,406 93,549 100,460 *: Annual capacity of glass before the production lines were
converted to Gorilla lines.
Taiwan Taichung 7 6 14,616 15,530 15,834
Taiwan Taichung 12 7+ 27,180 30,218 34,223 Source: Display Search, Bernstein analysis
China Beijing 3 7+ 0 0 5,198
80 169,432 184,180 201,226
Rather than continue to expand capacity and engage in price wars, Corning closely matches its capacity to
end demand. To stabilize the price and restore the supply-demand imbalance, Corning cut output by 25% in
Q4 2011, as well as during the peak of the financial crisis. Indications are that the firm is willing to carry out
these kinds of shutdowns and take the (temporary) hit to the financials rather than establish a precedent for
price-based competition.
The Display Technologies segment has been Corning’s largest segment in terms of revenue and net income.
However, net income is highly volatile and has plunged in 2012, as a result of price pressures and weaker
macro environment. Competition in the end market among OEMs intensified, passing along the pricing
pressure to the upstream manufacturers. To improve cost structures and absorb the effect of price declines,
Corning’s primary product focus of the Display Technologies segment is thinner and environmentally
friendly glass that enables cutting-edge display technologies, such as next generation TFT-LCD displays
and OLED. Major product lines in this category include EAGLE XG Slim glass, Willow glass and Lotus
glass.
• Corning Lotus Glass is an important innovation that supports OLED and next generation TFT-LCD. It
has increased process temperature, higher surface quality, improved dimensional stability and higher yield
in panels requiring high resolution displays. Lotus glass performs well in LTPS and oxide TFT backplane
manufacturing environment, and is good for small transistors on 4Kx2K displays.
• Corning Willow Glass is targeted at thin, light and cost-efficient applications. It can support thinner
backplanes and color filters for both OLED and TFT-LCD in high performance smartphones, tablets and
notebooks. It is designed to perform well with touch sensors. Being flexible, Willow glass also allows
wrapping around a curved surface.
• EAGLE XG Slim glass is primarily focused on mobile applications that require thinner and lighter
Asian IT Hardware
display panels. It is available in 0.3mm thickness up to G6 sizes, providing significant cost reduction
benefits to TFT-LCD panel manufacturers. Currently this level of thickness is achieved by competitors or
by customers through expensive and yield-reducing acid etching during production, adding costs that
EAGLE XG Slim avoids completely.
SCP serves to a large extent glass demand for Samsung. Over the past few years, it has on average supplied
80-90% of Samsung’s demand. Aside from Samsung, Corning also serves all other major panel companies
such as AUO, CMI and LGD. However, we are aware that Corning is AUO and CMI’s #2 supplier after
AGC, and #3 supplier for LGD after NEG and AGC. Typically, all major panel manufacturers would require
sourcing from at least three if not four sources, with the largest source making up 40-50% share, except for
SCP-Samsung which sees a higher percentage of first source (Exhibit 68).
34
December 4, 2012
Samsung Corning Precision Materials Co., Ltd (“SCP”) is a JV between Corning and Samsung formed
in 1995. Corning owns 50% of SCP via a subsidiary Corning Hungary Data Services LLC, Samsung
Display Co. Ltd. 43%, and other shareholders (Samsung Life Insurance Co. Ltd. and individuals) 7%. We
are aware that these JVs have been running for a long time with no major governance issues. Four senior
executives from Corning work closely with Samsung relating to this JV. Due to the nature of the
shareholding, only 50% of bottom line is accounted for in quarterly consolidated financials.
SCP and its subsidiaries are providers of glass substrates to Samsung for all types of applications. Aside
from Samsung, SCP also supplies LGD. The company’s main market is in Korea.
SCP currently has an annual production capacity of 117.7 million m2, with most of its production facilities
located in Korea. In December 2011, SCP decided to exit the CRT glass business and focus primarily on
LCD display (Exhibit 69).
Exhibit 6868
Exhibit Exhibit 69
% of
% of Customer Supply
Customer SupplyShare for Substrate
Share Glass
for Substrate Glass Samsung Corning Precision Financials
100% 1400 90%

90% 80%
1200
80%
70%
70% 1000
60% 60%
USD mil.
50% 800 50%
40% 40%
600
30%
30%
20% 400
10% 20%
200
0% 10%
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2
2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 0 0%
08 08 09 09 10 10 ’11 ’11 12
1’ 3’ 1’ 3’ 1’ 3’ 1 3 1’
Q Q Q Q Q Q Q Q Q
AUO LGD CMI/CMO Samsung

Net Sales Net income margin

Samsung Display-Corning OLED JV was announced in February 2012. The JV will manufacture
specialty glass substrates for OLED and will be located in Korea. The JV will see Corning Lotus Glass
substrate technology and Samsung Display’s OLED expertise combined to develop OLED glass
technologies for small-medium and TV applications. The JV will mainly supply OLED backplane glass
substrates for Samsung, in a relationship akin to Samsung-SCP. Funding the JV will be similar to Samsung-
Asian IT Hardware
Corning’s China JV, where SCP will inject $100 million in equity paid out from dividends from SCP.
Specialty Materials segment manufactures products that provide approximately 150 material formulations
for glass, glass ceramics, and fluoride crystals. This segment operates in a variety of commercial and
industrial markets that include display optics and components, semiconductor optics components, aerospace
and defense, astronomy, ophthalmic products, telecommunications components and protective cover glass
that is optimized for portable display devices and televisions.
The signature product for the division is Gorilla Glass, a strengthened glass designed specifically to function
as a protective cover glass for smartphones, tablets, and notebooks. In 2012, the company introduced
Corning Gorilla Glass 2, the next generation with thickness down to 0.2mm. Gorilla Glass is produced by
an ion-exchange process. In order to meet the needs in manufacturing large full-touch screens,
35
December 4, 2012
Corning has a one-glass solution (OGS) combining the touch sensor and cover glass into one, allowing the
ITO to be patterned directly on the underside of large-size cover glass. Such single-sheet glass is both a
strong and safe cover glass and a touch sensor. Corning Gorilla Glass is manufactured in Kentucky, Japan
and Taiwan.
AGC, Schott, Shin-Etsu Quartz Products, Carl Zeiss, Nikon, NEG, Transitions Optical, Oerlikon, Hoya and
Heraeus are the main competitors. In 2011, two customers accounted for 42% of total segment sales.
Although not disclosed, we assume Apple is one of these customers, and Samsung the other.
Cover glass is still primarily used in smartphones, accounting for over 80% of areal shipments. Other uses
includes tablets, and marginally in notebooks and TVs. Corning currently holds ~60% of market share of
the aluminosilicate glass market which is 90% of cover glass market, shipping ~18 million m2 in 2012.
There is the alternative soda-lime cover glass market which offers a cheaper alternative, at 20-30% cost of
aluminosilicate. There are many new entrants into the aluminosilicate cover glass market such as AGC,
NEG and Schott, forecasted to dilute Corning’s market share over the next few years. Despite that, it is
estimated that Corning will record 20% CAGR in 2012-15 in areal shipment (Exhibit 70 and Exhibit 71).
This segment has not been profitable since its inception (to be seen if 2012 will be profitable given Q4 2011
was negative last year). A mixture of heavy R&D, operating and depreciation expenses have dragged profits,
despite very strong YoY revenue growth at 70-80% since 2010.
Aluminosilicate Cover Glass Areal Shipment Forecast
Aluminosilicate Cover Glass Areal Shipment Forecast
CoverCover
Glass
GlassMarket
Market byby Application
Application
45 100%
40 90%
80%
35
70%
30
60%
25
50%
20
40%
15
30%
10 20%
5 10%
0 0%
2010 2011 2012E 2013E 2010 2011 2012E
Corning AGC NEG Avan Strate Schott Mobile Phone Tablets Notebook Other
Source: Display
Source: Search
Display Search Source:Source:
DisplayDisplay Search,
Search, Bernstein
Bernstein analysis.
analysis
Asian IT Hardware
Telecommunications. This segment provides cutting-edge solutions for the telecommunication industry.
The company’s hardware and equipment products include cable assemblies, fiber optic hardware, fiber optic
connectors, optical components and couplers, closures and pedestals, splice and test equipment and other
accessories for optical connectivity. Corning’s fiber optics can serve local, regional, and submarine
networks.
For copper connectivity, the company’s products include subscriber demarcation, connection and protection
devices, xDSL (different variations of digital subscriber lines) passive solutions and outside plant
enclosures. Corning also provides distributed antenna system solutions for flexible wireless coverage in the
wireless market. In addition, Corning offers products for the cable television industry, including coaxial
connectors and associated tools.
36
December 4, 2012
The primary competing producers of optical fiber and cable products are Furukawa Electric/OFS, Fujikura
Ltd., Sumitomo Electric and Prysmian Group. Although Corning is a key global supplier of optical fiber, its
net revenue from telecommunications lags significantly behind the largest optical fiber supplier, Furukawa
Electric (Exhibit 72 and Exhibit 73). For hardware and equipment products, competitors are 3M Company,
TE Connectivity, Furukawa OFS and CommScope. In 2011, one customer accounted for 12% of total
segment sales. Corning counts NTT, AT&T and Verizon Communications among its customers.
Exhibit 72
Exhibit 72
FY2011 Cable-Related Revenue
Exhibit 73
FY2011 Cable-Related Revenue Exhibit 75
FY2011 Cable-Related Op Margin
Corning Capacity Growth and Utilization
FY2011 Cable Related Revenue
$14,000 $12,357 FY2011 Cable Related Op Margin

$12,000 15%
$10,000 11% 10%
$8,000 10%
$6,000 5%
$4,000 5% 2%
$1,929 $1,602 $1,822 -4%
$2,000 $417 0%
$0
Fujikura Ltd Corning Inc. -5%
Fujikura Ltd Prysmian Group Corning Inc.
Sales
Op Margin
Source: Company annual reports, presentations and Bernstein estimate.

Source: Company Annual Reports, Presentations & Bernstein estimates
Source: Company annual reports, presentations and Bernstein estimates.
Source: Company Annual Reports, Presentations & Bernstein estimates.
Life Sciences. Products include general labware and equipment, as well as tools and reagents for cell
culture and bioprocess, genomics and proteomics, and high-throughput screening. The company
manufactures these products in Maine, New York, New Jersey, California, Utah, Mexico, Virginia, France,
Poland, and China. The products are marketed worldwide, primarily through distributors, to pharmaceutical
and biotechnology companies, academic institutions, hospitals, government entities, and other research
facilities. For laboratory products, Greiner, Kimble-Chase, and Duran are the principal worldwide
competitors. In 2011, two customers accounted for 39% of total segment sales.
Corning closed its acquisition of majority stake in Discovery Labware business from Becton Dickinson for
$720 million in cash in November 2012. The BD Discovery Labware business will provide additional
access to the global laboratory consumables market, particularly in Asia. Management had guided that this
will provide a 15% sequential boost to Life Sciences revenues. Acquisitions have been an avenue for
inorganic growth for the segment. Over the past three years, Life Sciences had also acquired Mediatech (cell
culture media and molecular biology reagents) in Dec 2011, Plastiques Gosselin (plastic consumable
labware) in August 2010, and Axygen Bioscience (plastic consumable labware, liquid handling products,
benchtop lab equipment) for $400 million in cash in September 2009.
Environmental Technologies. Manufactures ceramic substrates and filter products for emissions control in
Asian IT Hardware
primarily mobile applications around the world. Although most sales are made to the emission control
systems manufacturers, the use of the company’s substrates and filters is required by the specifications of
the automotive and diesel vehicle or engine manufacturers. In response to multiple new diesel emission
regulations to be enacted, Corning has invested heavily to develop new diesel filters and increase production
capacity. Corning’s market mainly addresses light and heavy duty diesel filters and substrates.
Corning’s Environmental Technologies products face principal competition from NGK, Denso, and Ibiden.
In 2011, three customers accounted for 85% of total segment sales.
Dow Corning Corporation was incorporated in 1943 and is equally owned by Corning Inc. and The Dow
Chemical Company. Its main purpose is to develop and produce polymers and other materials based on
silicon chemistry.
37
December 4, 2012
Dow Corning built its business based on silicon chemistry. Most of Dow Corning’s products are based on
polymers known as silicones, which have a silicon-oxygen-silicon backbone and combine the temperature
and chemical resistance of glass with versatility of plastics. Dow Corning manufactures silicones that have
an extremely wide variety of characteristics, in forms ranging from fluids, gels, greases and elastomeric
materials to resins and other rigid materials. Silicones possess electrical resistance, resistance to extreme
temperatures, resistance to deterioration from aging, water repellency, lubricating characteristics, relative
chemical and physiological inertness and resistance to ultraviolet radiation. Dow Corning’s silicon-based
materials are used in a broad range of products and applications across multiple sectors such as electronics,
automotive, construction, textiles and healthcare. Corning, through its Hemlock Semiconductor joint
ventures, is a provider of polycrystalline silicon and other silicon-based products used in semiconductor and
solar applications.
Our mid-term outlook for the company is cautiously optimistic, with stronger product portfolio
and margins
Corning has been losing substrate glass shipment share from 54% of the market in 2008 to 49% in 2012E
(Exhibit 14). It has experienced volatility in ASPs alongside a sliding share, and seen price differential with
competition increasingly narrow (Exhibit 12). In new client agreements, Corning is establishing a fixed
shipment share with each client for the quarter with prices referencing market price through a fixed
relationship. Corning believes this would help it maintain a more stable shipment share and price with
customers. In the short-term, these agreements would see pricing decrease for Corning’s already heavily
eroded topline. In the longer-term, Corning would still need differentiated products to derive pricing
premium relative to competition in an oversupplied environment, incurring higher R&D.
Given a faster ASP decline expectation, we anticipate further margin erosion for Corning. However, Corning
has a ~20% margin premium relative to peers. We attribute that to advantages in manufacturing process
(fusion), process efficiency and economies of scale. Corning enjoys better profitability compared to peers,
but with ASP pressure, we are cautious about near term margin prospects (Exhibit 74). Corning anticipates
very high utilization from its tanks and only increasing capacity mainly through productivity improvement
and combination of running tanks more efficiently, with shorter downtime during hot and cold shutdowns
(Exhibit 75).
Exhibit 74
Corning
CorningAreal ASP
Areal ASP andand
Cash Cash Cost Forecast
Cost Forecast Corning Capacity Growth and Utilization
9,000 120% 35%

8,000 30%
100%
7,000
JPY Per sq. Meter
25%
6,000 80%
5,000 20%
60% 15%
Asian IT Hardware
4,000
3,000 10%
40%
2,000
5%
1,000 20%
0%
0% -5%
20 E
20 E
20 E
E
05
06
07
08
09
10
20 1
1
12
13
14
15
20
20
20
20
20
20
20
Q1’11
Q2’11
Q3’11
Q4’11
Q3’08
Q4’08
Q1’09
Q2’09
Q3’09
Q4’09
Q1’10
Q2’10
Q3’10
Q4’10
Q1’12
Q2’12
Display Tech ASP SCP ASP

Display Tech Cost SCP Cost Capacity Utilization Capacity YoY Growth
Source: Bernstein
Source: estimates,
Bernstein estimates, Display Search,
Display Search, company
company disclosures
disclosures Source: Display Search, Bernstein estimates
38
December 4, 2012
Producing thinner glass also has a positive effect on margins as costs are by weight while revenue is by area.
Corning’s strategy of converting substrate glass capacity for fast-growing Gorilla is helping the company
match supply and demand better, and allows for growth without significant capex, improving returns.
Management is aiming for lower capex in 2013 to $1.3 billion from $1.9 billion in 2012.
Corning’s patents and know-how licensed to SCP and third parties generate royalty income to the Display
Technologies segment. Corning and SCP have agreed for the 5-year period commencing Dec 2011, the
applicable royalty rate will be reduced by ~50% compared to prior 5 years. Corning holds over 500 patents
relating to glass composition and manufacturing methods. In 2011, royalty income contributed $219 million
in 2011, and $63 million in the nine months of 2012.
SCP top and bottom lines have been declining over the past two years. SCP primarily serves Samsung and
LGD. As of Q2 2012, we have seen that SCP only provides 20% of its supply share at LGD, down from
~50% in 2009, with the bulk of the pickup coming from LGD committing to NEG (and vice-versa). We
anticipate softening as LGD is also increasingly sourcing from LG Chem which started pre-production in
Q1 2012, an initiative for LG Group to source more internally. In April 2012, LG Chem had announced it
would invest $620 million in its #2 and #3 glass tanks to reach 50 million m2 capacity by 2016. Samsung on
the other hand has seen supply share from SCP increase from 68% in 2009 to 80% in Q2 2012. We expect
SCP’s supply share at Samsung to remain at high levels, since SCP is now aligned with Samsung Display
rather than Samsung corporate, and hence Samsung Display has an incentive to use SCP as opposed to
treating them more of an arms-length supplier.
Specialty Materials has been growing very fast with Gorilla Glass with management reiterating their $1
billion target for 2012. We anticipate further topline growth opportunities in this segment, as the segment is
exposed to fast growing mobile applications and touch. Corning’s Gorilla Glass is also highly differentiated,
being the first commercial product to the market, and having great product visibility from iPhone adoption.
We anticipate prices may sustain better than regular substrate glass. From a margin perspective, we have
estimated that Special Materials are relatively lower than Display Technologies for now, given that the ion
exchange process is fairly generic and there is very little value capture from this step, and only from the
aluminosilicate glass formulation itself, which is superior to competitors.
Corning’s non- glass businesses (Telecom, Environmental, Life Sciences) have been enjoying positive
momentum over the past few quarters. Revenue growth for the past seven years has been 4% YoY, while
more recent growth in the past three years was 13% YoY. However, contribution of non-glass to topline has
been relatively stable, holding slightly below 50% of group revenues, anticipated to grow as revenues from
Display Technologies suffer ASP erosion. Net margins for non-display were 3% in the past seven years, and
6% over the past three years.
Macro outlook from management have guided for a slowdown in light-duty (and eventually heavy-duty)
diesel filters and substrates in Environmental, and connectivity products in Telcos. This weighs negatively
on near term prospects. Net income contribution from non-glass to group has been 10% for the past two
years, up from a base closer to zero in prior years. We anticipate further improvement of non-display
Asian IT Hardware
margins, but anticipate impact to bottom line to stay muted in the near term. Inorganic growth via
acquisitions will be another potential route for expanding non-display divisions in Corning, given cash
balance of $5 billion as of Q3 2012.
Non-display glass provides a good buffer to the declining economics of display glass. In the case of
Corning, these segments are actually helping to slow margin compression. We model these out in a DCF
and find that the results correspond roughly to 0.9x 2013 book multiple. Relative to consensus, we are
marginally bearish in Corning’s fundamentals, despite our higher target price; our divergence is primarily on
multiples, where we believe margin compression is more likely to sustain in the medium term. Exhibit 76
and Exhibit 77 show our revenue and gross margin forecasts.
39
December 4, 2012
ExhibitSegment
Corning 76 Revenue Forecast Exhibit 77
Corning Segment Gross Margin Forecast
Corning Segment Revenue Forecast Corning Segment Gross Margin Forecast
12 80%
10 70%
60%
Gross Margins
8
Rev (USD bil.)
50%
6 40%
4 30%
20%
2
10%
0%
05 006 007 008 009 010 011 12E 13E 4E 15E 6E
20 E
20 E
20 E
20 E
E
05
06
07
08
09
10
20 1
20
1
12
13
14
15
16
2 2 2 2 2 2 20 20 1 1
20 20 20
20
20
20
20
20
20
20
Display Tech Sp. Materials Telcos Display Tech Sp. Materials Telcos
Environmental Life Sciences Env. Life Sciences
Source:
Source: Bernstein
Company estimates,
reports, company
Bernstein disclosuresand analysis
estimates Source: Company reports, Bernstein estimates and analysis
Source: Company Reports, Bernstein estimates & analysis
We anticipate Corning’s margins to maintain a positive level from a more diversified revenue base that still
enjoys non-display glass growth. However, Corning is not spared from margin compression, and is
expected to see ~10 percentage points of margin shaved off over the next 5 years. We are slightly below
consensus on revenue and EBITDA 2012 estimates and in line for 2013 estimates. We have a marginally
lower target price, employing roughly similar valuation multiples. A ±5% change in EBITDA margins or
revenue growth roughly delivers 24–28% difference in target price based on our sensitivity analysis
(Exhibit 78 – Exhibit 81).
Exhibit 78
Corning Discounted Cash Flow
$ Mil. 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
Total Revenue 7,863 8,409 9,211 9,977 10,777 11,516 12,306 13,150 14,052 15,016 16,046
Annual Growth -0.3% 6.9% 9.5% 8.3% 8.0% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9%
EBITDA 2,481 2,857 2,987 3,014 3,144 3,259 3,328 3,392 3,449 3,498 3,538
Margin 31.6% 34.0% 32.4% 30.2% 29.2% 28.3% 27.0% 25.8% 24.5% 23.3% 22.0%
EBIT 1,498 1,801 1,878 1,845 1,906 1,944 1,954 1,956 1,950 1,934 1,906
Margin 19.1% 21.4% 20.4% 18.5% 17.7% 16.9% 15.9% 14.9% 13.9% 12.9% 11.9%
Less: Income Taxes 392 471 491 482 498 508 511 512 510 506 498
Add: Equity Earnings 940 806 808 782 747 690 634 578 521 465 409
Unlevered Net Income 2,046 2,136 2,195 2,144 2,154 2,126 2,077 2,022 1,961 1,893 1,816
Plus: Depreciation and Amortization 983 1,056 1,108 1,169 1,238 1,315 1,375 1,436 1,499 1,565 1,632
Asian IT Hardware
Less: Capital Expenditure (1,775) (1,300) (1,491) (1,615) (1,745) (1,864) (1,930) (1,872) (1,816) (1,761) (1,761)
Less: Increase in Working Capital (112) 32 50 53 46 47 49 49 48 48 48
Unlevered Free Cash Flow 1,142 1,923 1,862 1,752 1,693 1,624 1,570 1,635 1,692 1,744 1,735
Discount Factor 0.92 0.85 0.78 0.72 0.67 0.62 0.57 0.52 0.48 0.45
Present value of FCF 1,774 1,585 1,375 1,226 1,084 967 929 887 843 774
Cumulative PV of FCF 11,445
Terminal Value 18,272
PV of Terminal Value 8,150
Enterprise Value 19,595
Less : Debt, Pref., Minority Interest (3,450)
Add: Investments, Excess cash 6,351
Shareholder Value 22,496
Implied Share Price (US$) $ 15.20
Implied Forward Book Multiple 0.9 x
Note: We have assumed an 8.4% WACC and 0% LT growth for FCF for deriving terminal value.
Source: Bernstein estimates and analysis, capital IQ
40
December 4, 2012
Exhibit
Exhibit 79 79 Exhibit
Exhibit 80 80
Corning Revenue Estimates: SCB vs. Consensus Corning EBITDA Estimates: SCB vs. Consensus
Corning Revenue Estimates: SCB vs. Consensus Corning EBITDA Estimates: SCB vs. Consensus
9,000 4,500
8,418 4,000
8,500 2,954
3,500
7,884
8,000 8,409 3,000 2,660
USD mil.
USD mil.
7,863 2,500
7,500 2,857
2,000 2,481
7,000 1,500
1,000
6,500
500
6,000 0
2012E 2013E 2012E 2013E
Consensus Range SCB Est. Mean Cons. Consensus Range SCB Est. Mean Cons.
Source: Capital IQ, Bernstein estimates Source: Capital IQ, Bernstein estimates
Exhibit 81
Corning Target Price Sensitivities to Revenue and EBITDA
Revenue/ 2013 Assumed P/B Multiple

EBITDA BVPS 0.7x 0.8x 0.9x 1.0x 1.1x
USD mil. USD
2013 Rev Growth
1.9% 8,016 $15.98 11.90 13.50 15.10 16.70 18.30
(3%) 10% 23% 37% 50%
6.9% 8,409 $16.05 12.00 13.60 15.20 16.80 18.40
(2%) 11% 24% 37% 50%
11.9% 8,802 $16.12 12.00 13.70 15.30 16.90 18.50
(2%) 12% 25% 38% 51%
2013 EBITDA Margin

29.0% 2,436 $15.83 11.80 13.40 15.00 16.60 18.20
(4%) 10% 23% 36% 49%
34.0% 2,857 $16.05 12.00 13.60 15.20 16.80 18.40
(2%) 11% 24% 37% 50%
39.0% 3,277 $16.27 12.20 13.80 15.40 17.00 18.70
(0%) 13% 26% 39% 53%
Combination Scenario
Conservative Case $15.77 11.80 13.40 14.90 16.50 18.10

Asian IT Hardware
(4%) 10% 22% 35% 48%

Base Case $16.05 12.00 13.60 15.20 16.80 18.40
(2%) 11% 24% 37% 50%
Optimistic Case $16.35 12.20 13.80 15.50 17.10 18.80
(0%) 13% 27% 40% 54%
41
December 4, 2012
Nippon Electric Glass (5214.JP) – Underperform – Target Price: JPY 350
Positives: Leadership in thin glass, low-cost soda-lime cover glass, low operating expense ratio, exposure
to faster-growing LGD as second source, at the expense of SCP
Negatives: Least diversified, lowest cash margins, Japan-focused capacities lack co-location, PDP glass
growth stagnant
NEG manufactures glass for flat panel display, optics-related glass, glass for electronic devices and solar
batteries, as well as glass fibers, construction glass, heat-resistant glass, glass for lighting use, medical and
laboratory glass, and glass for thermos use. The company is also involved in glass manufacturing equipment
and refractory products, as well as inspection, packing and logistics services.
In 1987, NEG started production of alkali-free substrate glass for TFT-LCDs, cover glass for image sensors,
ball lenses for optical communications, and glass for laser diodes. It also started production of thin sheet
glass by applying the continuous redrawing method. NEG also manufactures specialty glass, with CRT
glass becoming one of its core products. In the 1990s, NEG began to expand production network overseas
in response to Japanese CRT manufacturers relocating overseas and growing global demand.
Flat panel displays began to appear in the latter half of 1990s, and the company started producing substrate
glass for TFT-LCDs and PDPs using the fusion overflow and float processes, respectively. The company
ended its CRT glass business and shifted the focus to TFT-LCD glass. NEG set up production bases for
TFT-LCD glass in the form of subsidiary or joint ventures in Korea, Taiwan and China. NEG has also been
promoting the development of new glass products within many different fields.
The company operates in two segments: glass for electronic and information devices and glass for other
applications. Glass for electronic and information devices accounted for 81% of the company’s total revenue
for the year ended March 2012 (Exhibit 82). We are aware from data from FY 2010 that roughly 80% of
company revenues are derived from Display Glass and 4% from Optical and Electronic Devices, forming
the Electronic & Information segment, while 7% of revenues are from Glass Fibers and 8% from Building/
Construction Materials, making up the “Other” segment. The company is by and large a display-glass
company, although the ratio has seen slight erosion from ASP declines. We have no direct data on segment
profitability as NEG does not include those in disclosures.
Exhibit 82
Exhibit 82
NEG Revenue by Segment
NEG Revenue by Segment
450
400
350
Rev (JPY bil.)
300
250
200
Asian IT Hardware
150
100
50
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012
Glass for Electronic & Information Devices Glass for Other
Note: FY2012 refers to fiscal year end March 2012.

Note: FY2012 refers to fiscal year end March 2012.

NEG has a large exposure to the display segment. Within the display glass sub-segment, NEG has presence
across TFT-LCD and plasma display panels (PDP). PDP substrate glass is used in the front and back of
plasma display TV panels.
42
December 4, 2012
Aside from glass substrates within the Display Glass segment, NEG also produces micro rods used as gap
spacers for liquid crystal cells, glass tubing for CCFL, glass pastes to make barrier ribs for PDP, dielectric
layers, and electrode protective layers.
Within the Optical/Electronics Devices segment, products include powder glass, cover glass for CCD/
CMOS image sensors, glass for diodes used in encapsulation, and glass for laser diodes used as cover glass
for optical pickup heads of DVDs, glass components and ceramics for lens, optical fibers, and other optical
devices.
The Fiber Glass sub-segment produces thin glass filaments with high mechanical strength. These are used in
production of composite materials, reinforcing a variety of materials such as plastics and concrete.
In the display segment, NEG's product development pipeline focuses on producing display glass that
supports next generation ultra-thin glass and 3D TVs:
• Ultra-thin sheet glass – NEG succeeded in developing ultra-thin sheet glass that is thin enough to be
rolled, by upgrading their overflow (fusion) process. Ultra-thin sheet glass refers to extremely thin film
glass with a thickness of 0.2 mm or less. Ultra-thin sheet glass will be used in handsets to allow for lighter
and thinner devices.
• Glass for 3D TVs – The 3D images on LCD TVs requires a thinner glass substrate of LCD panels leads to
less parallax and better image quality. NEG manufactures large substrate glass of 2,200 mm (height) ×
2,500 mm (width) with a thickness of 0.3 mm (about half of conventional products) for G8 LCDs by
taking full advantage of the overflow process and its leadership in thin glass.
Most of NEG’s production facilities are based in Japan, but in order to meet overseas needs, NEG is
establishing a G8 plant in Paju mainly to serve LGD. In May 2012, the company announced that it will
establish a wholly owned subsidiary with melting and forming facilities in Paju, South Korea. The annual
capacity of Paju plants is expected to reach 5.4 million m2 of G8+ glass substrates once fully operational
from 2013 onwards. By locating all of its production facilities to date in Japan, NEG’s supply chain is
inefficient and costly as it also has significant customers outside of Japan. For FY 2012, only ~30% of sales
originated from Japan, while 38% came from Korea (mostly LGD), 23% from Taiwan (AUO and CMI) and
the remaining from China, Malaysia, U.S., and Europe. The lack of co-location of glass and panel facilities
would put NEG’s pricing at a disadvantage with higher delivery costs. The higher geographic concentration
makes it susceptible to natural disasters such as earthquakes and tsunamis. NEWG’s capacities are currently
88% G7 and above (Exhibit 83).
Exhibit 83
NEG Display Glass Production Facilities
Annual Capacity (000’ Sq meter)
Country Site Plants Gen. 2011 2012 2013
Japan Takatsuki 3 <5 3,907 4,190 4,275
Asian IT Hardware
Japan Takatsuki 9 5 3,167 3,396 3,465

Japan Takatsuki 8 6 2,073 2,223 2,268
Japan Takatsuki 70 7+ 18,389 25,342 31,370
Japan Notogawa 3 <5 2,468 2,646 2,700
Japan Notogawa 51 7+ 31,156 33,406 34,088
Japan Notogawa 72 8+ 22,313 25,725 26,250
Korea Paju 32 8+ 0 0 5,400
248 83,473 96,927 109,815
Source: Display Search
43
December 4, 2012
NEG’s display glass business has a highly concentrated customer base. Sales to the three largest customers,
LGD, AUO, and CMI accounted for 66% of Information & Electronic Glass segment revenue and 53% of
company revenues for FY 2012. LGD is the largest customer of the company. Sales to LGD alone
accounted for 39% of the segment revenues for FY 2012. NEG supplies 54% of the glass substrates
purchased by LGD, with this ratio having increased materially from mid-30% since 2009. Having greater
exposure to LGD is advantageous for NEG, as LGD is financially stronger when compared to CMI and
AUO and has a bigger topline growth potential (Exhibit 84 and Exhibit 85).
Exhibit 85
Exhibit 84 Exhibit 85 Revenue by Customers (JPY bil.)
FY2012
Exhibit 84
% of Customer
% of CustomerSupply Share
Supply Share for Substrate
for Substrate Glass Glass FY2012 Revenue by Customers (JPY bil.)
60%
50% 106.6, 32%
157, 47%
40%
30%
20%
10% 38.9, 11%
35.4, 10%
0%
07 07 008 008 009 009 010 010 011 011 012
20 20 2 2 2 2 2 2 2 2 2
2 4 2 4 2 4 2 4 Q2 Q4 2 LGD AUO Chimei Others
Q Q Q Q Q Q Q Q Q
AUO CMI/CMO LGD Samsung Source: Company disclosures, Bernstein analysis

Source:Source:
DisplayDisplay Search,
Search, Bernstein
Bernstein analysis
analysis
LGD, in order to reduce its (much disliked) dependence on SCP, has been working with LG Group sister
company LG Chem in developing glass substrate technology. In 2009 LG Chem announced its decision to
enter the TFT-LCD glass business. LG Chemical licensed glass making technology from Schott and began
building a glass tank for G8 in Paju, Korea. In June 2011, LG Chem started a pilot run on its #1 tank and the
pilot run has finalized and pre-production started in Q1 of 2012. In April 2012, LG Chem announced that it
would invest $620 million in its #2 and #3 glass tanks by March 2014 and the annual capacity is expected to
reach 50 million m2 by 2016. This compares to about 100 million m2 that NEG would produce in 2012, of
which roughly 40% would go to LGD. NEG’s move has been “partner” with LG Chem and LGD to become
a stable second-source to LGD. In May 2012, NEG announced that it will establish a wholly owned
subsidiary with melting and forming facilities in South Korea, to serve primarily LGD. In some ways, the
Asian IT Hardware
shipment share erosion would not be sudden or significant as the major replacement from LG Chem’s sales
would be to replace SCP, and only secondarily NEG.
Our mid-term outlook for the company is negative, given the concentration in display glass and
low margins
NEG’s areal shipment share of substrate glass has increased over the past 5 years from 17% in 2008 to 22%
in 2012. This is essentially driven by NEG’s aggressive capacity growth, averaging 30% YoY over the past 5
years. NEG’s capacity utilization is on par with Corning at about ~90%, but marginally lower than AGC.
NEG margins are lower than peers, pushing it towards losses faster with declining ASPs. It is also the most
concentrated company in display glass (80% of revenue), seeing a more direct impact from margin
compression. We believe the lack of economies of scale and co-location of production facilities with
44
December 4, 2012
customers reduces margin prospects. From a pricing perspective, NEG is a price follower, usually
discounting from what Corning is setting to secure shipment share and have less control over topline
dynamics (Exhibit 86 and Exhibit 87).
NEG’s product portfolio is not as well positioned to enjoy growth. It spends relatively little on R&D.
Lacking scale, NEG would find it hard to out-innovate industry leaders. NEG does not have any OLED
glass as part of its product portfolio, but is present in thin glass (the thinnest at 0.04mm) which provides
some differentiation. NEG is planning to upgrade existing equipment to produce thinner glass substrates for
TFT-LCD and improve yields. NEG has mentioned in the past that it is taking R&D measures to close the
OLED gap, anticipating OLED would fully emerge in a few years, and reviewing its factory locations to
align with overseas demand trends.
NEG is also exposed to manufacturing of PDP glass, a segment that is seeing rapid deterioration in demand,
reflected in the impairment of PDP fixed assets amounting to ~JPY 11 billion in FY 2012. Today, PDP TVs
are only produced by a few select OEMs such as Samsung, Panasonic and LG Electronics, with customer
demand shifting rapidly towards TFT-LCD.
Oddly, NEG’s SG&A ex-R&D, is roughly half of those estimated for peers. We find this odd for usually
economies of scale begets lower operating expense ratios. Perhaps centralizing all of its operations in Japan
has its cost benefits operationally – Notogawa in Shiga Prefecture and Takatsuki in Osaka Prefecture are
both in the Kansai region.
In the non-display glass segment, revenue trends have been flat over FY 2007-FY 2012. We do not
anticipate an acceleration of topline or margin growth, and would not be able to provide attenuation of
margin erosion for the display glass segment.
Exhibit 86
Exhibit 86
Exhibit 87
Areal ASP
Areal ASPand Cash
and Cash CostCost Forecast
Forecast Capacity Growth and Utilization
8,000 120% 90%
7,000 80%
100% 70%
6,000
JPY per sq. meter
60%
5,000 80% 50%
4,000 40%
60%
30%
3,000
40% 20%
2,000 10%
1,000 20% 0%
-10%
0% -20%
07 08 09 10 11 12 3E 4E 5E
Asian IT Hardware
FY FY FY FY FY FY Y1 Y1 Y1
Q1’11
Q2’11
Q3’11
Q4’11
Q3’08
Q4’08
Q1’09
Q2’09
Q3’09
Q4’09
Q1’10
Q2’10
Q3’10
Q4’10
Q1’12
Q2’12
F F F
Areal ASP Areal Cash Cost

Capacity Utilization Capacity YoY Growth
Source: Bernstein estimates, Display Search, company disclosures
Source: Bernstein estimates, Display Search, company disclosures Source: Display Search, Bernstein estimates
We anticipate EBIT margins to turn negative as soon as 4 years and EBITDA in 8 years for NEG if current
ASP and cost trends persist. We are largely aligned with consensus on FY 2013 and FY 2014 revenue,
marginally lower on EBITDA estimates, and more bearish on valuation multiple as we regard prospects in
the longer term to be less compelling for NEG given industry and company-specific trends. Based on our
45
December 4, 2012
DCF model, we arrive at our implied valuation multiple of 0.4x on FY 2013 book value (Exhibit 88
through Exhibit 91).
NEG has a more concentrated shareholding structure, with a 17% stake held by Nipro Corp. (a medical
equipment, pharmaceutical, glass and materials company based in Japan) and 11% held by NEC Corp. (an
IT/network company in Japan).
Exhibit 88
NEG Discounted Cash Flow
JPY Bil. 3/31 3/31 3/31 3/31 3/31 3/31 3/31 3/31 3/31 3/31
FYE Ending 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
Total Revenue 303 288 279 269 258 247 237 227 217 208
Annual Growth -10.5% -4.8% -3.0% -3.9% -4.1% -4.1% -4.1% -4.1% -4.1% -4.1%
EBITDA 76 67 60 52 43 30 18 7 (3) (12)
Margin 25.0% 23.2% 21.5% 19.3% 16.7% 12.2% 7.7% 3.2% -1.3% -5.8%
EBIT 31 21 12 3 (7) (16) (24) (31) (38) (45)
Margin 10.3% 7.1% 4.5% 1.1% -2.6% -6.4% -10.1% -13.9% -17.6% -21.4%
Less: Income Taxes 12 8 5 1 0 0 0 0 0 0
Unleveraged Net Income 19 13 8 2 (7) (16) (24) (31) (38) (45)
Plus: Depreciation and Amortization 45 46 48 49 50 46 42 39 36 32
Less: Capital Expenditure (43) (32) (28) (27) (26) (21) (21) (21) (19) (17)
Less: Increase in Working Capital (17) 3 3 3 4 3 3 3 3 3
Unleveraged Free Cash Flow 4 30 31 27 21 13 1 (10) (18) (25)
Discount Factor 0.98 0.94 0.92 0.90 0.88 0.86 0.84 0.82 0.80 0.79
Present value of FCF 4 28 28 24 18 11 1 (8) (14) (20)
Cumulative PV of FCF 73
Liquidation Value 105
PV of Liquidation Value 83
Enterprise Value 155
Less : Debt, Preferred Capital, Minority I (88)

Add: Investments, Excess cash 104
Shareholder Value 172
Implied Share Price (JPY) ¥350

Implied Forward Book Multiple 0.4x
Note: Assumed 4.5% WACC, and liquidation value at 0.4x book, the lowest observed in recent trading.
Source: Bernstein analysis and estimates, Capital IQ
Exhibit Exhibit 90
NEG Revenue Estimates: SCB vs. Consensus NEG EBITDA Estimates: SCB vs. Consensus
NEG Revenue Estimates: SCB vs. Consensus NEG EBITDA Estimates: SCB vs. Consensus
340
Asian IT Hardware
100
81
320 90
303 76
290 80
300 70
300 76
280 60
JPY bil.
JPY bil.
288 67
50
260
40
240 30
20
220
10
200 0
FYE03/13 FYE03/14 FYE03/13 FYE03/14
46
December 4, 2012
Exhibit 91
NEG Target Price Sensitivities to Revenue and EBITDA
Revenue/ FY03/2013 Assumed P/B Multiple

JPY Bil. JPY
FY13 Rev Growth
-15.5% 286 ¥956 157 253 348 444 540
(67%) (46%) (26%) (6%) 15%
-10.5% 303 ¥961 158 254 350 446 542
(66%) (46%) (26%) (5%) 15%
-5.5% 320 ¥966 159 255 352 448 545
(66%) (46%) (25%) (5%) 16%
FY13 EBITDA Margin

20.0% 61 ¥944 155 249 344 438 532
(67%) (47%) (27%) (7%) 13%
25.0% 76 ¥961 158 254 350 446 542
(66%) (46%) (26%) (5%) 15%
30.0% 91 ¥979 161 258 356 454 552
(66%) (45%) (24%) (3%) 17%
Conservative Case ¥940 154 248 342 436 530

(67%) (47%) (27%) (7%) 13%
Base Case ¥961 158 254 350 446 542
(66%) (46%) (26%) (5%) 15%
Optimistic Case ¥984 161 260 358 457 555
(66%) (45%) (24%) (3%) 18%

Asian IT Hardware
47
December 4, 2012
Asahi Glass Co. (5201.JP) – Underperform – Target Price: JPY 440
Positives: Float OLED glass, Dragontrail cover glass growth, and diversification in non-display glass and
chemicals
Negatives: High SG&A, lower margins, exposure to Taiwanese panel manufacturers, stagnant PDP
growth
AGC is a Japan-based glass manufacturer. The Company has four business segments:
The Glass segment manufactures and sells float plate glass, figured glass, low-E glass, heat insulated and
processed glass for construction use, hardened glass and laminated glass for automobiles, industrial
processed glass and decorating glass, among others. The glass segment is the largest segment in terms of
revenue. This segment supplies flat glass for construction, automobiles and photovoltaic fields. In May
2012, AGC unveiled Leoflex, a new chemically strengthened specialty glass with reduced thickness. The
new product can be used in solar panels, construction and lighting. In April 2012, AGC released four new
eco-glass products, Sunbalance, Aqua Green, and Sunbalance Pure Clear, which can contribute to greater
energy saving. The glass segment contributes 45% of AGC topline over the past 3 years and less than 5% of
operating income (Exhibit 92 through Exhibit 94).
The Electronics & Display segment is engaged in the manufacture and sale of glass substrates for display
devices, special glass and peripheral components for display, optical thin film products, optoelectronics
parts and synthetic silica products, among others.
It is the second largest segment, contributing 33% of AGC revenues in the past 3 years and 90% of the
operating income (Exhibit 93). About 80% of the segment sales come from the display business, which
produces glass for TFT-LCD displays, PDP displays and other display types. AGC produces alkali-free
glass substrate for TFT-LCD using the float process. It also produces PDP substrate glass with high strain
point that can withstand operations of up to several hundred degrees.
In 1991, an AGC subsidiary, Advanced Display Co., Ltd, began to produce TFT-LCD glass substrates and in
1996 started commercialization of PDP glass. Between 2003 and 2008, AGC increased its TFT-LCD glass
production capacity in response to the growing demand for LCD TVs. In the past few years, AGC has
focused on the development of new display glass products, such as Dragontrail and ultra-thin glass
substrates for touch screens.
AGC has a total of 63 LCD glass plants with an annual production capacity of 98.1 million m2. 80% out of
the existing capacity is relating to the production of G7 sizes or above (Exhibit 95). In March 2011, the
company set up its second production base for TFT-LCD glass substrates in Shenzhen, China. The new
facility will be equipped to process up to G8 glass substrates. Volume production started in the summer of
2012. AGC has a fairly distributed customer base, serving CMI, AUO and CPT in Taiwan, Samsung Display
and LGD in Korea, JDI and Sharp in Japan, and Tianma in China.
In January 2011, AGC introduced Dragontrail, a chemically strengthened glass used as cover glass for
Asian IT Hardware
smartphones and tablets. In February 2011, AGC announced a JPY 20 billion investment in a new float glass
furnace in Japan to produce Dragontrail. The company expects this product to make up 30% of the market
share of cover glass. In May 2011, AGC announced it had developed ultra-thin sheet glass manufactured
using the float process, measuring 0.1mm.
Aside from display glass, the segment also produces materials for IT and communication industry such as
optical membranes, optoelectronics materials, synthetic quartz glass, glass frit and pastes, materials for
semiconductor manufacturing equipment, and lighting glass products.
48
December 4, 2012
Exhibit 92
Exhibit 92 AGC Revenue by Segment (2005-2011)
AGC Revenue by Segment (2005-2011)
¥1,621 ¥1,681
1,800 ¥1,527
¥1,444
1,600
¥1,289
1,400 ¥1,148 ¥1,215
Rev. (JPY bil.)
1,200
1,000
800
600
400
200
0
2005 2006 2007 2008 2009 2010 2011
Glass Electronics and Display Chemical Other
Exhibit 93
AGC Operating Income by Segment (2005-2011)
Exhibit 93
AGC Operating Income by Segment (2005-2011)
¥300
¥250 ¥229
Op. Income (JPY bil.)
¥197
¥200 ¥154 ¥166
¥137 ¥87
¥150 ¥118
¥100
¥50
¥0
-¥50
-¥100
2005 2006 2007 2008 2009 2010 2011
Exhibit
Source: 94 disclosures, Bernstein analysis
Company
AGC 2011 Segment Revenue & Operating Income
Exhibit 94
AGC 2011 Segment Revenue & Operating Income
600 ¥553
500
¥385
Asian IT Hardware
400
JPY bil.
300 ¥245
200 ¥134
100 ¥31
¥10 ¥18 ¥4
0
Revenue Op Income
Source: Company financials and Bernstein estimates.
Source: Company Financials & Bernstein estimates.
49
December 4, 2012
Exhibit 95
AGC Production Facilities
Annual Capacity (000’ Sq meter)
Country Site Plants Gen. 2011 2012 2013
Japan Keihin 3 <5 5,384 5,773 5,891
Japan Keihin 3 5 2,692 2,886 2,945
Japan Amagasaki 1 6 4,799 5,145 5,250
Japan Takasago 14 7+ 18,509 19,845 20,250
Taiwan Yulin 1 6 5,484 5,880 6,000
Taiwan Yulin 20 7+ 28,721 31,605 32,250
Korea Gumi 21 7+ 24,678 26,966 33,750
63 90,265 98,100 106,336
The Chemical segment supplies chlor-alkali, urethane and fluorochemicals such as vinyl chloride
monomers, sodium bicarbonate, liquid crystal materials, green house film materials, ion-exchange
membranes, anode materials for lithium ion batteries. In the chlor-alkali business of the chemicals business
segment, AGC plans to expand the operational capacity of its facilities in fast-growing markets where
demand expansion can be expected, while in the domestic market, it will consolidate. The chemical segment
contributes roughly 20% of AGC topline and less than 5% of operating income.
Other. The company is also engaged in the manufacture and sale of ceramic products, and the provision of
logistics and financial services.
Our mid-term outlook for the company is negative, given persistent high SG&A and weak topline
momentum
AGC has been experiencing an overall top line decline in the past few years as a result of the financial crisis
and the Tohoku earthquake. However, gross margin had been rising 2010, as a result of the increased
percentage of sales attributed to TFT-LCD display products. In 2011, a combination of declining display
ASPs and slow shipment growth resulted in margin declines. Exposure to Taiwanese panel companies have
also been a weakness for AGC given relative financial performance against Korean peers recently.
AGC has persistently high SG&A relative to NEG in particular, at almost double the ratios despite similar
scale for their LCD business. We suspect very distributed production facilities that span Japan, Taiwan,
Korea and China may incur substantial coordination and maintenance costs. This is not necessarily bad
when compared to NEG which is further from its clients, but lacking the scale of industry leader Corning,
AGC is not able to sustain comparable margins.
Asian IT Hardware
On a product level, AGC is doing well in its Dragontrail, having roughly a third of the cover glass market.
And although its float OLED glass has wide customer acceptance because of its mechanical and optical
properties resulting from the float glass annealing process, we believe Corning’s Lotus glass and SCP’s JV
with Samsung means this business is under material threat. We understand AGC will accelerate sales plans
for its thin-sheet glass substrates, cover glass and multi-function glass but would not anticipate huge uplift
given competitive dynamics.
Currently, the (non-display) Glass segment is AGC’s largest segment, accounting for 45% of topline.
However, operating income has been increasingly coming from Electronics & Display, at 90% over the past
3 years. Given the margin trends anticipated for display glass, we find this trend worrying. AGC is the most
diversified display glass company in our coverage, but we have also seen a downward trend in Glass
segment revenues over the past 7 years, and a largely stagnant Chemical segment. We understand that AGC
has international expansion plans (mainly Eastern Europe and Latin America) for its construction and
automotive glass products, but are yet to see any traction to date. We understand topline ambition for
50
December 4, 2012
“products for the fast growing markets”, “environmental products”, and “new products” are anticipated to
contribute JPY 2 trillion, contributing 30% or higher in revenues by 2020, but is unfortunately too distant a
plan for our midterm consideration (Exhibit 96 and Exhibit 97).
Exhibit 96
AGC Segment Revenue Forecast
AGC Segment Revenue Forecast
AGC Exhibit
Segment97
Gross Margin Forecast
AGC Segment Gross Margin Forecast
1,800 60%
1,600
50%
1,400
40%
Gross Margin
1,200
Rev (JPY bil.)
1,000 30%
800
20%
600
400 10%
200
0%
10
05
06
07
08
09
20 E
20 E
20 E
20 E
E
20 1
1
12
13
14
15
16
20
20
20
20
20
20
20
05
06
07
08
09
10
20 E
20 E
20 E
20 E
E
20 11
12
13
14
15
16
20
20
20
20
20
20
20
Glass Electronics & Display

Glass Electronics & Display Chemical Other Chemical Other
Source: Source:
Bernstein estimates,
Bernstein company
estimates, company disclosures
disclosures Source:Source: Bernstein
Bernstein estimates,
estimates, company disclosures
company disclosures
Similar to other coverage companies, we anticipate a roughly 10 percentage point margin decline from
display glass dynamics over the next 3-5 years, yielding an implied FY 2013 book multiple of 0.6x based on
our DCF model. We are more bearish than consensus on AGC's topline and bottom line growth prospects,
assigning a 0.1x lower P/BV multiple relative to consensus. AGC is where we are currently most divergent
relative to consensus and current market prices (Exhibit 98 through Exhibit 101).
Exhibit 98
AGC Discount Cash Flow
JPY Bil. 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
Total Revenue 1,165 1,146 1,161 1,188 1,234 1,301 1,327 1,354 1,381 1,409 1,437
Annual Growth -4.1% -1.7% 1.3% 2.4% 3.9% 5.4% 2.0% 2.0% 2.0% 2.0% 2.0%
EBITDA 220 232 226 220 212 197 189 180 172 162 153
Margin 18.9% 20.2% 19.4% 18.5% 17.1% 15.1% 14.2% 13.3% 12.4% 11.5% 10.6%
EBIT 102 104 92 81 68 50 38 25 12 (2) (16)
Margin 8.8% 9.1% 8.0% 6.8% 5.5% 3.9% 2.9% 1.9% 0.9% -0.1% -1.1%
Less: Income Taxes 30 31 28 24 20 15 11 7 4 0 0
Unleveraged Net Income 72 73 65 57 48 35 27 18 8 (2) (16)
Plus: Depreciation and Amortization 120 128 133 138 143 147 151 155 160 164 169
Asian IT Hardware
Less: Capital Expenditure (170) (149) (139) (143) (123) (65) (88) (88) (88) (88) (88)
Less: Increase in Working Capital (26) 0 (6) (9) (13) (18) (9) (9) (9) (9) (9)
Unleveraged Free Cash Flow (5) 52 52 43 54 99 80 76 71 65 56
Discount Factor 0.96 0.93 0.89 0.86 0.83 0.80 0.77 0.74 0.71 0.69
Present value of FCF 50 49 39 47 82 64 58 53 47 38
Cumulative PV of FCF 526
Liquidation Value 643
Enterprise Value 969
Less : Debt, Preferred Capital, Minority Interest (581)

Add: Investments, Excess cash 122
Shareholder Value 510
Implied Share Price (JPY) ¥440

Implied Forward Book Multiple 0.6x
Note: Assumed 3.8% WACC, and liquidation value at 0.6x book, the lowest observed in recent trading.
Source: Bernstein analysis and estimates
51
December 4, 2012
Exhibit
AGC Revenue Estimates: SCB vs. Consensus Exhibit 89
AGC Revenue Estimates: SCB vs. Consensus AGC
NEG EBITDA
Revenue Estimates:
Estimates: SCB
SCB vs. Consensus vs. Consensus
1,500 400
1,400 350
300 234
1,300 1,223 225
1,181 250
JPY bil.
1,200
JPY bil.
200
1,100 1,165 1,146 220 232
150
1,000 100
900 50
800 0
2012E 2013E 2012E 2013E
Exhibit 101
AGC Target Price Sensitivities to Revenue and EBITDA
Revenue/ FY03/2013 Assumed P/B Multiple

JPY Bil. JPY
2013 Rev Growth
-3.7% 1,122 ¥774 283 361 438 516 593
(55%) (43%) (30%) (18%) (6%)
-1.7% 1,146 ¥777 284 362 440 517 595
(55%) (42%) (30%) (18%) (5%)
0.3% 1,169 ¥780 285 363 441 519 597
(55%) (42%) (30%) (17%) (5%)
2013 EBITDA Margin

18.2% 209 ¥763 279 355 432 508 584
(56%) (43%) (31%) (19%) (7%)
20.2% 232 ¥777 284 362 440 517 595
(55%) (42%) (30%) (18%) (5%)
22.2% 255 ¥791 290 369 448 527 606
(54%) (41%) (29%) (16%) (4%)
Conservative Case ¥760 278 354 430 506 582

(56%) (44%) (32%) (19%) (7%)
Asian IT Hardware
Base Case ¥777 284 362 440 517 595

(55%) (42%) (30%) (18%) (5%)
Optimistic Case ¥794 291 370 450 529 609
(54%) (41%) (28%) (16%) (3%)
52
December 4, 2012
Appendix A: What is Glass Used For? Applications in TFT-LCD, OLED, Touch, and Flexible
Displays
Before looking at how glass is used in TFT-LCD displays, we review how TFT-LCD displays work and the
manufacturing processes involved. Having an idea how TFT-LCD works and how glass is used is helpful in
understanding the design and manufacturing choices that glass manufacturers are faced with in the display
technology roadmap, and the implications for our coverage companies as investment opportunities.
Laying the groundwork: How do TFT-LCD displays work and the role of glass in panels
The core of a TFT-LCD is a liquid crystal layer sandwiched between two thin sheets of glass. One of the
sheets of glass has an array of thin-film transistors patterned on it which can be independently turned on and
off by driver circuitry at the edges of the glass. The transistors drive a voltage differential between the two
sheets of glass that causes the liquid crystal mixture sandwiched between the two sheets to change
orientation. Changing the orientation of the liquid crystals alters the polarization of light passing through
the panel thus allowing the passage of light through the display to be controlled.
The polarization of light entering the panel is determined by the orientation of the rear polarizer. The front
polarizer is oriented at 90° to the rear polarizer. The liquid crystal molecules next to the front and rear
polarizers are oriented in the same direction as the polarizers by a grooved rubbing layer (liquid crystal
molecules adjacent to grooved surface naturally orient themselves in the directions of the grooves). The
remaining liquid crystal molecules tend to orient themselves in a twisted fashion resulting in a smooth
“spiral” from top to bottom such that the polarization of light entering the rear polarizer is twisted through
the appropriate angle so that light can exit the front polarizer. When a voltage is applied to the electrodes on
the front and rear of the panel, the liquid crystal mixture aligns itself with the electric field. Because the
twisted structure of the mixture has been lost, the polarization of light is not affected and so no light passes
through the display. In this way, the structure can be used as a “shutter”, with individual transistors aligned
in arrays that act as localized light gates, or pixels (Exhibit 102). A color filter is patterned on the front
glass so that the three basic color subpixels (red, green, blue) can be combined to form a color image.
Exhibit 102
The basic mechanism of a liquid crystal display
The “Natural” state of the LCD

No Voltage Applied display is “on”. Voltage has to
Voltage Applied
be applied to block light.
Asian IT Hardware
Front Polarizer
Front Glass
5-10 microns
Liquid Crystal Molecules
Voltage
Rear Glass
Rear Polarizer
Light Source
The front and rear polarizers are at right angles from each other
Source: Bernstein analysis

53
December 4, 2012
The glass, liquid crystal, and TFT pixel array “sandwich” by itself (together with the driver ICs, called a
cell) does not generate light but only controls its passage through the cell, and thus a backlight is needed to
complete the LCD panel. The completed cell and backlight combination is called a LCD module or panel.
Practically, the panel is comprised of several mechanical, optical, and electronic components:
Light source. It can be either a cold cathode fluorescent light (CCFL) or a light emitting diode (LED). Note
that this is not the same as an OLED, although in theory (and in certain technology roadmaps, such as
LGD’s OLED TV design) it is feasible to use an OLED as the backlight light source.
Diffusers and brightness enhancing films. The light source is either a point source (LED) or a “line”
source (CCFL). On the other hand, the display is a flat sheet, which requires the light source to be evenly
distributed (to a high degree of quality and brightness) all along the surface of the display. For this purpose,
diffusers and brightness enhancing films (BEF) are used to “distribute” the light source along the display.
The combination of the light source, diffusers, BEF, and associated mechanical and electronic components
is called a backlight.
A rear polarizer. This ensures the polarization of light coming from the backlight and passing through the
panel is in a particular direction before it enters the liquid crystal.
Rear glass substrate. This is a sheet of glass onto which is patterned the TFT array which drives the
individual pixels.
Liquid crystals. In front of the rear substrate is a liquid crystal layer that is used to alter the polarization of
light passing through the display.
Front glass substrate. The color filters are patterned directly on the front glass substrate are used to color
the white light emanating from the panel red, green and blue. Lately, there has been a lot of work in
incorporating touch panels in the front glass substrate, together with the color filter, in what is known as
“One Glass Solution” (OGS) or “Touch-on-Lens” (TOL). These solutions eliminate the need for the touch
panel glass sheet, reducing areal demand for display glass. We cover this in depth below.
Front polarizer. This acts as a final gate, with light passing through the panel needing to be polarized in the
appropriate direction in order to pass through the front polarizer.
Driver ICs. The driver ICs are the ICs that are used to power the TFT array transistors, and are mounted on
the side of the rear glass substrate.
The thin LCD substrate glass is defect and impurity free, and it is difficult to manufacture, as we explain the
next section. Further, as the resolution of display panels increases, it requires smaller transistors which have
tighter design and manufacturing tolerances, demanding even more from the glass technology
specifications. How the companies in our coverage respond to these challenges is a major element of our
investment thesis on the sector.
The glass is sold and priced in JPY per sheet, and is generally more expensive per unit area the larger the
Asian IT Hardware
generation. Because of the technology requirements and the manufacturing complexity, only four companies
have successfully developed commercially viable LCD glass operations. Corning, together with its joint-
venture with SCP is the clear market share and technology leader. Other suppliers, such as Schott and Saint
Gobain, tried to enter the market but were unable to overcome technical issues to mass production. LG
Chem is currently investing heavily in the sector, and if successful, would become a fifth industry supplier.
IRICO of China is also attempting to enter the market.
During the manufacturing of TFT-LCD panels, a matched pair of thin substrate glass sheet (0.3 to 0.7 mm
thick) is passed through a set of process steps in a clean room environment. The LCD panel manufacturing
process is comprised of the cell and module. Main components for the cell process include substrate glass,
54
December 4, 2012
color filters, driver ICs, polarizers and liquid crystals. The module chain supplies finished backlights for
mounting with 103 cell. The high-level process flow is shown in Exhibit 103, and expanded below.
Exhibitthe
TFT-LCD Manufacturing Process Overview
Exhibit 103
TFT-LCD Manufacturing Process Overview
TFT Array Formation
TFT-LCD Cell Process TFT-LCD Module Process
Color Filter Array Formation
The glass used has very specific optical, mechanical and electrical properties and is of extremely high
quality and uniformity. One of the sheets is patterned with the TFT array in the TFT Array Formation
process using (currently) a lithographic approach very similar to that in semiconductor fabrication
(Exhibit 104).
The first process step is to deposit the backplane substrate, which can be amorphous silicon (a-Si), low
temperature polysilicon (LTPS), or an oxide compound. Follow-on steps are to pattern the gate and source
drivers, which are perpendicular conducting strips that cross at each TFT location. By applying a voltage to
the gate and source drivers using driver ICs arrayed at the edge of the glass, it is possible to “activate” the
TFT in an “on” state.
The number of steps in the TFT array formation process depends on the complexity of the array. It can have
as few as 4 (or even 3) masks for simple a-Si backplanes, up to 10 or more masks when considering LTPS
backplanes, or in-cell applications, where the touch panel is embedded in the backplane, requiring its own
process steps in addition to the transistor patterning.
The other glass substrate is patterned with the color filter using a similar lithographic process in the Color
Filter Array Formation process. The color filter, basically an array of red, green, and blue dye squares
(sometimes dots, chevrons, or dots of varying size, depending on the pixel technology), is matched during
the TFT-LCD Cell process (Exhibit 105) with the TFT array motherglass sheet such that three of the TFT
subpixels are aligned with each primary color creating a color pixel.
Once the glass substrate halves have been joined and the liquid crystal injected, the “sandwich” can be taken
Asian IT Hardware
out of the clean room to be scribed and cut to the final cell (and panel) size. Depending on the size of the
substrate glass (glass generation) and the size of the target panel, each substrate glass can be used to make a
number of panels (the number of “ups”). For example, a G7 glass sheet (1,950 x 2,250 mm) can make 8 42”
panels (8-up). Glass generations are optimized to specific product ranges and sizes. Too many ups on a sheet
of glass (for example, using a G7 glass to make 10.1” panels, which results in 150 ups) is not cost-effective
due to the additional material handling and module tooling required to manage the large volume.
55
December 4, 2012
Exhibit 104Exhibit 104

TFT ArrayTFTFormation Process
Array Formation Process
Repeat the process 4-10 times
Film Formation Resist Coating Exposure Etching Resist Removal
UV Expose
(photo mask)
Coating Film Photo Resist

Exhibit 105
Exhibit 105
TFT-LCD Cell Process
TFT-LCD Cell Process
Sealing Assembling
• Coat seal

Asian IT Hardware
The cut cells are then delivered to the module facility, where they are fitted with the driver ICs at the edge of
the glass and the backlight in the TFT-LCD Module process (Exhibit 106). This finished module (or panel)
can then be shipped to the ODM or EMS on consignment from the OEM, or delivered downstream at
integrated display manufacturers such as Samsung or Sharp.
56
December 4, 2012
Exhibit 106
Exhibit 106
TFT-LCDTFT-LCD
Module Process
Module Process
Backlight Setting
(OUTER LEAD BOND) (PRINTED CIRCUIT BOARD)

Current TFT-LCD manufacturing processes are relatively mature, and much of the early technology
innovation has slowed down, with research and development efforts by the leading players shifting to
OLED displays and to next-generation high-resolution backplanes such as LTPS or oxide.
OLED displays are the next wave in display technology, and the role of glass is a bit different
OLED is the next generation display technology, with different usage patterns and needs from glass makers.
It is worth reviewing how these displays are made in order to understand the role of glass in their
manufacture. OLED display manufacturing processes are conceptually similar to those used in TFT-LCD,
and many of the steps are common to both display technologies. The four basic steps in OLED display
manufacture (shown in Exhibit 107) are:
• OLED TFT Array Formation. This process involves the deposition of the backplane substrate, most
likely LTPS or some form of oxide, and the patterning of the transistor backplane. The patterning process
is identical to that of TFT-LCD (Exhibit 104) except the backplane substrate is not amorphous silicon
and the number of masks is quite a bit higher (9-10 versus 4-5 for TFT-LCD). Because of the lower yields
in the backplane substrate deposition and the higher number of masks, the OLED TFT array process is
substantially more expensive than its equivalent in TFT-LCD. In addition, because of the tighter process
specifications on the backplane material and the transistor designs, the optical, mechanical, and electrical
Asian IT Hardware
specifications of the glass substrate are more difficult to achieve. On the other hand, there is no need for a
parallel color filter array process, so some savings can be achieved. The current choice of backplane
substrate remains glass, although metal or plastic alternatives are being actively researched, as we discuss
below.
• OLED Deposition. This process is unique to OLED displays, and involves the deposition of the OLED
emissive layer on top of the TFT array, and subsequent encapsulation. Current deposition state of the art
involves vacuum deposition of evaporated elements of the OLED stack, using small molecule OLED
57
December 4, 2012
chemistry. Because of the need for a moisture-free environment, the masking element is a fine metal mask
(FMM), which is prone to sagging for mask sizes larger than 4G, and has issues with uniformity and
material waste (since only the OLED dyes that pass through the FMM holes end up in the display).
Substantial research is ongoing in either using polymer OLEDs or creating small molecule OLED
solutions so that simpler (and less costly) deposition processes can be used, such as vertical evaporation,
laser-induced thermal imaging (LITI), inkjet or nozzle printing, or even roll-to-roll (R2R) printing.
However, none of these manufacturing technologies are anywhere near commercial application.
• OLED Encapsulation. Immediately following the OLED deposition step, and without breaking vacuum,
the array needs to be encapsulated. State of the art encapsulation uses glass, but alternatives are being
developed, although these appear to remain a few years down the roadmap. Because of low deposition
throughput, need for a vacuum and vacuum handling, low material utilization, high material costs, and
low yields, the OLED deposition and encapsulation process remains much more expensive than the
TFT-LCD cell process analogue.
• Driver IC Mounting. This step is quite straightforward, and although the driver ICs used are different
than those for TFT-LCD (OLED driver ICs drive a current, while TFT-LCD driver ICs drive a voltage),
there is no difficulty in the design, manufacture, and mounting of these ICs. Further, because there is no
need for a backlight (which can comprise a substantial fraction, as much as 2/3 of the display BOM), the
overall variable costs (like-for-like, and under similar yields and throughputs) are much lower for OLED
than for TFT-LCD.
Exhibit 107
OLED Manufacturing Process
OLED TFT Array Formation Driver IC Mounting
Encapsulation
LCD TFT Array Formation
TFT-LCD Cell Process TFT-LCD Module Process
Color Filter Array Formation

Asian IT Hardware
The OLED supply chain has some commonality with the TFT-LCD supply chain, but also substantial
differences. The main elements of the OLED supply chain are (currently) glass substrate manufacturers,
OLED stack materials IP and process companies, and driver IC suppliers. Some OLED implementations
58
December 4, 2012
use polarizers and other films, which are similar in performance and characteristics to those used in TFT-
LCD supply chain is the same.
The substrate glass suppliers for OLED are the same that provide glass for TFT-LCD: Corning and SCP,
AGC, NEG, and AvanStrate. However, glass chemistry and composition does vary by manufacturer, and at
this point, AGC’s float process uses a formulation that has better optical, mechanical, and electrical
properties for OLED relative to fusion process competitors (Corning, NEG, and AvanStrate), and hence
AGC retains a much higher share of the OLED glass market. But the fusion process competitors are all
working feverishly to develop suitable fusion-manufactured alternatives (for example the Corning and
Samsung joint venture in OLED glass venture, which will produce OLED-suitable Lotus glass).
Corning’s Lotus glass is manufactured to perform well in LTPS and oxide TFT backplane manufacturing
environments. Its intrinsic thermal consistency allows it to retain its shape and quality during high
temperature processing (what is called “compaction”, or how much the glass “shrinks” during thermal
cycling, which is more severe in LTPS applications). Decreased compaction and variation during
crystallization and activation reduces stress and distortion to the substrate, enabling tighter design rules in
advanced backplanes for higher resolution and faster response time common in OLED displays.
Any acceleration of OLED uptake would see Corning and AGC taking share. Most of OLED adoption
would likely be in smartphones with large panel still a few years out before commercialization given how
expensive it is right now (see OLED Displays: A Revolution in the Making (Part II)? A Deep Dive into
OLED Market Adoption – Smartphones Still Key and OLED Display: A Revolution in the Making
(Part III)? OLED Capacity Plans and Supply-Demand Balance). Samsung still constitutes the largest
customer for small-medium OLED panels. This gives Corning a unique positioning to take share from
peers, especially with Samsung and Corning forming a JV to collaborate on OLED technologies utilizing
Corning’s Lotus Glass, which we will elaborate on later.
AGC’s float process also produces glass with good OLED specifications. This is because the float process
uses a “natural” annealing step that “locks in” the glass matrix in a way that has good mechanical properties
suitable for OLED. We expect the battle for OLED glass supply to be driven by this competition between
Corning’s fusion-based Lotus formulations and AGC’s float process.
Cover glass and touch panels ride growth in mobile applications
Aside from substrate glass, mobile applications (smartphones, tablets and increasingly notebooks) use a
“cover glass” (also called a “lens”, even though it has no lens-like properties, that is, it doesn’t focus light)
to protect the contents of TFT-LCD cells. There are two main types of cover glass – aluminosilicate and
soda lime. Corning is the pioneer of aluminosilicate strengthened cover glass, the most famous being
Gorilla Glass. But other players such as AGC (with its hardened glass called Dragontrail), NEG and Schott
are all entering the market. Strengthened glass employs an ion exchange process to create a physically
stronger glass to withstand scrapes and drops. Ion exchange is a strengthening process where large ions are
inserted into the glass surface, creating a state of compression. The glass is placed in a hot bath of molten
Asian IT Hardware
salt at 400°C, replacing smaller sodium ions that leave the glass with larger potassium ions from the salt
bath. These larger ions then compress the glass as it cools, producing a layer of compressive stress on the
surface of the glass. This process is intensified by diffusing the potassium ions further into the surface,
creating a compressive state deeper into the glass that is resistant to damage and cracks. The resistance of
the glass increases with the depth of the ion exchange layer, which can vary from about 15 microns to over
40 microns.
The ion-exchange step is fairly generic, and is usually done downstream of the supply chain because it is
very hard to cut or shape glass once it has been hardened. Usually, the glass blanks are shipped by the glass
makers to the customers who then cut and shape the glass in the finished form before hardening. The glass
59
December 4, 2012
companies provide support and technical assistance in the hardening process, but it is not a source of
revenue, only the shipped glass blank is what is sold. The quality of the glass blank and the downstream
support give the glass makers a competitive edge, with Corning being the leader but others not far behind.
Soda-lime cover glass is a lower spec alternative with cost around 20-30% of aluminosilicate glass, and
manufactured by Central Glass, Nippon Sheet Glass (NSG), and AGC. To date, aluminosilicate still
dominates but soda-lime is catching up playing its cost advantages.
Many smartphone, tablet and notebook OEMs have sought strengthened cover glass for their products, as
touch technologies popularize glass to be the main interactive (and most exposed) surface in these devices.
The touch panel market continues its inexorable growth with expectations for high-single digit unit and
revenue growth for the next few years (Exhibit 108 and Exhibit 109).
Exhibit 108108
Exhibit Exhibit 109
Exhibit 109
Cover Glass
Cover Glass Areal Shipment
Areal Shipment Forecast
Forecast TouchPanel
Touch Panel Unit
UnitForecast
Forecast
120 2.5
2.2
100 2.1
Areal Shipment (mil. sq. m)
2 1.9
1.8
80
1.6
Units (Billions)
1.5 1.4
60
1.2
40
1
0.8
20
0.5
0
2010 2011 2012E 2013E 2014E 2015E
0
Aluminosilicate Soda-Lime 2010 2011 2012 2013 2014 2015 2016 2017
Source: Display
Source: Search,
Display Bernstein
Search, Bernstein analysis
analysis
Source: Display
Source: Search,
Display Search,Bernstein analysis
Bernstein analysis
There are a number of touch technologies that can support multi-touch, but projected capacitive has become
the leading touch panel technology, and is expected to increase its share of the market in the next few years.
Exhibit 110 shows a forecast breakdown (from DisplaySearch and TPK) as a percentage of units shipped.
Exhibit 110
Touch Panel Technology Unit Share Forecast
Exhibit 110
Touch Panel Technology Unit Share Forecast
Asian IT Hardware
100%
80%
60%
40%
20%
0%
2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Projected Capacitive Resistive On-Cell In-Cell Other
Source: Display Search, TPK, Bernstein analysis
Source: Display Search, TPK, Bernstein analysis
60
December 4, 2012
But the real value lies not on imitating existing established touch panel manufacturers and simply adding
capacity to existing technology roadmaps, but in capturing the margin by bringing the touch panel design
and manufacture as part of the cell itself. This is what is called, depending on the process used, on-cell or
in-cell touch technologies. Notice that Exhibit 110 has on-cell and in-cell technologies capturing a very
small share of the market. We think this forecast (by TPK, who has a vested interest in stand-alone touch
panel solutions) is conservative, as we describe below. Exhibit 111 shows a graphical depiction of the
different touch panel integration models. The sensor on cover solution is also known as One Glass Solution
(OGS) or Touch On Lens (TOL).
The major advantage of on-cell and in-cell is the ability to eliminate the separate touch panel, and hence
allow for the design of thinner display modules. On-cell touch display modules could be in the 2.2mm
thickness range, which is close to 0.7-1.0mm thinner than the current mainstream add-on type touch (where
the touch panel is a separate assembly that is laminated onto the display), doing away with a layer of touch
sensor glass, and the adhesive-air gap. In-cell displays are even thinner than that, because the on-cell
process on the color filter or encapsulation layer adds incremental thickness from the touch panel
deposition.
Exhibit 111
Exhibit 111
Touch Panel Integration
Touch Panel Integration Technologies
Technologies
Add-on Type Touch Sensor on Cover: OGS On-Cell In-Cell
SITO
Cover Lens Cover Lens Cover Lens Cover Lens
Sensor X & Y
Glass
Adhesive or Air #1 Sensor Patterned Adhesive or Air #1 Adhesive or Air #1
DITO
Sensor: Y Adhesive or Air #1

Glass / Film Sensor & Substrate(s)
Sensor: X
Adhesive or Air #2
Discrete
Polarizer Polarizer
Sensor: Y
Film / Glass Polarizer Polarizer Sensor Patterned Color Filter

Sensor: X
Color Filter Liquid Crystal
Film / Glass Color Filter Color Filter
Liquid Crystal Liquid Crystal Liquid Crystal Sensor Built-in
TFT Backplane TFT Backplane TFT Backplane TFT Backplane
Source: Display Search,

Source: DisplayBernstein analysis
Search, Bernstein analysis
Not only do on-cell or in-cell technologies allow the panel maker to capture the touch panel margin, they
also reduce total assembly thickness, and part counts (the number of glass sheets). This is, however, at the
Asian IT Hardware
expense of increased process complexity at the TFT-LCD cell (higher mask count, and additional process
steps). In the end, the net result is lower manufacturing and BOM costs, which allows for more margin share
between the players in the supply chain. The clear losers in this transition (and we can be certain they will
be fighting it all the way to the end) are the providers of stand-alone touch sensor modules (such as TPK,
Wintek, Nissha, Digitech, and Young Fast), glass manufacturers, given the reduced number of glass required
sheets per module. Other supply chain participants affected are outsourced laminators, sensor glass coaters,
such as Cando and Sintek Photronics. The chipset and controller makers (Atmel, Cypress, Synaptics, Avago,
and many others) aren’t as affected, since the integrated touch panel still needs a controller. Exhibit 112
shows the different approaches to integrating the touch panel into the display cell (be it TFT-LCD or
OLED).
61
December 4, 2012
Exhibit 112
Touch Panel Integration Technologies
Term Integration Method Fabrication Method
Touch sensor is physically inside the LCD cell. Touch sensor can
In-Cell be a light sensor, a micro swich (voltage-sensing), or capacitive Addition to TFT process
electrodes (charge-sensing)
Touch sensor is an array of ITO electrodes on the top surface of
On-Cell Addition to color filter process
the color filter substrate, usually a projected
Touch sensor is an array of ITO electrodes on both surfaces of the
Hybrid (On-Cell/In-Cell) Addition to TFT and color filter process
color filter substrate
Source: Geoff Walker, Walker Mobile; Bernstein analysis
Touch and cover glass is likely to have a relatively faster traction among new glass technologies, spurred by
smartphone and tablet proliferation, and touch interfaces in notebooks from Windows 8. Corning in
particular is well positioned to enjoy further growth in aluminosilicate cover glass where it already enjoys
strong presence. Next would be AGC with its Dragontrail, but comparatively has only half the areal
shipment of Corning’s. NEG is lagging in aluminosilicate cover glass, but has presence in the much smaller
but faster growing soda-lime cover glass market.
Flexible glass is another area where glass makers are aiming to extract a good margin
from customers
Investors have been asking about flexible substrates ever since Samsung demonstrated its Youm plastic
substrate. Samsung has indicated that it plans to commercialize them in display applications later this year.
We remain highly skeptical of the suitability of plastic substrates as a replacement for glass for display
applications. Issues with permeability, mechanical stability, chemical resistance, and surface roughness
remain. Exhibit 113 shows a summary table of a number of substrates that are “competing” with glass to
become mainstream. As can be seen, none of them have the mechanical, electrical, and optical properties
that glass has.
Exhibit 113
Comparison of Backplane Substrates
Maximum Process Coefficient of Thermal Chemical Moisture

Substrate Transparency Surface
Temperature Expansion (CTE), ppm Resistance Uptake
Metal Foil 900 ºC (High Temp) 5-18 Opaque OK 0% Rough
Glass 600 ºC (High Temp) 3-4 Transparent Good 0% Good
Arylite (Polyarylate) 250 ºC (Med Temp) 53 Transparent Poor 0.40%
Kapton (Polyimide) 200 ºC (Med Temp) 15-35 Semi-Transparent (Orange) Good 2-4% Rough
Asian IT Hardware
PEEK 200 ºC (Med Temp) 26-60 Semi-Transparent (Orange) Good 0.5% OK

PES 200 ºC (Med Temp) 55 Transparent Poor 0.5% OK
PEN 150 ºC (Low Temp) 20 Transparent Good 0.8% Good
PET 120 ºC (Low Temp) 20 Transparent Good 0.8% Good
GE Lexan 200 ºC (Med Temp) 25 Transparent Good 0.4% Good
Source:Yong Taek Hong, Seoul National University, Bernstein analysis
On the other hand, at the time of the introduction of Youm, there was no comparably flexible glass substrate
either on the market or as part of a product offering. New offerings in flexible glass from the glass makers
changes these dynamics, and gives us renewed confidence that if displays are to be “flexible”, glass will
remain the first choice of display engineers and designers.
62
December 4, 2012
The three major display glass manufacturers (Corning, AGC, NEG) all have introduced some form of thin
glass, in a roll-to-roll format. Corning (branded Willow Glass) has demonstrated showing plastic-laminated
50 micron glass sheet (Exhibit 114), while NEG had the thinnest glass, 40 microns (Exhibit 115).

Corning Ultra-Thin Glass (Willow) NEG Ultra-Thin Glass
Source: SCB Photo
Source: SCB Photo
The ultra-thin glass from all three suppliers is flexible, with tight bending radii, and quite strong. Even
though the thin glass does lose some of its mechanical strength, and it is not fully foldable like a piece of
paper, it seems to be the best option for flexible and thin displays at this point (Exhibit 116).
Exhibit 116
Flexible Substrate Comparison
Type Advantages Disadvantages
Thin Glass Good gas barrier, high temperature tolerance Limited flexibility, low mechanical strength
Plastic Good flexibility, low cost sourcing Poor gas barrier, low temperature tolerance
Asian IT Hardware
Metal Foil Good gas barrier, high temperature tolerance Limited flexibility, poor surface roughness
Paper Good flexibility, low cost, disposable Poor gas barrier, moisture absorption, poor
surface roughness
Source: Yong Taek Hong, Seoul National University; Bernstein analysis
In particular, such ultra-thin glasses could be used as encapsulation layers in OLED screens, which are
extremely sensitive to degradation due to moisture seepage into the organic layers. Current “one glass”
solutions using thin film encapsulation (TFE) have not been successful enough for cost-effective mass
production.
One point to be made is that flexible displays are likely to have limited applicability as far as “flexible” goes
in existing mainstream applications. Just because the display is flexible doesn't mean the device will be. We
have yet to crack the code on flexible PCBs, flexible chipsets, flexible batteries, and flexible
63
December 4, 2012
casings. However, there is an advantage to this new glass, and that is not its flexibility, but its thinness.
Exhibit 117 shows a comparison of the display “stack” using conventional components and using Corning’s
thin glass offerings, an on-cell design, and an OLED design.
Exhibit 117
Display Stack Thickness Comparison
Flexible Glass with
Component Current Flexible Glass OLED with On-Cell
On-Cell
Cover Glass 0.7 - 1.3mm 0.7mm 0.7mm 0.7mm
ITO Layer <0.1mm <0.05mm <0.05mm <0.05mm
Sensor Glass 0.4 - 0.7mm 0.05 - 0.1mm
Shield or Air Gap 0.2 - 0.4mm 0.2mm 0.2mm
Polarizer 0.1mm 0.1mm 0.1mm
Color Filter 0.2 - 0.7mm 0.05 - 0.1mm 0.05 - 0.1mm 0.05 - 0.1mm
TFT 0.2 - 0.7mm 0.05 - 0.1mm 0.05 - 0.1mm 0.05 - 0.1mm
Polarizer 0.1mm 0.1mm 0.1mm
Total 2 - 4mm 1.5mm 1.4mm 1.0mm
Source: Corning, Bernstein analysis
Independently of the “flexible” aspect of the glass, the possibility of thinning the displays by up to 75%
should keep the interest in flexible glass in the mind of panel makers. There remain many manufacturing
and process integration issues to be solved, but the technical and product appeal of the thin glass (over
plastic or alternative substrates) is clear. In our view, these developments in thin glass make the value added
of a plastic substrate close to zero at this stage of development of the display industry.
All three companies seem technologically ready to embark on flexible and ultra-thin glass, but for now,
form factors popularization, and integration with components still remain an issue. Samsung recently
announced that it would start mass producing bendable smartphones (sourcing Corning Willow Glass) but
we are yet to see commercial success and mass adoption to this form factor. Much work is being done (and
remains to be done). For example, Corning has demonstrated, in collaboration with Taiwan’s ITRI, a
prototype roll-to-roll patterning process for Willow Glass which shows promise.
Given our skepticism of non-glass substrates as a replacement for glass, we do not account for any unit
shipment share loss in our models, we simply do not believe non-glass substrates have a chance to make a
dent on the glass business in the next three to five years. Of course, if technological developments provide a
counterpoint to this strongly-held view, we would be happy to eat our own words. But not right now.
Asian IT Hardware
64
December 4, 2012
Appendix B: Glass Manufacturing Technologies – How Is It Made? Fusion and Float Methods
In this section, we discuss the glass manufacturing processes used by our coverage companies. There are
other methods that do not pertain to display glass manufacturing that we leave out, but are relevant to the
non-display glass business of our companies. We also provide our view on the relative merits of these
manufacturing processes.
The most common manufacturing processes for display glass are the fusion and float methods, where
differences primarily arise at the glass forming stage. Glass manufacturing requires the melting of a mixture
of ingredients, followed by forming to mold or set the molten glass out to cool down (or “anneal”).
In the initial stage, silicon dioxide (sand) is melted alongside sodium oxide to lower melting temperature in
the batching plant. This mixture is heated up in the furnace to a pre-determined temperature and maintained
at that level to produce molten glass. The molten glass is then drawn and annealed with various process
technologies depending on economics, scalability and end use. The glass may then undergo surface
finishing processes such as strengthening, or polishing, cutting and coating (Exhibit 118).
The emergence of active matrix TFT-LCD displays has set new stringent requirements for glass substrates.
The most important features include thinness; hardness; flatness; surface roughness; chemical stability;
resistance to temperature cycling; dimensional stability; surface quality; and transparency.
Surface quality means that the glass is clean, free of pits and particles. Flatness is essential because the
spacing between the two sheets of glass, called the “cell gap,” must be perfectly consistent; a variation of
even nanometers between the spacing will cause image distortion. Dimensional stability is important
because display customers do a lot to the glass: cutting, stretching, heating. Through all this abuse the glass
must maintain chemical and compositional integrity. The requirements for quality and glass purity limit the
number of suppliers in this industry. Hardness and thinness are increasingly important in today’s consumer
electronics particularly smartphones, such that they can withstand handling without breaking or scratching
while remaining thin and unobtrusive. Transparency is also important given to provide a clearer and brighter
screen for viewing.
Exhibit 118
General Glass Manufacturing Stages
Exhibit 118
General Glass Manufacturing Stages
Forming Processing
Batching Plant
Asian IT Hardware
Fusion method is the most widely used display glass-making process
Corning’s process solution to these requirements is its proprietary fusion process. Corning invented the
fusion process in 1959. In this approach, molten glass flows into a trough-shaped fusion pipe and then
65
December 4, 2012
overflows evenly from both sides. The overflowing molten glass then joins into a single sheet at the bottom
of the pipe as the glass is pulled downward. Once the glass substrates are fabricated and inspected, they are
cut into desirable sizes, cleaned and dried. A 45° corner cut is formed at the substrate corners to reduce
damage during transportation. NEG and AvanStrate use the overflow process (very similar to the fusion
process) with certain licenses from Corning to produce TFT-LCD glass.
Exhibit 119
Fusion Method Glass Manufacturing
Exhibit 119
Fusion Method Glass Manufacturing
Fusion Pipe
Molten Glass
Substrate
Source: DisplaySearch
The advantages of the fusion process are:

• The glass surface does not contact any metal rollers or guides during the down draw and thus the surface
has low intrinsic roughness and polishing can be omitted;
• The fusion tanks are smaller and thus require less investment than float tanks, resulting in higher
utilization and increased flexibility. As a result, thinner glass improves throughput rate and thus increases
capacity with limited additional investment;
• And it allows for creation of very thin glass, an increasing important trait as OEMs push for lower cost
and lighter devices. The fusion method is critical for large LCD TV displays, as the surface is formed
without ever being touched, requires no polishing, and with scalable width, fusion can be extended to
ever-larger sizes with limited investments.
The fusion process consists of three phases - melting, forming and processing.
Melting. The raw materials for glass that have been blended together are heated and melted at well over one
thousand degrees Celsius. Simulation technology is used for furnace design, and precision combustion
Asian IT Hardware
control and temperature management technologies are required in the production of high-quality glass.
Some glass manufacturers use electric melting whereby clean electrical energy is directly applied to molten
glass to reduce the volatilization of substances and decrease CO2 emissions.
Forming. The overflow process forms a thin sheet of glass with a smooth surface without the need for
polishing. This process is very scalable and can produce large-format glass used in display panels. This is
particularly relevant for ultra-large substrate glass required for TFT-LCD and plasma displays. The overflow
process also allows production of ultra-thin sheet glass with a thickness of 100 microns and a super-flat
precision surface that does not require polishing and can be rolled up.
Processing. At the processing stage, a diverse range of methods could be used including softening and
reforming by heating, crystallizing via firing, coating with films, precision cutting, polishing, drilling, or
combined with ceramics or organic matter. These give the glass properties to fit function required by the
end user.
66
December 4, 2012
Float method is only used by AGC to make TFT-LCD displays
Unlike Corning or NEG that uses fusion process, AGC primarily uses the float method to produce TFT-LCD
glass substrates. Float method was invented by the British glass maker Pilkington in the 1950s and is
commonly used to produce large size lower-quality flat glass. The float method used by AGC has been
modified to create high-quality TFT-LCD glass.
Float glass uses common glass-making raw materials, which are mixed in a batch mixing process, then fed
together with suitable cullet (waste glass) in a controlled ratio into a furnace where it is heated to
approximately 1500°C. Once molten, the temperature of the glass is stabilized to approximately 1200°C to
ensure a homogeneous specific gravity.
The molten glass is fed into a “tin bath”, a bath of molten tin from a delivery canal and is poured into the tin
bath by a ceramic lip known as the spout lip. The amount of glass allowed to pour onto the molten tin is
controlled by a gate called a Tweel.
Tin is suitable for the float glass process because it has a high specific gravity, is cohesive, and immiscible
into the molten glass. Tin, however, oxidizes in a natural atmosphere to form Tin Dioxide. Known in the
production process as dross, the tin dioxide adheres to the glass. To prevent oxidation, the tin bath is
provided with a positive pressure protective atmosphere consisting of a mixture of nitrogen and hydrogen.
The glass flows onto the tin surface forming a floating ribbon with perfectly smooth surfaces on both sides
and an even thickness. As the glass flows along the tin bath, the temperature is gradually reduced from
1,100°C until the sheet can be lifted from the tin onto rollers at approximately 600°C. The glass ribbon is
pulled off the bath by rollers at a controlled speed. Variation in the flow speed and roller speed enables glass
sheets of varying thickness to be formed. Top rollers positioned above the molten tin may be used to control
both the thickness and the width of the glass ribbon.
Once off the bath, the glass sheet passes through a cooling chamber, where it is further cooled gradually so
that it anneals without strain and does not crack from the change in temperature. On exiting the cooling
chamber, the glass is cleaned, dried and cut by machines.
Exhibit 120
Float Method Glass Manufacturing
Exhibit 120
Float Method Glass Manufacturing
Float Bath
Material Input Cooling Chamber Scribe
Atmospheric Gas Clean
Dry
Heater Heater
Asian IT Hardware
Melted Tin
Source: DisplaySearch
AGC is Source:
able Display
to produce
Search
glass of thickness ranging from 0.1mm to more than 5.0mm. The float method is
quite scalable and economical for larger substrates, and the “natural” annealing process automatically
produces glass substrates with the mechanical and electrical properties that are required by high-
performance displays using LTPS backplanes, such as OLED and Retina displays. However, the approach
results in some undulations or insufficient planar uniformity that adversely affects image quality. Also, the
method makes it difficult to accurately control the thickness and requires polishing after the glass is formed.
The higher defect rate and the required polishing increase the production cost and offset the benefit from the
economies of scale.
67
December 4, 2012
Exhibit 121
Corning: Consolidated Financial Statements
2009 2010 2011 Q2'12 Q3'12 Q4'12E Q1'13E 2012E 2013E 2014E 2015E
(USD Million)
Income Statement Items
Net Revenue 5,395 6,632 7,890 1,908 2,038 1,997 1,979 7,863 8,409 9,211 9,977
COGS 3,302 3,583 4,324 1,111 1,159 1,089 1,110 4,465 4,700 5,217 5,792
Gross Profit 2,093 3,049 3,566 797 879 907 869 3,397 3,709 3,994 4,185
Operating Expense 1,702 1,248 1,751 488 486 453 449 1,899 1,908 2,116 2,341
EBITDA 1,183 2,655 2,772 551 641 707 677 2,481 2,857 2,987 3,014
Depreciation & Amortization 792 854 957 242 248 253 257 983 1,056 1,108 1,169
EBIT 391 1,801 1,815 309 393 454 419 1,498 1,801 1,878 1,845
Total Non-Operating Income(Expense) 108 86 (73) (13) (25) (118) (120) (143) (488) (505) (526)
Tax Expense (74) 287 408 93 87 79 71 370 310 325 312
Profit Before Taxes 499 1,887 1,742 296 368 336 299 1,355 1,313 1,373 1,319
Equity income from assoc. cos., net impairment 1,435 1,958 1,471 259 240 223 192 940 806 808 782
Net Profits 2,008 3,558 2,805 462 521 479 420 1,924 1,808 1,857 1,788
Minority Interests 0 0 0 0 0 0 0 0 0 0 0
Profit to Shareholders 2,008 3,558 2,805 462 521 479 420 940 806 808 782
Shares Outstanding (Millions) 1,552 1,560 1,546 1,506 1,483 1,497 1,492 1,497 1,478 1,478 1,478
EPS (USD) - Basic 1.29 2.28 1.79 0.31 0.35 0.32 0.28 1.28 1.22 1.26 1.21
EPS (USD) - Diluted 1.28 2.25 1.77 0.30 0.35 0.32 0.28 1.27 1.21 1.25 1.20
Revenue Growth (YoY) -9.3% 22.9% 19.0% -0.6% 6.8% -2.0% -0.9% -0.3% 6.9% 9.5% 8.3%
Gross Margin 38.8% 46.0% 45.2% 41.8% 43.1% 45.4% 43.9% 43.2% 44.1% 43.4% 41.9%
EBITDA Margin 21.9% 40.0% 35.1% 28.9% 31.5% 35.4% 34.2% 31.6% 34.0% 32.4% 30.2%
Operating (EBIT) Margin 7.2% 27.2% 23.0% 16.2% 19.3% 22.7% 21.2% 19.1% 21.4% 20.4% 18.5%
Net Margin 37.2% 53.6% 35.6% 24.2% 25.6% 24.0% 21.2% 24.5% 21.5% 20.2% 17.9%
EPS Growth (YoY) -61.4% 76.4% -21.5% 0.7% 14.5% -8.8% -12.1% -28.5% -5.1% 3.2% -3.7%
Balance Sheet Items

Cash and Cash Equivalents 2,541 4,598 4,661 5,008 4,952 4,990 5,094 4,990 5,493 6,281 6,965
Total Current Assets 5,521 8,859 8,677 9,378 9,516 9,509 9,704 9,509 10,385 11,650 12,810
Net Fixed Assets 7,995 8,943 10,671 10,751 11,036 11,287 11,359 11,287 11,547 11,946 12,407
Total Assets 21,295 25,833 27,848 28,754 29,410 29,804 30,186 29,804 31,525 33,859 36,123
Total Current Liabilities 1,539 1,986 2,097 1,892 1,887 1,847 1,890 1,847 2,004 2,214 2,423
Total Long Term Liabilities 4,161 4,421 4,622 5,460 5,637 5,729 5,783 5,729 6,039 6,456 6,870
Total Liabilities 5,700 6,407 6,719 7,352 7,524 7,576 7,673 7,576 8,043 8,670 9,293
Total Equity 15,543 19,375 21,078 21,354 21,839 22,181 22,467 22,181 23,436 25,142 26,783
BVPS to Shareholders (USD) 10.01 12.41 13.91 14.33 14.71 14.99 15.23 14.99 16.05 17.22 18.34
Debt Ratio 4% 2% 1% 11% 12% 12% 12% 1% 1% 1% 1%

Net Debt to Equity 25% 26% 28% -8% -7% -7% -7% 26% 27% 27% 28%
Current Ratio 3.6x 4.5x 4.1x 14.7x 13.1x 3.7x 3.4x 5.1x 5.2x 5.3x 5.3x
Asian IT Hardware
Cash Flow Items

Cash from Operations 2,077 3,835 3,189 570 634 643 555 2,609 2,323 2,372 2,392
Cash from Investing (1,370) (1,769) (2,056) (535) (482) (528) (354) (2,149) (1,418) (1,618) (1,752)
Cash from Financing (15) (2) (980) (332) (166) (77) (98) 17 (402) 34 45
Cash at Beginning of Period 1,873 2,541 4,598 5,490 5,008 4,952 4,990 4,661 4,990 5,493 6,281
Cash and Cash Equivalents at End of Period 2,541 4,598 4,661 5,008 4,952 4,990 5,094 4,990 5,493 6,281 6,965
Capex 890 1,007 2,432 441.0 422.0 500.0 325.0 1,775 1,300 1,491 1,615
Capital Intensity 16.5% 15.2% 30.8% 23.1% 20.7% 25.0% 16.4% 22.6% 15.5% 16.2% 16.2%
68
December 4, 2012
Exhibit 122
NEG: Consolidated Financial Statements
FY10 FY11 FY12 FQ4'12 FQ1'13 FQ2'13E FQ3'13E FY13E FY14E FY15E
(JPY Million)
Net Revenue 332,387 390,195 338,214 73,369 74,921 79,704 76,517 302,698 288,209 279,468
COGS 213,357 246,984 248,544 64,138 60,626 62,827 61,676 244,805 242,015 242,155
Gross Profit 119,030 143,211 89,670 9,231 14,295 16,877 14,841 57,893 46,194 37,313
Operating Expense 20,603 25,740 28,031 6,715 6,500 7,094 6,810 26,772 25,651 24,873
EBITDA 146,594 170,169 116,423 18,340 18,745 20,848 19,244 75,695 66,970 60,145
Depreciation 48,167 52,698 54,784 15,824 10,950 11,064 11,213 44,575 46,427 47,704
EBIT 98,427 117,471 61,639 2,516 7,795 9,784 8,031 31,121 20,543 12,440
Total Non-Operating Income(Expense) (11,888) (5,597) (24,861) (14,465) (4,434) (2,365) (2,298) (10,609) (8,000) (7,702)
Tax Expense 31,342 42,392 16,118 (4,284) 2,364 2,819 2,179 8,881 4,766 1,801
Profit Before Taxes 86,539 111,874 36,778 (11,949) 3,361 7,419 5,733 20,512 12,543 4,739
Net Profits 55,197 69,482 20,660 (7,665) 997 4,600 3,555 11,630 7,777 2,938
Minority Interests 268 869 1,251 412 381 138 107 700 233 88
Profit to Shareholders 54,929 68,613 19,409 (8,077) 616 4,462 3,448 10,930 7,544 2,850
Shares Outstanding (Millions) 497 497 497 497 497 497 497 497 497 497
EPS (JPY) - Reported 110.41 137.91 39.02 (16.23) 1.24 8.97 6.93 21.98 15.17 5.73
EPS (JPY) - Adjusted 110.42 137.93 39.02 (16.24) 1.24 8.97 6.93 21.97 15.17 5.73
Revenue Growth (YoY) -1.0% 17.4% -13.3% -8.8% 2.1% 6.4% -4.0% -10.5% -4.8% -3.0%
Gross Margin 35.8% 36.7% 26.5% 12.6% 19.1% 21.2% 19.4% 19.1% 16.0% 13.4%
EBITDA Margin 44.1% 43.6% 34.4% 25.0% 25.0% 26.2% 25.1% 25.0% 23.2% 21.5%
Operating (EBIT) Margin 29.6% 30.1% 18.2% 3.4% 10.4% 12.3% 10.5% 10.3% 7.1% 4.5%
Net Margin 16.6% 17.8% 6.1% -10.4% 1.3% 5.8% 4.6% 3.8% 2.7% 1.1%
EPS Growth 151.6% 24.9% -71.7% -411.5% -107.6% 623.4% -22.7% -43.7% -31.0% -62.2%
Balance Sheet Items

Cash and Cash Equivalents 98,081 118,808 105,827 105,827 97,457 97,514 98,972 105,960 120,181 134,044
Total Current Assets 228,625 238,911 224,417 224,417 222,772 240,794 236,524 234,592 242,885 251,440
Net Fixed Assets 385,168 417,422 420,310 420,310 420,523 421,415 420,914 418,869 404,878 385,120
Total Assets 646,442 692,622 687,069 687,069 681,649 696,729 691,801 687,751 681,472 669,920
Total Current Liabilities 153,872 142,326 135,199 135,199 107,610 115,103 112,248 108,859 105,533 102,307
Total Long Term Liabilities 86,264 82,259 76,134 76,134 96,516 99,504 97,675 94,535 90,806 86,542
Total Liabilities 240,136 224,585 211,333 211,333 204,126 214,607 209,923 203,394 196,339 188,849
Total Equity 406,306 468,037 475,736 475,736 477,523 482,123 481,878 484,356 485,133 481,071
BVPS to Shareholders (JPY) 809 932 945 945 948 957 957 961 962 954
Debt Ratio 15% 14% 12% 12% 12% 12% 12% 12% 12% 11%
Net Debt to Equity 0% -5% -5% -5% -3% -3% -3% -5% -8% -12%
Current Ratio 1.5x 1.7x 1.7x 1.7x 2.1x 2.1x 2.1x 2.2x 2.3x 2.5x
Asian IT Hardware
Cash Flow Items

Cash from Operations 107,938 119,516 88,126 15,056 (2,849) 4,806 17,750 38,711 56,997 53,160
Cash from Investing (74,218) (89,398) (85,879) (13,151) (2,149) (7,873) (10,330) (28,722) (30,344) (26,104)
Cash from Financing (32,332) (9,391) (15,228) (2,826) (3,372) 3,124 (5,962) (9,855) (12,433) (13,192)
Cash at Beginning of Period 96,693 98,081 118,808 106,748 105,827 97,457 97,514 105,827 105,960 120,181
Cash and Cash Equivalents at End of Period 98,081 118,808 105,827 105,827 97,457 97,514 98,972 105,960 120,181 134,044
Capex 71,427 85,591 75,292 8,339 11,163 11,956 10,712 43,133 32,436 27,947
Capital Intensity 21.5% 21.9% 22.3% 11.4% 14.9% 15.0% 14.0% 14.2% 33.9% 31.5%
69
December 4, 2012
Exhibit 123
AGC: Consolidated Financial Statements
2009 2010 2011 Q2'12 Q3'12 Q4'12E Q1'13E 2012E 2013E 2014E 2015E
(JPY Million)
Net Revenue 1,148,198 1,288,947 1,214,672 297,899 294,243 287,754 281,905 1,165,272 1,145,777 1,160,755 1,188,474
COGS 826,995 838,022 823,955 218,385 213,059 205,797 203,640 841,621 830,029 853,728 890,379
Gross Profit 321,203 450,925 390,717 79,514 81,184 81,956 78,265 323,650 315,748 307,028 298,095
Operating Expense 234,520 221,719 225,053 55,721 55,291 53,810 52,152 221,636 211,969 214,740 216,855
EBITDA 223,355 339,172 275,720 51,583 56,503 59,030 57,552 220,385 231,844 225,707 219,571
Depreciation 136,672 109,966 110,056 27,790 30,610 30,884 31,439 118,371 128,064 133,419 138,332
EBIT 86,683 229,206 165,664 23,793 25,893 28,146 26,113 102,014 103,779 92,288 81,240
Total Non-Operating Income(Expense) (46,182) (37,049) (22,306) (2,096) (5,561) (2,437) (3,346) (9,636) (11,428) (11,427) (11,539)
Tax Expense 19,833 63,172 43,226 7,406 5,773 7,300 6,464 26,053 26,222 22,959 19,790
Profit Before Taxes 40,501 192,157 143,358 21,697 20,332 25,709 22,767 92,378 92,352 80,861 69,700
Net Profits 20,668 128,985 100,132 14,291 14,559 18,410 16,302 66,326 66,130 57,901 49,910
Minority Interests 680 5,801 4,841 973 765 1,252 1,109 4,301 4,497 3,937 3,394
Profit to Shareholders 19,988 123,184 95,291 13,318 13,794 17,158 15,194 62,025 61,633 53,964 46,516
Shares Outstanding (Millions) 1,168 1,167 1,163 1,156 1,156 1,156 1,156 1,156 1,156 1,156 1,156
EPS (JPY) - Reported 17.12 105.51 81.82 11.53 11.93 14.84 13.14 53.66 53.32 46.68 40.24
EPS (JPY) - Adjusted 17.12 105.51 81.77 11.52 11.93 14.84 13.14 53.66 53.32 46.68 40.24
Revenue Growth (YoY) -20.5% 12.3% -5.8% 4.4% -1.2% -2.2% -2.0% -4.1% -1.7% 1.3% 2.4%
Gross Margin 28.0% 35.0% 32.2% 26.7% 27.6% 28.5% 27.8% 27.8% 27.6% 26.5% 25.1%
EBITDA Margin 19.5% 26.3% 22.7% 17.3% 19.2% 20.5% 20.4% 18.9% 20.2% 19.4% 18.5%
Operating (EBIT) Margin 7.5% 17.8% 13.6% 8.0% 8.8% 9.8% 9.3% 8.8% 9.1% 8.0% 6.8%
Net Margin 1.8% 10.0% 8.2% 4.8% 4.9% 6.4% 5.8% 5.7% 5.8% 5.0% 4.2%
EPS Growth -48.9% 516.5% -22.5% -24.9% 3.5% 24.4% -11.4% -34.4% -0.6% -12.4% -13.8%
Balance Sheet Items

Cash and Cash Equivalents 103,953 159,497 123,789 177,301 121,617 181,440 183,962 181,440 233,292 288,833 353,114
Total Current Assets 558,507 626,914 606,771 687,090 643,437 686,943 681,144 686,943 736,711 805,797 890,591
Net Fixed Assets 928,284 861,394 842,561 853,679 877,978 892,728 897,937 892,728 913,615 919,486 923,772
Total Assets 1,781,871 1,764,034 1,691,550 1,791,134 1,782,463 1,827,192 1,825,864 1,827,192 1,897,431 1,973,119 2,063,360
Total Current Liabilities 335,580 402,237 419,410 446,601 422,687 451,206 446,803 451,206 459,914 477,610 504,075
Total Long Term Liabilities 637,980 511,983 421,680 456,727 467,499 465,299 464,206 465,299 485,126 507,876 541,098
Total Liabilities 973,560 914,220 841,090 903,328 890,186 916,505 911,008 916,505 945,040 985,486 1,045,174
Total Equity 808,311 849,814 850,460 887,806 892,277 910,643 914,812 910,643 952,347 987,589 1,018,142
BVPS to Shareholders (JPY) 647 694 700 730 730 745 747 745 777 804 828
Debt Ratio 34% 29% 28% 30% 30% 30% 31% 30% 31% 31% 32%
Net Debt to Equity 61% 41% 42% 41% 46% 41% 41% 41% 37% 34% 31%
Current Ratio 1.7x 1.6x 1.4x 1.5x 1.5x 1.5x 1.5x 1.5x 1.6x 1.7x 1.8x
Cash Flow Items

Asian IT Hardware
Cash from Operations 161,437 231,509 113,758 (11,757) 35,439 67,508 50,398 174,763 195,624 189,025 184,066
Cash from Investing (106,875) (36,076) (72,545) 24,321 (67,914) (30,608) (35,329) (164,486) (144,021) (135,025) (138,279)
Cash from Financing (34,383) (139,889) (76,921) (10,945) (23,256) 22,923 (12,548) 47,327 249 1,541 18,494
Cash at Beginning of Period 83,774 103,953 159,497 175,682 177,301 121,617 181,440 123,789 181,440 233,292 288,833
Cash and Cash Equivalents at EOP 103,953 159,497 123,789 177,301 121,570 181,440 183,962 181,393 233,292 288,833 353,114
Capex 115,149 55,295 91,952 (15,089) 54,909 45,634 36,648 169,751 148,951 139,291 142,617
Capital Intensity 10.0% 4.3% 7.6% -5.1% 18.7% 15.9% 13.0% 14.6% 13.0% 12.0% 12.0%
70
December 4, 2012
Exhibit 124
LG Display: Consolidated Financial Statements
(KRW Billions) 2010 2011 Q1'12 Q2'12 Q3'12 Q4'12E 2012E 2013E 2014E
Net Revenue 25,512 24,291 6,184 6,910 7,593 8,026 28,713 31,068 33,621
COGS 21,781 23,081 5,855 6,140 6,792 7,054 25,841 26,566 27,338
Gross Profit 3,731 1,210 328 770 801 973 2,872 4,502 6,283
Operating Expense 2,420 2,134 506 795 548 586 2,436 2,631 2,846
EBITDA 4,236 2,727 812 1,039 1,441 1,501 4,793 6,111 8,095
Depreciation 2,925 3,651 990 1,064 1,188 1,114 4,357 4,240 4,659
EBIT 1,310 (924) (178) (25) 253 387 437 1,871 3,437
Total Non-Operating Income(Expense) (45) (157) (19) (52) (23) (72) (166) (240) (251)
Tax Expense 106 (293) (68) 35 72 98 137 510 996
Profit Before Taxes 1,266 (1,081) (197) (78) 230 315 270 1,632 3,186
Net Income 1,159 (788) (129) (112) 158 216 133 1,122 2,190
Minority Interests 3 (17) (1) (1) (0) (1) (2) (3) (6)
Profit to Shareholders 1,156 (771) (128) (112) 159 217 135 1,125 2,195
Shares Outstanding (Millions) 358 358 358 358 358 358 358 358 358
EPS (KRW) - Reported 3,232 (2,161) (361) (314) 446 610 380 3,159 6,167
EPS (KRW) - Adjusted 3,232 (2,157) (361) (314) 446 610 380 3,159 6,167
Revenue Growth (YoY) 27.3% -4.8% 15.2% 14.3% 21.1% 21.4% 18.2% 8.2% 8.2%
Gross Margin 14.6% 5.0% 5.3% 11.1% 10.6% 12.1% 10.0% 14.5% 18.7%
EBITDA Margin 16.6% 11.2% 13.1% 15.0% 19.0% 18.7% 16.7% 19.7% 24.1%
Operating (EBIT) Margin 5.1% -3.8% -2.9% -0.4% 3.3% 4.8% 1.5% 6.0% 10.2%
Net Margin 4.5% -3.2% -2.1% -1.6% 2.1% 2.7% 0.5% 3.6% 6.5%
Balance Sheet Items

Cash and Cash Equivalents 1,631 1,518 1,636 2,293 1,947 2,635 2,635 4,061 6,112
Total Current Assets 8,840 7,858 7,383 8,408 8,759 9,785 9,785 12,000 14,339
Net Fixed Assets 12,815 14,697 14,434 14,408 13,868 13,254 13,254 13,015 12,356
Total Assets 23,858 25,163 24,532 25,543 25,317 25,728 25,728 27,704 29,384
Total Current Liabilities 8,882 9,911 9,691 10,362 10,164 10,513 10,513 10,953 10,228
Total Long Term Liabilities 3,915 5,120 4,842 5,285 5,175 5,022 5,022 5,515 5,942
Total Liabilities 12,797 15,032 14,533 15,647 15,340 15,535 15,535 16,468 16,171
Total Equity 11,061 10,131 9,999 9,896 9,977 10,193 10,193 11,236 13,214
Book Value Per Share (KRW) 30,843 28,271 27,904 27,620 27,848 28,454 28,454 31,376 36,921
Debt Ratio 19% 18% 21% 19% 18% 17% 17% 17% 18%
Net Debt to Equity 29% 29% 36% 25% 27% 18% 18% 6% -7%
Current Ratio 1.0x 0.8x 0.8x 0.8x 0.9x 0.9x 0.9x 1.1x 1.4x
Cash Flow Items

Asian IT Hardware
Cash from Operations 4,923 5,975 657 1,842 1,174 1,408 3,830 5,248 5,649
Cash from Investing (4,518) (5,870) (1,216) (656) (1,451) (500) (2,939) (4,000) (4,000)
Cash from Financing 408 (148) 677 (529) (68) (220) 282 178 402
Cash at Beginning of Period 818 1,631 1,518 1,636 2,293 1,947 1,518 2,635 4,061
Cash and Cash Equivalents at End of Period 1,631 1,587 1,636 2,293 1,947 2,635 2,691 4,061 6,112
Capex 4,942 5,533 727 1,039 649 500 2,914 4,000 4,000
Capital Intensity 19.4% 22.8% 11.8% 15.0% 8.5% 6.2% 10.1% 12.9% 11.9%
71
December 4, 2012
Exhibit 125
AU Optronics: Consolidated Financial Statements
2010 2011 Q1'12 Q2'12 Q3'12E Q4'12E 2012E 2013E 2014E 2015E
(TWD Billions)
Net Revenue 467 380 81 95 103 105 384 402 421 463
COGS 431 408 88 98 105 102 393 373 387 425
Gross Profit 36 (28) (6) (3) (2) 3 (8) 30 34 38

Operating Expense 26 29 7 7 7 7 29 29 33 36
EBITDA 100 31 7 9 10 12 38 57 70 77
Depreciation 89 89 20 19 19 17 75 57 69 75
EBIT 10 (58) (13) (10) (9) (4) (38) 0 1 2
Total Non-Operating Income(Expense) (2) (8) (1) (1) (7) (1) (10) (11) (11) (11)
Tax Expense 1 (4) (0) 1 0 0 1 0 0 0
Profit Before Taxes 9 (66) (14) (12) (16) (5) (48) (11) (9) (9)
Net Profits 7 (61) (14) (12) (16) (5) (48) (11) (10) (9)
Minority Interests 1 (0) (0) (0) (0) (0) (1) (0) (0) (0)
Profit to Shareholders 7 (61) (14) (12) (16) (5) (47) (11) (9) (9)
Shares Outstanding (Millions) 8,827 8,827 8,827 8,827 8,827 8,827 8,827 9,230 9,230 9,230
EPS (TWD) - Reported 0.76 (6.94) (1.54) (1.39) (1.84) (0.60) (5.37) (1.23) (1.07) (0.98)
EPS (TWD) - Adjusted 0.76 (6.94) (1.54) (1.39) (1.84) (0.60) (5.37) (1.23) (1.07) (0.98)
Revenue Growth (YoY) 30.0% -18.7% -13.0% -2.9% 3.9% 17.5% 1.2% 4.7% 4.7% 9.8%
Gross Margin 7.8% -7.4% -8.0% -3.3% -1.8% 2.9% -2.2% 7.4% 8.1% 8.2%
EBITDA Margin 21.3% 8.2% 8.2% 9.4% 9.3% 11.9% 9.8% 14.2% 16.7% 16.7%
Operating (EBIT) Margin 2.2% -15.2% -16.6% -11.0% -8.9% -4.2% -9.8% 0.1% 0.3% 0.4%
Net Margin 1.6% -16.2% -17.0% -13.1% -16.0% -5.1% -12.5% -2.8% -2.3% -1.9%
Balance Sheet Items

Cash and Cash Equivalents 89 91 87 85 78 75 75 61 54 58
Total Current Assets 205 203 205 204 191 189 189 183 170 185
Net Fixed Assets 384 358 348 341 330 320 320 304 275 240
Total Assets 629 613 605 597 572 560 560 538 497 477
Total Current Liabilities 189 204 192 193 194 192 192 190 184 191
Total Long Term Liabilities 158 187 206 208 202 197 197 184 160 141
Total Liabilities 347 392 398 400 395 389 389 374 344 332
Total Equity 282 221 207 196 176 171 171 164 153 145
Book Value Per Share (TWD) 30.38 23.27 21.59 20.21 18.33 17.74 17.74 16.22 15.03 14.22
Debt Ratio 29% 38% 42% 43% 42% 42% 42% 39% 37% 33%
Net Debt to Equity 34% 56% 77% 84% 87% 92% 81% 90% 80% 67%
Cash Flow Items

Asian IT Hardware
Cash from Operations 91 15 (12) 8 16 10 23 46 65 67

Cash from Investing (85) (58) (15) (11) (10) (7) (44) (40) (41) (41)
Cash from Financing 1 46 22 2 (14) (6) 5 (19) (31) (23)
Cash at Beginning of Period 85 89 91 87 85 78 91 75 61 54

Cash and Cash Equivalents at End of Period 89 91 87 85 78 75 75 61 54 58
Capex 85 56.9 14.4 11.3 10.0 7.5 43 40 40 40

72
December 4, 2012
Exhibit 126
Innolux: Consolidated Financial Statements
2010 2011 Q1'12 Q2'12 Q3'12E Q4'12E 2012E 2013E 2014E 2015E
(TWD Billions)
Net Revenue 564 510 113 112 132 127 485 500 508 584
COGS 535 545 120 114 126 124 484 472 457 501
Gross Profit 29 (35) (7) (2) 6 3 1 27 51 83

Operating Expense 34 27 5 6 7 7 25 25 26 30
EBITDA 94 36 10 14 20 17 61 82 109 125

Depreciation 98 99 22 22 20 21 85 80 84 72
EBIT (5) (63) (12) (8) (0) (4) (24) 2 25 53
Total Non-Operating Income(Expense) (7) (7) (1) (2) (0) (4) (8) (2) 0 3
Tax Expense 1 (5) (0) (0) (0) (0) (1) (0) 1 2
Profit Before Taxes (12) (70) (13) (10) (1) (8) (32) (0) 25 56
Net Profits (13) (65) (13) (10) (1) (8) (31) (0) 24 54
Minority Interests 1 (0) (0) (0) (0) (0) (0) (0) 0 1

Profit to Shareholders (14) (64) (13) (10) (1) (7) (30) (0) 24 53
Shares Outstanding (Millions) 7,312 7,313 7,313 7,313 9,535 9,535 9,535 11,353 12,187 12,187
EPS (TWD) - Reported (2.29) (8.81) (1.75) (1.31) (0.08) (0.78) (3.62) (0.03) 2.05 4.37
EPS (TWD) - Adjusted (2.12) (8.81) (1.75) (1.31) (0.08) (0.78) (3.62) (0.03) 2.05 4.37
Revenue Growth (YoY) 22.6% -9.6% -10.5% -8.4% 6.7% -7.4% -5.0% 3.1% 1.7% 15.0%
Gross Margin 5.1% -6.9% -6.0% -1.8% 4.9% 2.3% 0.1% 5.4% 10.0% 14.2%
EBITDA Margin 16.6% 7.1% 9.0% 12.6% 15.1% 13.3% 12.6% 16.5% 21.5% 21.5%
Operating (EBIT) Margin -0.9% -12.3% -10.8% -7.0% -0.3% -2.8% -4.9% 0.4% 5.0% 9.1%
Net Margin -2.3% -12.7% -11.4% -8.7% -0.6% -5.9% -6.4% -0.1% 4.8% 9.2%
Balance Sheet Items

Cash and Cash Equivalents 59 54 40 60 78 80 80 111 159 208
Total Current Assets 199 213 203 209 258 256 256 284 341 415
Net Fixed Assets 459 404 385 368 353 338 338 294 258 241
Total Assets 711 684 656 645 678 661 661 644 666 724
Total Current Liabilities 252 419 241 249 264 258 258 242 238 252
Total Long Term Liabilities 196 66 230 220 216 213 213 183 170 167
Total Liabilities 448 485 470 469 481 471 471 426 408 419
Total Equity 199 199 186 176 197 190 190 219 258 305
Book Value Per Share (TWD) 35.39 26.83 25.09 23.79 20.50 19.72 19.72 19.09 20.96 24.77
Debt Ratio 41% 48% 51% 51% 48% 48% 48% 43% 39% 35%
Net Debt to Equity 88% 120% 154% 149% 134% 124% 123% 82% 42% 16%
Cash Flow Items

Asian IT Hardware
Cash from Operations 22 28 (5) 16 4 15 31 79 102 118

Cash from Investing (31) (71) (14) 10 (6) (6) (15) (36) (48) (56)
Cash from Financing 1 37 5 (5) 19 (8) 11 (12) (6) (12)
Cash at Beginning of Period 72 59 54 40 60 78 54 80 111 159

Cash and Cash Equivalents at End of Period 64 54 40 60 78 80 81 111 159 208
Capex 108 44 4 5 6 6 19 36 48 56
73
December 4, 2012
Disclosure Appendix
Valuation Methodology
Display Glass
Given the volatility in earnings, we value the display glass stocks using book value. The valuation multiple
is advised by our DCF models, which references a 10-year period to smooth the YoY cash flow and margin
volatility, but with a downward trend.
Our target price for Corning (GLW) is based on 0.9x book multiple on 2013 BVPS.
Our target price for Nippon Electric Glass (5214.JP) is based on 0.4x book multiple on FY 2013 BVPS.
Our target price for Asahi Glass Co. (5201.JP) is based on 0.6x book multiple on 2013 BVPS.
TFT-LCD Panel Companies
For TFT-LCD companies, given the volatile and cyclical nature of the financials and shareholder returns,
and high incidence of low or negative net income periods (which makes P/E multiples bad proxies for
valuation), we follow industry practice and value TFT-LCD panel companies on a price-to-book value
(P/BV) basis. To determine the relevant multiple to apply, we review P/BV multiples at the firm level
against historical and forward consensus profitability, cash flow and balance sheet data to estimate fair
value multiples.
Our target price for LG Display is based on 1.1x NTM P/BV multiple estimate.
Our target price for AU Optronics is based on 0.7x NTM P/BV multiple estimate.
Our target price for Innolux is based on 0.7x NTM P/BV multiple estimate.
Risks
Display Glass Companies

In the display glass sector, profitability is driven by ASP, utilization, and to a lesser extent cost fluctuations.
Supply-demand balance, product differentiation and pricing negotiation outcomes drive ASP change on a
quarterly basis.
Supply-demand risks. Higher demand is usually fab and product specific and forces reallocation of capacity
to these products. AGC’s float process uses a formulation that has properties more suited for OLED,
consequently retaining a higher share for OLED. Corning's Lotus glass performs well in LTPS and oxide
TFT manufacturing. A slowdown in end market demand will also have direct consequences. Reduced
supply can be a result of under investment in capacity growth relative to panel capacities, or slower than
expected adoption of product technology innovations that matches requirements of panel manufacturers.
Proximity of glass tanks and TFT-LCD panel fabs also limit the scope of where clients can source display
glass from geographically.
Asian IT Hardware
F/X risk. Because some of our coverage reports in JPY, revenues and expenses are translated into JPY at the
rates effective at respective transaction dates, while foreign currencies, monetary receivables, and payables
denominated in foreign currencies are translated into JPY at exchange rates prevailing at the respective
balance sheet dates, resulting in translation gains or losses.
Firm-specific risks. The major downside risks to our valuation of Corning are weakness in the TFT-LCD
end markets, a slowdown in the adoption of Gorilla glass, weakness in TFT-LCD substrate pricing and end
74
December 4, 2012
demand from Samsung, increased competitive pricing pressure from peers in the short-term from its new
pricing arrangements, the ability to maintain market share through product differentiation that delivers on
panel manufacturers requirements, and idle capacity from faster capacity expansion than demand can
catch-up.
The major upside to NEG may arise from increased shipment share, slower ASP erosion, or faster cost
improvements. Faster growth from NEG's customers, better pricing power from thin glass, or improving
margins/expected growth from non-display glass segments may also deliver upside.
AGC may experience upside from margin improvement from faster take-off and better reception of OLED
technology, maintaining or gaining share from its better spec OLED glass manufactured from the float
process relative to Corning. Shipment share gains from competitors, stronger pricing power, stronger
demand growth from its clients, margin expansion and demand growth from non-display glass segments
may also deliver upside.
TFT-LCD Panel Companies
In the TFT-LCD sector, profitability is driven by capacity utilization, so there is upside risk to tightness in
supply-demand balance, which increases production and fab utilization without material ASP reduction (and
vice versa). Tight supply-demand balance can be brought about by higher unexpected demand or reduced
supply.
Demand risk. Higher demand is usually product-specific, and forces companies to re-allocate capacity to
these products, increasing overall inefficiency as demand is filled from fabs not well-suited to the
manufacture of the demanded product. Slack demand is brought about by failed product introductions,
lower than expected adoption rates, or macroeconomic factors.
Firms in our coverage are exposed to demand risk (on the upside and downside), but differentially given
their product portfolio. CMI is more exposed to small and medium panels, and PC monitors, while AUO is
more exposed to the larger TV market.
Supply risk. Reduced supply can be a result of materials and component shortages, reduced rate of capital
investment (and capacity growth) by companies in the segment, and by slower than expected adoption of
product or process technology innovations that improve fab-level productivity. Increased supply comes from
“capacity races” to build more or bigger fabs, which add fixed and permanent units of capacity to the sector.
In particular, all three firms in our coverage have plans to build TFT-LCD front-end fabs in China, and any
acceleration of the construction or ramp-up schedule will be negative for the companies, and any delay or
slowdown positive.
F/X risk. Because the end products are denominated in USD, and much of the input material and capital
equipment is denominated in non-local currencies (JPY for TFT-LCD motherglass and capital equipment,
RMB for module components and labor inputs), all three firms are exposed to revenue and cost F/X risks.
Firm-specific risks. Our Underperform rating on LG Display, and Market Perform rating on AU Optronics
Asian IT Hardware
and our Outperform rating on Innolux may be made obsolete by higher (or lower) cost improvement rates
than forecast, by unexpected capital expenditures or a capital expenditure slowdown which will impact
utilization and margins, by realized revenues much different from our expectations, or by changes to
product technology and fab portfolio. These ratings can also change if we believe the shares have become
overvalued or undervalued relative to our fair value models.
75
SRO REQUIRED DISCLOSURES

• References to “Bernstein” relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited,
and Sanford C. Bernstein (business registration number 53193989L), a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity
under the Securities and Futures Act and registered with Company Registration No. 199703364C, collectively.
• Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration,
productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating
investment banking revenues.
• Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on the U.S.
and Canadian exchanges, versus the MSCI Pan Europe Index for stocks listed on the European exchanges (except for Russian companies),
versus the MSCI Emerging Markets Index for Russian companies and stocks listed on emerging markets exchanges outside of the Asia
Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges - unless otherwise
specified. We have three categories of ratings:
Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.
Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.
Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.
Not Rated: The stock Rating, Target Price and estimates (if any) have been suspended temporarily.
• As of 12/03/2012, Bernstein’s ratings were distributed as follows: Outperform - 41.2% (0.4% banking clients) ; Market-Perform - 47.6% (0.4%
banking clients); Underperform - 11.2% (0.0% banking clients); Not Rated - 0.0% (0.0% banking clients). The numbers in parentheses
represent the percentage of companies in each category to whom Bernstein provided investment banking services within the last twelve (12)
months.
• Accounts over which Bernstein and/or their affiliates exercise investment discretion own more than 1% of the outstanding common stock of the
following companies 5201.JP / Asahi Glass Co Ltd, 034220.KS / LG Display Co Ltd, 2409.TT / AU Optronics Corp.
• The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non-investment banking-
securities related services and received compensation for such services GLW / Corning Inc.
• In the next three (3) months, Bernstein or an affiliate expects to receive or intends to seek compensation for investment banking services from
GLW / Corning Inc.
• This research publication covers six or more companies. For price chart disclosures, please visit www.bernsteinresearch.com, you can also
write to either: Sanford C. Bernstein & Co. LLC, Director of Compliance, 1345 Avenue of the Americas, New York, N.Y. 10105 or Sanford C.
Bernstein Limited, Director of Compliance, 50 Berkeley Street, London W1J 8SB, United Kingdom; or Sanford C. Bernstein (Hong Kong)
Limited, Director of Compliance, Suites 3206-11, 32/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong, or
Sanford C. Bernstein (business registration number 53193989L) , a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under
the Securities and Futures Act and registered with Company Registration No. 199703364C, Director of Compliance, 30 Cecil Street, #28-01
Prudential Tower, Singapore 049712.
12-Month Rating History as of 12/02/2012

Ticker Rating Changes
034220.KS U (RC) 11/27/12 M (RC) 09/25/12 O (RC) 07/20/11
2409.TT M (RC) 11/23/12 O (RC) 07/20/11
3481.TT O (IC) 05/19/11
5201.JP
5214.JP
AUO M (RC) 11/23/12 O (RC) 07/20/11
GLW O (DC) 03/09/11
LPL U (RC) 11/27/12 M (RC) 09/25/12 O (RC) 07/20/11
Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated

Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change
OTHER DISCLOSURES
A price movement of a security which may be temporary will not necessarily trigger a recommendation change. Bernstein will advise as and when
coverage of securities commences and ceases. Bernstein has no policy or standard as to the frequency of any updates or changes to its coverage
policies. Although the definition and application of these methods are based on generally accepted industry practices and models, please note that
there is a range of reasonable variations within these models. The application of models typically depends on forecasts of a range of economic
variables, which may include, but not limited to, interest rates, exchange rates, earnings, cash flows and risk factors that are subject to uncertainty
and also may change over time. Any valuation is dependent upon the subjective opinion of the analysts carrying out this valuation.
This document may not be passed on to any person in the United Kingdom (i) who is a retail client (ii) unless that person or entity qualifies as an
authorised person or exempt person within the meaning of section 19 of the UK Financial Services and Markets Act 2000 (the “Act”), or qualifies as
a person to whom the financial promotion restriction imposed by the Act does not apply by virtue of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005, or is a person classified as an “professional client” for the purposes of the Conduct of Business Rules of the
Financial Services Authority.
To our readers in the United States: Sanford C. Bernstein & Co., LLC is distributing this publication in the United States and accepts
responsibility for its contents. Any U.S. person receiving this publication and wishing to effect securities transactions in any security discussed
herein should do so only through Sanford C. Bernstein & Co., LLC.
To our readers in the United Kingdom: This publication has been issued or approved for issue in the United Kingdom by Sanford C. Bernstein
Limited, authorised and regulated by the Financial Services Authority and located at 50 Berkeley Street, London W1J 8SB, +44 (0)20-7170-5000.
To our readers in member states of the EEA: This publication is being distributed in the EEA by Sanford C. Bernstein Limited, which is
authorised and regulated in the United Kingdom by the Financial Services Authority and holds a passport under the Markets in Financial
Instruments Directive.
To our readers in Hong Kong: This publication is being distributed in Hong Kong by Sanford C. Bernstein (Hong Kong) Limited which is licensed
and regulated by the Hong Kong Securities and Futures Commission (Central Entity No. AXC846). This publication is solely for professional
investors only, as defined in the Securities and Futures Ordinance (Cap. 571).
To our readers in Singapore: This publication is being distributed in Singapore by Sanford C. Bernstein, a unit of AllianceBernstein (Singapore)
Ltd., only to accredited investors or institutional investors, as defined in the Securities and Futures Act (Chapter 289). Recipients in Singapore
should contact AllianceBernstein (Singapore) Ltd. in respect of matters arising from, or in connection with, this publication. AllianceBernstein
(Singapore) Ltd. is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C. It is
regulated by the Monetary Authority of Singapore and located at 30 Cecil Street, #28-01 Prudential Tower, Singapore 049712, +65-62304600. The
business name “Sanford C. Bernstein” is registered under business registration number 53193989L.
To our readers in Australia: Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited and Sanford C. Bernstein (Hong Kong) Limited are
exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 in respect of the provision of the
following financial services to wholesale clients:
• providing financial product advice;
• dealing in a financial product;
• making a market for a financial product; and
• providing a custodial or depository service.
Sanford C. Bernstein & Co., LLC., Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited and AllianceBernstein (Singapore) Ltd.
are regulated by, respectively, the Securities and Exchange Commission under U.S. laws, by the Financial Services Authority under U.K. laws, by
the Hong Kong Securities and Futures Commission under Hong Kong laws, and by the Monetary Authority of Singapore under Singapore laws, all
of which differ from Australian laws.
One or more of the officers, directors, or employees of Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong
Kong) Limited, Sanford C. Bernstein (business registration number 53193989L), a unit of AllianceBernstein (Singapore) Ltd. which is a licensed
entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, and/or their affiliates may at any time hold,
increase or decrease positions in securities of any company mentioned herein.
Bernstein or its affiliates may provide investment management or other services to the pension or profit sharing plans, or employees of any
company mentioned herein, and may give advice to others as to investments in such companies. These entities may effect transactions that are
similar to or different from those recommended herein.
Bernstein Research Publications are disseminated to our customers through posting on the firm’s password protected website, www.
bernsteinresearch.com. Additionally, Bernstein Research Publications are available through email, postal mail and commercial research portals. If
you wish to alter your current distribution method, please contact your salesperson for details.
Bernstein and/or its affiliates do and seek to do business with companies covered in its research publications. As a result, investors should be
aware that Bernstein and/or its affiliates may have a conflict of interest that could affect the objectivity of this publication. Investors should consider
this publication as only a single factor in making their investment decisions.
This publication has been published and distributed in accordance with Bernstein’s policy for management of conflicts of interest in investment
research, a copy of which is available from Sanford C. Bernstein & Co., LLC, Director of Compliance, 1345 Avenue of the Americas, New York,
N.Y. 10105, Sanford C. Bernstein Limited, Director of Compliance, 50 Berkeley Street, London W1J 8SB, United Kingdom, or Sanford C. Bernstein
(Hong Kong) Limited, Director of Compliance, Suites 3206-11, 32/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong,
or Sanford C. Bernstein (business registration number 53193989L), a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the
Securities and Futures Act and registered with Company Registration No. 199703364C, Director of Compliance, 30 Cecil Street, #28-01 Prudential
Tower, Singapore 049712. Additional disclosures and information regarding Bernstein’s business are available on our website www.
bernsteinresearch.com.
CERTIFICATIONS
• I/(we), Alberto Moel, ScD, Senior Analyst(s)/Analyst(s), certify that all of the views expressed in this publication accurately reflect my/(our)
personal views about any and all of the subject securities or issuers and that no part of my/(our) compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or views in this publication.
Approved By: CDK
Copyright 2012, Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited, and AllianceBernstein (Singapore) Ltd.,
subsidiaries of AllianceBernstein L.P. ~1345 Avenue of the Americas ~ NY, NY 10105 ~212/756-4400. All rights reserved.
This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in any locality, state, country or other jurisdiction where such distribution,
publication, availability or use would be contrary to law or regulation or which would subject Bernstein or any of their subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction.
This publication is based upon public sources we believe to be reliable, but no representation is made by us that the publication is accurate or complete. We do not undertake to advise you of any change in
the reported information or in the opinions herein. This publication was prepared and issued by Bernstein for distribution to eligible counterparties or professional clients. This publication is not an offer to buy
or sell any security, and it does not constitute investment, legal or tax advice. The investments referred to herein may not be suitable for you. Investors must make their own investment decisions in consultation
with their professional advisors in light of their specific circumstances. The value of investments may fluctuate, and investments that are denominated in foreign currencies may fluctuate in value as a result of
exposure to exchange rate movements. Information about past performance of an investment is not necessarily a guide to, indicator of, or assurance of, future performance.

CorningGlass PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CorningGlass PDF

Uploaded by

Copyright:

Available Formats

For the exclusive use of Harvard Business School on 17-Aug-2016.

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Display Glass: Initiating Coverage – Finally Facing Its

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Source: Capital IQ, Bernstein analysis and estimates

Corning Inc. (GLW) – Outperform – Target Price: $15.20

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

TFT-LCD Panel Companies (for reference):

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Total Capacity (LHS) Growth Rate (RHS)

Source: Display Search, Bernstein analysis

Source: Display Search, Bernstein analysis

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

2013 2014 2015 2016

2013 2014 2015 2016

Source: Bernstein estimates, Display Search

Source: Bernstein estimates, Display Search

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

60% TFT-LCD ~50% areal 22% areal 24% areal

TFT-LCD OLED Cover Glass/Touch Flexible

Source: Bernstein estimates, Display Search

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Samsung LG Display CMI AUO Sharp

Source: DisplaySearch, Bernstein analysis and estimates

Corning SCP AGC NEG AvanStrate Other

Source: Display Search, Bernstein analysis

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

25% OLED TV 20%

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

2010 2011 2012E 2013E 2014E 2015E

Public Display OLED TV LCD TV Notebook PC PC Monitor Handset and Tablet

Note: Ex-cover glass

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Corning SCP AGC NEG AvanStrate Other

Note: Others include LG Chem, IRICO, Xufei, CNBM

Source: Display Search, Bernstein analysis and estimates

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Corning/SCP AGC NEG AvanStrate Other

Supply Glut (%)

Source: Display Search, Bernstein analysis

Source: Display Search, Bernstein analysis

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Substrate Glass Q1 2009

TFT-LCD Panel Q1 2009

Substrate Glass Q2 2012

TFT-LCD Panel Q2 2012

G1 G2 G2.5 G3 G3.25 G3.5 G4 G5 G5.5 G6 G7 G8 G10

Note: Only include substrate glass, ex-cover glass

This suggests thatSearch,

Source: Bernstein analysis, Display Search, company disclosures

Source: Bernstein analysis, Display Search, company disclosures

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Variable Cost Fixed Cost

Source: Bernstein estimates and analysis

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 Q11 Q11 Q11 Q11 12 12 12

Source: Company disclosures, Bernstein analysis

Alberto Moel, ScD (Senior Analyst) • alberto.moel@bernstein.com • +852-2918-5749

Source: Company disclosures, Display Search, Bernstein analysis