Sign in

    Corning Inc (GLW)

    You might also like

    Corning Incorporated is a diversified technology company specializing in materials science and manufacturing. The company operates in several key segments, producing a wide range of products including network components, glass substrates, advanced optics, ceramic substrates, and laboratory supplies . Corning's offerings are integral to various industries, from telecommunications and consumer electronics to environmental and life sciences . Additionally, the company is involved in solar and semiconductor products through its Hemlock and Emerging Growth Businesses .

    1. Optical Communications - Develops and supplies carrier and enterprise network components, playing a crucial role in telecommunications infrastructure .
    2. Display Technologies - Manufactures glass substrates used in flat panel displays, essential for consumer electronics .
    3. Specialty Materials - Produces advanced materials such as Corning® Gorilla® Glass and advanced optics, catering to consumer electronics and other high-tech applications .
    4. Environmental Technologies - Creates ceramic substrates and filters for emissions control, supporting environmental sustainability efforts .
    5. Life Sciences - Provides laboratory products that are vital for scientific research and healthcare industries .
    6. Hemlock and Emerging Growth Businesses - Engages in the production of solar and semiconductor products, contributing to renewable energy and technology sectors .
    Initial Price$32.94April 1, 2024
    Final Price$38.66July 1, 2024
    Price Change$5.72
    % Change+17.36%

    What went well

    • Strong growth and attractive margins in the optical communications business, especially in the data center and AI data center space, are expected to drive EPS growth outpacing sales, supported by the company's cost, technical capabilities, and capacity.
    • The company believes that net income margins in the optical communications segment can be above the historical average of 13%, indicating improving profitability in this segment.
    • The strong adoption of Corning's Gen AI products has led to high visibility for strong growth, with the company picking up new customers and experiencing upside variance, sustaining momentum over the next several quarters.

    What went wrong

    • Continued inventory drawdowns in the Carrier networks are negatively impacting sales in the Optical Communications segment, and customers are not yet buying at their deployment levels .
    • Increased competition in the optical business, with other suppliers making smaller diameter fiber cables and high-density solutions, potentially narrowing Corning's competitive advantage .
    • Net income margin in the optical business is less than half that of the display segment, raising concerns about the profitability of optical growth compared to display .

    Q&A Summary

    1. Optical Growth Visibility
      Q: How strong is your visibility into sustained growth in optical, especially Gen AI?
      A: Our visibility for strong growth is relatively high, as we've been working directly with customers on customized systems based on their wiring diagrams for new data centers. We've been developing core components for the last few years and are already building some network needs ahead of installation. Positive word of mouth has led to new customers, driving upside variance.

    2. Optical Competitive Moat
      Q: Is Corning's competitive moat in optical stronger now, particularly in enterprise?
      A: Yes, we're building a moat driven by our new-to-the-world fiber cable and connectivity system, which only we can put together. Our new super high-density systems double the amount of light guides within the same volume while increasing performance. Our method is protected by intellectual property, increasing our competitive advantages.

    3. Springboard Opportunity and Lumen Agreement
      Q: Can you split the $8B springboard opportunity between carrier and enterprise, and elaborate on the Lumen deal's revenue impact?
      A: The majority of the opportunity comes from the enterprise segment due to Gen AI's impact on compute and networking needs. Regarding Lumen, it represents about 10% of our global fiber capacity, so taking 10% of expected optical revenue puts you in the zone for sizing. The Lumen deal is exciting as it validates increased fiber needs for Gen AI data centers.

    4. Further Similar Agreements
      Q: Do you anticipate similar agreements with other carriers?
      A: While we can't speculate, Lumen's adoption of our new technology—which doubles fiber capacity in existing conduits—is generating significant interest, potentially leading to more agreements.

    5. Enterprise Optical Growth Stability
      Q: How can we be confident in steady enterprise optical growth given potential variability?
      A: We've accounted for potential variability in our $5B springboard plan, adjusting probabilistically. In the near term, our visibility is high; we guided for enterprise to grow at 25%, but we achieved 40% growth in the first quarter post-guidance. We feel comfortable about the 25% guidance provided.

    6. Display Segment Price Adjustments
      Q: Is there a display price increase assumed in Q3 guidance?
      A: We're not specifically guiding any display price changes at this time because we're in discussions with customers about a currency-based price adjustment, but that doesn't mean there won't be an impact in Q3.

    7. Gross Margin Outlook
      Q: What are the drivers for gross margin growth?
      A: We have the capacity and technical capabilities in place to support higher sales without adding fixed costs. This will drive both gross margin and operating margin improvements as sales grow. There's room for gross margin to continue increasing; our guidance implies this for Q3.

    8. Display Utilization Rates and Market Share
      Q: What's the expectation for panel maker utilization rates in Q3, and will currency adjustments impact glass market share?
      A: Utilization rates increased significantly in Q2 and may run at the same level or slightly lower in Q3 to average out for the year. Regarding currency-based price adjustments, our goal is to maintain our net income margin at historical levels over the last five years, and we intend to hold our market share through our approach.

    9. Optical Profitability vs. Display
      Q: How will optical revenue growth affect net income compared to display?
      A: We can continue to have EPS growth outpacing sales, regardless of growth source, due to existing capacity and capabilities. Margins in the optical business, especially in the data center and AI spaces, are quite attractive and can be above 13% net income margin, higher than in the past.

    10. Carrier Segment Outlook
      Q: How is the carrier side of optical performing and what's the trajectory?
      A: Carrier business is increasing sequentially. Although down year-over-year due to prior inventory builds and current drawdowns, order rates are going up, and sales are up sequentially. Carrier order rates are approaching deployment rates, indicating an upward trend in year-over-year growth rates.

    11. Enterprise vs. Carrier Margins
      Q: How do margins compare between enterprise and carrier in optical?
      A: Enterprise margins are higher than carrier because it involves more customized connectivity systems. We share value created by reducing installation costs, leading to higher adoption and revenue share in enterprise.

    12. Carrier Inventory Normalization
      Q: When do you expect carriers to align orders with deployments?
      A: It's customer-specific, and we're not quite there yet. We'll make progress in Q3 but may not be fully aligned. We expect the gap to close relatively quickly and will update as we progress.

    13. Display Pricing and USD
      Q: Will display price negotiations conclude by Q3, and could pricing move to USD?
      A: We're in discussions and plan to update in September. We're engaging customers about moving to USD-based pricing or finding a way to appropriately share currency value changes. We aim to maintain profitability consistent with historical levels by pricing appropriately.

    14. Optical Architecture and Gen AI
      Q: Does your current optical portfolio fit all hyperscaler deployments, and what's the outlook for traditional enterprise markets?
      A: Our reported revenue comes from fiber optic connections between switches. There's ongoing work on whether server rack connections will become optical due to higher bit rates and distances. For traditional enterprise deployments and inference architectures, it's too early to determine predominant models. We'll share more as our understanding evolves.

    15. Competitive Differentiation in Optical
      Q: What's unique about Corning's Gen AI optical solutions compared to competitors?
      A: We participate at all levels, offering our new fiber to others and designing proprietary cables and connectors. Our unique advantage is reducing fiber diameter while improving optical performance without significant cost increases. Competitors often face performance decreases or higher costs when shrinking fiber. We aim for the majority of revenue from customized solutions adding value through reduced installation time.

    1. In the competitive optical market where other suppliers are introducing smaller diameter fiber cables and high-density connectors, how does Corning intend to sustain its unique value proposition for Gen AI solutions, and can you specify how much of your optical revenue will come from customized solutions versus standard components?

    2. With gross margins showing strong sequential and year-over-year growth, what are the exact drivers behind this trend, and how do you plan to maintain or improve gross margins in the face of potential cost pressures or market fluctuations?

    3. Historically, your optical communications net income margin has averaged 13%; looking forward, what strategies or market conditions would allow you to significantly exceed this margin, and is there a target margin level you aim to achieve?

    4. Regarding your $8 billion SpringBoard opportunity by 2026, can you provide a detailed breakdown of expected revenue contributions from the Carrier and Enterprise segments, and elaborate on the anticipated revenue impact of the Lumen agreement over the next couple of years?

    5. As the Enterprise segment becomes a larger part of your optical communications portfolio, how do the margins in Enterprise compare to those in the Carrier segment, and what steps are you taking to optimize profitability across both segments amidst shifting business compositions?

    Program DetailsProgram 1
    Approval Date2019
    End Date/DurationNo expiration
    Total additional amount$5.0 billion
    Remaining authorization amount$3.2 billion
    DetailsMay be amended or terminated by the Board at any time without prior notice

    Competitors mentioned in the company's latest 10K filing.

    • CommScope Holding Company, Inc. - Principal competitor in the Optical Communications segment .
    • Prysmian Group S.p.A. - Principal competitor in the Optical Communications segment .
    • AGC Inc. - Principal competitor in both the Display Technologies and Specialty Materials segments .
    • Nippon Electric Glass Co., Ltd. - Principal competitor in both the Display Technologies and Specialty Materials segments .
    • Schott AG - Principal competitor in the Specialty Materials segment .
    • Heraeus - Principal competitor in the Specialty Materials segment .