Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Corning Inc (GLW, Financial) exceeded sales and EPS guidance for Q2 2024, driven by strong adoption of new optical connectivity products for generative AI.
- Sales grew 11% sequentially to $3.6 billion, marking a return to year-over-year growth.
- The enterprise portion of the optical business saw record sales, growing more than 40% year-over-year.
- Gross margin improved sequentially and year-over-year by 110 basis points and 170 basis points, respectively.
- Corning Inc (GLW) generated strong free cash flow of $353 million in Q2 2024.
Negative Points
- Carrier sales were down 10% year-over-year due to customers continuing to draw down their inventory.
- Environmental Technologies sales decreased by 6% year-over-year, reflecting the impact of the Class 8 truck down cycle in North America.
- Hemlock and Emerging Growth businesses saw a 21% year-over-year decline in sales, primarily due to lower pricing for solar-grade polysilicon.
- The company faces risks and uncertainties related to forward-looking statements and market dynamics.
- Negotiations for currency-based price adjustments in the display segment are ongoing, adding uncertainty to future profitability.
Q & A Highlights
Q: On the optical side, especially on the GenAI, can you elaborate on the customers demanding these products and the visibility over the next few quarters?
A: Our visibility for strong growth is relatively high. We've been working on these products for the last few years directly with customers, building customized systems for their new data centers. The positive word of mouth on our products has led to new customers, driving our outperformance.
Q: How does Corning's competitive moat in optical, particularly on the enterprise side, compare to previous solutions?
A: Our competitive moat is driven by new-to-the-world fiber, cable, and connectivity systems. We're the only company that can integrate these components, which are protected by intellectual property, thus increasing our competitive advantages in this segment.
Q: Can you provide more color on the $8 billion Springboard opportunity by 2026, particularly the split between carrier and enterprise?
A: The majority of the growth is coming from the enterprise segment due to the fundamental changes in compute driven by GenAI. The Lumen agreement, which reserves 10% of our global fiber capacity, is a significant proof point for this growth.
Q: How do you address concerns about the potential variability in the 25% CAGR for the enterprise business over the next few years?
A: We have probabilistically adjusted our $5 billion Springboard plan to account for potential variability. Our near-term visibility is high, and we feel comfortable about the 25% growth guidance.
Q: Is there any price increase assumed for display in the 3Q guidance?
A: We are in the midst of currency-based price adjustments with our customers. While we haven't specifically guided for display price changes in Q3, there could be an impact.
Q: How should we think about gross margin trends over the next few quarters?
A: Our gross margin is expected to continue improving as sales grow, driven by our existing capacity and technical capabilities. Our Q3 guidance implies further gross margin expansion.
Q: What is your expectation for panel maker utilization rates in calendar 3Q, and will currency-based price adjustments impact your glass market share?
A: We expect panel maker utilization rates to remain stable or slightly lower in Q3. Our goal is to maintain our market share through appropriate pricing adjustments.
Q: How should we think about the profitability of the optical business compared to display?
A: We expect EPS growth to outpace sales growth due to our existing capacity and technical capabilities. The margins in the Optical business, especially in the AI data center space, are quite attractive and can be above historical levels.
Q: Can you frame the decline in carrier sales and the trajectory for the third quarter?
A: Carrier sales are increasing sequentially as order rates approach deployment rates. We expect this trend to continue, contributing to overall growth.
Q: How does the margin profile of enterprise compare to carrier within the optical business?
A: Enterprise tends to have higher margins than carrier due to the use of customized connectivity systems, which offer higher value and reduced installation costs.
Q: Can you elaborate on the competitive differentiation in the optical business, particularly for GenAI solutions?
A: Our new-to-the-world fiber offers superior optical performance without significant cost increases. We provide both componentry and customized solutions, leveraging our expertise at each level of the value stream.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
