Corning Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 29, 2025
Skip to Participants
Operator

Thank you for standing by, and welcome to the Corning Incorporated First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. It is my pleasure to introduce to you Ann Nicholson, Vice President of Investor Relations.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

Thank you, Carmen, and good morning. Welcome to Corning's First Quarter twenty twenty five Earnings Call. With me today are Wendell Weeks, Chairman and Chief Executive Officer and Ed Schlesinger, Executive Vice President and Chief Financial Officer. I'd like to remind you that today's remarks contain forward looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

These factors are detailed in the company's financial reports. You should also note that we'll be discussing our consolidated results using core performance measures unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non GAAP measures used by management to analyze the business. For the first quarter, the difference between GAAP and core EPS primarily reflected noncash mark to market losses associated with the company's translated earnings contracts in Japanese yen denominated debt as well as constant currency adjustments. As a reminder, the mark to market accounting has no impact on our cash flow.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

A reconciliation of core results to comparable GAAP value can be found in the Investor Relations section of our website at corning.com. You may also access core results on our website with downloadable financials in the Interactive Analyst Center. Supporting slides are being shown live on our webcast. We encourage you to follow along. They're also available on our website for downloading.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

And now, I'll turn the call over to Wendell.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Thank you, Anne. Good morning, everyone. We delivered outstanding first quarter results that exceeded guidance. We grew sales 13% year over year to $3,700,000,000 We grew EPS more than three times the rate of sales to $0.54 We expanded operating margin two fifty basis points year over year to 18%. For quarter two, we're guiding continued strong year over year sales growth.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

We expect our quarter two sales to be approximately 3,850,000,000 Our quarter two EPS guidance of $0.55 to $0.59 includes the financial impact of existing tariffs, which is 1 to 2¢, and accelerated production ramp cost for our new products in optical communications and solar of about three cents. Even including those items, we expect EPS to grow year over year about 21%, three times faster than sales. Ed will explain more about our guidance later. Overall, we're coming off a strong year one of our SpringBoard plan and our results and guidance show we're off to a great start in year two. We just held an investor event in March to upgrade our SpringBoard plan.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Normally, I would focus my remarks on our strong progress and upcoming milestones. However, many investors requested that we address two questions that are on their minds. What is the financial impact of tariffs on Corning? And can you deliver your springboard plan if there is a macroeconomic downturn during the plan timeframe. So I want to start by answering both of those questions, and then I'll go into more detail on each before turning things over to Ed to discuss our quarter one results and outlook.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Let's start with the financial impact of tariffs on Corning. First, our longstanding philosophy to locate our manufacturing operations close to our customers serves as a natural hedge against tariffs and mitigates the financial impact. Second, the direct financial impact of existing tariff structures, which are primarily between The US and China, is only 1 to 2¢ per quarter. We've included that in our second quarter guidance. Third, based on our significant US advanced manufacturing footprint, we're seeing early signs of stronger demand for our US made innovations.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Next, can we deliver our springboard plan in a macroeconomic downturn? The simple answer is yes. And today, we reiterate our confidence in our ability to deliver our recently upgraded high confidence springboard plan to add more than $4,000,000,000 in annualized sales and to achieve operating margin of 20% by the end of twenty twenty six. Our growth is primarily driven by powerful secular trends and more Corning content in our customers' offerings. And in order to provide you with a high confidence plan, we already applied a risk adjustment that accounts for multiple factors including a potential macroeconomic slowdown.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

With that, let's dive into each answer starting with tariffs. As I said a moment ago, our company has a long standing philosophy to locate manufacturing operations close to our customers. We find the geographic proximity leads to better innovation and more delighted customers. This also has the benefit of serving as a natural hedge against global trade tensions and tariff structures. We apply this philosophy globally.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

As a result, the direct impact of current tariffs for us is minimal. To illustrate the point, let's take a look at the impact of the tariffs between The US and China. In The US, we have a large advanced manufacturing footprint. This includes our optical communications business where we have the largest fiber factory in the world in North Carolina. We also manufacture products for our automotive, life sciences, mobile consumer electronics, and solar businesses in The US.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Almost all the products we sell in The US originate from our 34 advanced manufacturing facilities in The US. In fact, nearly 90% of our US revenue comes from products of US origin. The majority of the remainder is generated from products that are fully compliant with USMCA rules. Only 1% of the products we sell in The US come from China. Now let's look at our approach for our customers in China.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Eighty Percent of our sales in China, we make in China or process in customs approved tax and duty free zones. 15% is made in region, for example, in Korea and Taiwan. Only about 5% of our China sales are imported from The US and subject to China tariff structures. And we will mitigate the impact of that exposure primarily by optimizing our supply chain to minimize tariffs and adjusting price where necessary. In total, we expect a direct impact of approximately $10,000,000 to $15,000,000 or 1 to 2¢ for currently enacted tariffs in the second quarter.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

That is included in our guidance. Now of course, we will seek to improve this through additional mitigation strategies. Ed will provide more detail on guidance. Bottom line, the direct impact of currently enacted tariffs is not significant for Corning. Interestingly, we are seeing early signs of stronger demand for our US made innovations from our large advanced manufacturing footprint in The US.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Our customers in optical communications, in solar, in mobile consumer electronics, and in life sciences are seeking to leverage our US manufacturing footprint. And we expect to close and potentially announce commercial agreements in the coming months. Next, can we deliver the SpringBoard Plan in a macroeconomic downturn? As I previously stated, the simple answer is yes. Today, we reiterate our confidence in our ability to deliver the recently upgraded SpringBoard plan.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Let's walk through why. Our internal SpringBoard plan is to add $6,000,000,000 in annualized sales run rate by the end of twenty twenty six. We have a significant sales opportunity and our growth is fueled by powerful secular trends that I'll discuss in a moment. As a reminder, our SpringBoard base is quarter four of twenty twenty three when sales were $3,270,000,000 or $13,100,000,000 annualized. Adding $6,000,000,000 in incremental annualized sales brings us to a $19,000,000,000 sales run rate by the end of twenty twenty six.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

That is the sales level we would expect to achieve if we deliver our internal SpringBoard plan. Our internal plan is the output of the strategic planning process we run with each of our market access platforms. These are our actual business plans. We set our objectives and compensation based upon those plans. When our businesses submit plans to corporate, they factor in a variety of probabilistic outcomes.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

They try to account for the known unknowns. The business plans aim for a 70% confidence interval, which means that based on their analysis, there is a 70% chance that they will deliver sales greater than or equal to that number. What we wanted to do with SpringBoard was to provide an even higher confidence plan for our investors. So we take that internal plan and translate the opportunity into an investable thesis for all of you. At the corporate level, we seek to probabilistically adjust for factors including macroeconomic slowdowns, changes in government policy, and timing of multiple secular trends in our related innovations.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Our corporate level risk adjustment is $2,000,000,000 This is how we get to our $4,000,000,000 high confidence plan. Annualized, that is a $17,000,000,000 sales run rate by the end of twenty twenty six. So let's unpack the macroeconomic component of that corporate level risk adjustment. We use third party forecast of potential macroeconomic slowdown scenarios and we apply that to our demand planning model that underpins our $19,000,000,000 internal springboard plan. That economic slowdown scenario would result in a sales run rate by the end of twenty twenty six of a little less than $18,000,000,000 well within our $2,000,000,000 risk adjustment.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

We also run a shock case using the worst downturn over the last twenty five years. That scenario results in an adjustment to our plan that is still within our $2,000,000,000 risk adjustment. In other words, when we constructed the high confidence plan, the impact of a potential economic slowdown was already built in. That being said, remember, we're innovators. We're not macroeconomists.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

We are not projecting a macroeconomic slowdown. We're simply providing this context for you to make your own decisions. I hope that's helpful to understand our risk adjustment as it pertains to a potential economic downturn. And that's one of the reasons that today we reiterate our high confidence plan to add more than $4,000,000,000 to our annualized sales run rate by the end of twenty twenty six. We feel good about our innovations in the secular trends driving our growth.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

So now let's turn to those trends. We continue to see and hear reconfirming evidence that our secular trends are intact and remain relevant. We see it in our results and we see it in our order books and we hear it in our detailed dialogues with our customers. In optical communications, we are seeing remarkable customer response to both our products used inside GenAI data centers as well as our innovations to interconnect AI data centers across the country. We shared some of our new products with you at our March investor event.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

These products are driving positive customer response and rapid adoption. In our enterprise business, where we capture sales for inside the data center, adoption of our products drove a record $2,000,000,000 in sales last year. At our March IR event, we upgraded our four year enterprise sales compound annual growth rate from 25 to 30% based on strong customer demand. In the first quarter, we continued to outperform with sales growth of 106% year over year. We've just completed detailed reviews with our major hyperscale customers that reconfirmed our growth expectations.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

And as you've also seen in recent public announcements from the top hyperscalers, they've reaffirmed their capital plans and they expect to continue to spend significant amount of capital in this space. Another way Gen AI is fueling our growth is reflected in our carrier business. Last year, we introduced a set of innovations to interconnect AI data centers. We shared that we reached an agreement with Lumen Technologies to provide our new Gen AI fiber and cable system that enables Lumen to fit anywhere from two to four times the amount of fiber into their existing conduit. And the agreement reserved 10% of our global fiber capacity for 2025 and 2026.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Last month, we announced that we have fully commercialized this product. We now have three industry leading customers adopting the technology and our production tripled every month in the first quarter. So this innovation is now turning into a revenue stream to make a positive difference in our financials this year. We continue to feel strong positive customer response to our innovations and as a result, we're accelerating our ramp plans in the second quarter to meet growing demand. Additionally, in our Carrier business, as you've seen from recent telecom earnings calls, our key customers have stated they like the economics of fiber and they remain committed to their fiber deployment plans.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

We believe they have completed drawing down inventory they built during the pandemic and the conditions are now in place for our Carrier business to spring back to growth later this year. We saw the beginning of that in the first quarter. Turning to solar. In March, we said we expect our new market access platform to grow from a billion dollar business in 2024 to a $2,500,000,000 business by 2028. Drivers include increased energy demand, favorable economics, and government policy focused on energy independence.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

We are commercializing our new Made in America ingot and wafer products this year. Our production will come online in the back half of this year. We said in March that for our entire platform, we had committed customers for 100% of our capacity available in 2025 and eighty percent of our capacity for the next five years. And recent trade actions are increasing new customer engagement. The goal of US policy is to ensure domestic energy security.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

So our US solar assets just became even more valuable. We're experiencing increasing demand for US sourced solar. As a result, we're accelerating our ramp of US advanced manufacturing in our Midland, Michigan wafer facility. We're increasing our workforce to 1,500 manufacturing jobs from our previously announced 1,100 person level. So recent events continue to validate our low risk, high return entry into the solar market.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

In display, we continue to expect TV screen size growth of about one inch a year. In March, we said that the price increases we implemented last year will help us deliver net income of 900,000,000 to $950,000,000 in 2025 and to deliver net income margin of 25%. In the first quarter, the business marked net income of $243,000,000 and net income margin of 26.9%. In automotive, we expect almost triple sales in our automotive glass business by 2026. Our growth comes from more Corning as automakers add more in vehicle content.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

For example, larger, shaped, immersive and high resolution displays. Given the milestones we've achieved in our automotive glass business, we're graduating the business this quarter out of the emerging innovations group and into operations. It will be managed along with environmental technologies forming a new segment called Automotive. In Mobile Consumer Electronics, our growth will be driven by demand for more Corning content as customers adopt our new higher value innovations. In the first quarter, our major innovation streams remain on tap and we remain optimistic about adoption of our new technologies.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

We expect those innovations to drive growth as we enter 2026. In total, our secular trends remain consistent with our recently upgraded SpringBoard plan. In summary, our growth trends remain intact. The direct impact of current tariffs to Corning is not significant, and our $2,000,000,000 risk adjustment should provide a sufficient buffer against potential economic downturns. So now, I'll turn it over to Ed to get into more detail on our results and outlook.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Thank you, Wendell. Good morning, everyone. As you just heard, our results and guidance show we're making great progress on our high confidence SpringBoard plan to add more than $4,000,000,000 in annualized sales and achieve an operating margin of 20% by the end of twenty twenty six. And as we successfully execute the plan, we continue to improve our return profile. Year over year in the first quarter, we grew sales 13% to $3,700,000,000 We grew EPS 42% to 54¢.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

We expanded operating margin by two fifty basis points to 18%, and we expanded ROIC by 300 basis points to 11.6%. Looking ahead, we expect our momentum to continue. For the second quarter, we expect continued strong year over year sales growth, with sales of approximately $3,850,000,000 and EPS in the range of zero five five dollars to $0.59 again, growing significantly faster than sales. We expect to continue expanding our operating margin as we march toward our springboard target of 20% by the end of twenty twenty six, And we anticipate continued strong growth in our enterprise business, driven by our new products for Gen AI. Two other things I want to note related to our second quarter guidance.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

First, our guidance factors in $01 to $02 for the expected direct impact of currently enacted tariffs. We plan to further mitigate this impact going forward, primarily by optimizing our supply chains and adjusting price where necessary. Second, we shared with you that we are accelerating our production ramp for new products, given high customer demand in both optical communications for our new GenAI products for both inside and outside the data center, and in solar for our new solar wafers. Our second quarter guidance includes temporarily higher costs associated with these ramps of about $03 We expect the impact of these costs to dissipate as our production and sales increase in the second half of the year. Now, I'd like to share some more detail on what we're seeing in our businesses, and then I'll review our capital allocation priorities as we expect to generate significant cash over the springboard time frame.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

In optical communications, first quarter sales were $1,400,000,000 up 46% year over year. Net income for the first quarter was $2.00 $1,000,000 up 101% year over year, reflecting strong incremental profit on the higher volume. Enterprise sales were $7.00 $5,000,000 for the quarter, up 106% year over year, driven by continued strong demand for our new Gen AI products for inside the data center. We're tracking ahead of our twenty twenty three to twenty twenty seven enterprise sales CAGR of 30%. We also grew 11% year over year in our carrier business.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

The growth included sales of our new data center interconnect products. Additionally, our carrier customers have completed drawing down inventory during the pandemic, and the conditions are now in place for our carrier business to return to growth in 2025. And we are seeing the beginnings of that in the first quarter. Moving to display, first quarter sales were $9.00 $5,000,000 up 4% year over year on both volume and price increases. Net income was $243,000,000 20 6 point 9 percent of sales.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

We successfully implemented double digit price increases in the second half of twenty twenty four to ensure that we can maintain stable U. S. Dollar net income in a weaker yen environment. Our first quarter results provide the first proof point that we have achieved our objective. As a reminder, we hedged our yen exposure for 2025 and 2026 with hedges in place beyond 2026.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

In 2025, we reset our yen core rate to 120 yen to the dollar, consistent with our hedge rate. We are not recasting our 2024 financials because we expect to maintain the same profitability in display at the new core rate. We remain confident that we can deliver net income of 900,000,000 to $950,000,000 in 2025, and net income margin of 25%, consistent with the last five years. Overall, we are maintaining our market, technology, and cost leadership while benefiting from market growth and a glass supply demand environment that is increasingly balanced to tight. Turning to specialty materials, first quarter sales were $5.00 $1,000,000 up 10% year over year, driven by continued strong demand for premium glass for mobile devices.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Net income grew 68 year over year to $74,000,000 reflecting strong incrementals on higher volumes, as well as strong demand for our premium glass innovations. Now, I'd like to take a moment to elaborate on our new automotive segment. Our automotive glass solutions business has been part of our Hemlock and Emerging Growth businesses, which is designed to launch early stage projects and growth opportunities. This is where our solar business currently resides. Beginning in Q1, we graduated our Auto Glass business, and together with our environmental technologies business, created a new segment named automotive.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

We recast the comparative segment results for prior periods to align with our current reporting. Our environmental business has been an established leader in the industry for more than fifty years. Now, we're leveraging that market access to drive more Corning automotive glass into the market. We have several recent partnership and project announcements tied to automotive interiors and adjacencies, and are making nice progress. With that, let me provide some color on what we're seeing right now in automotive.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

In the first quarter, automotive sales were $440,000,000 down 10% year over year, primarily driven by continued softness in light and heavy duty European markets, as expected. The North America Class eight market also continues to lag year over year following a strong Q1 twenty twenty four. We remain confident that the underlying secular trends in automotive will be strong growth drivers for Corning, as demand for more larger shaped, immersive and higher resolution displays grows. Our segment change reflects our continued confidence. Turning to life sciences, on a year over year basis, first quarter sales of $234,000,000 were down 1%, and net income of $13,000,000 was consistent.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Finally, in Hemlock and Emerging Growth businesses, first quarter sales were $244,000,000 down 25% sequentially on normal seasonality. As I just explained, these results no longer include automotive glass solutions, and we recast 2024 for this change. We're still reporting our solar business results in Hemlock and Emerging Growth businesses for the moment, as we continue to ramp production for our new solar wafer products. We expect to grow our new solar MAP to a $2,500,000,000 revenue stream by 2028, and we expect a positive incremental impact on Corning's sales, profits, and cash flow starting in the second half of twenty twenty five. We are commercializing our new Made in America ingot and wafer products this year.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

We have committed customers for 100% of our capacity available in 2025 and eighty percent of our capacity for the next five years. We plan to update you on our solar sales and profits as we continue to make progress. With that, I'll shift from segment results to free cash flow. The first quarter was essentially breakeven. Normally, Q1 is negative, a seasonal low, driven by our typical compensation and working capital cycles.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

So, we're actually off to a great start in 2025 and expect to generate a significant amount of free cash flow this year, and we expect to invest approximately $1,300,000,000 on CapEx. And finally, let's move to capital allocation. As we shared with you in March, the upgrades to our internal and high confidence plans include higher sales and higher profit. We expect to convert that profit into more cash flow. As an early proof point, in year one of the plan, we grew free cash flow 42% for the full year 2024 versus the prior year.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Always front and center to us is capital allocation. How do we choose to invest the expected higher cash flow? Companies do capital allocation in different ways. We prioritize investing for organic growth opportunities that drive significant returns, and we grow primarily through innovation. We believe this creates the most value for our shareholders over the long term.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Our investors have confirmed this. As we see high return opportunities in the future, we will invest in those opportunities. We also seek to maintain a strong and efficient balance sheet. We're in great shape. We have one of the longest debt tenors in the S and P five hundred.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Our current average debt maturity is about twenty three years, with only about $1,200,000,000 in debt coming due over the next five years. And we have no significant debt coming due in any given year. Finally, we expect to continue our strong track record of returning excess cash to shareholders. We already have a strong dividend. Therefore, as we go forward, our primary vehicle for returning cash to shareholders will be share buybacks.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

We have an excellent track record. Over about the last decade, we repurchased 800,000,000 shares, close to a 50% reduction in our outstanding shares, which at today's share price has created $17,000,000,000 in value for our shareholders. Because of our growing confidence in SpringBoard, we started to buy back shares in the second quarter of twenty twenty four, and we have continued to do so since then. In the first quarter of twenty twenty five, we invested another $100,000,000 repurchases and we expect to continue buying back shares in the second quarter. So, I wrap up today, I'd like to reiterate the important points we've shared with you this morning.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

In Q1, we exceeded our guidance on both sales and EPS and continued to deliver strong sales growth while continuing to improve our return profile. And we expect another strong quarter, as evidenced by our second quarter guidance, which factors in the expected direct impact of currently inactive tariffs and temporarily higher costs as we accelerate production ramps for our new Gen AI products in optical communications and our new solar wafer products. Stepping back, we feel great about our progress on SpringBoard, and we're energized about the tremendous opportunity for value creation we've built for our shareholders. Our internal SpringBoard plan adds $6,000,000,000 in annualized sales run rate by the end of twenty twenty six. The expected growth is driven by powerful secular trends, in particular, Gen AI and solar.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

And our risk adjusted high confidence plan adds more than $4,000,000,000 in annualized sales, and we continue to expect operating margin to improve to 20% by the end of twenty twenty six. Therefore, we expect to continue improving ROIC, growing EPS, and strengthening cash flow. Our $2,000,000,000 risk adjustment provides a sufficient buffer for a macroeconomic downturn. I look forward to updating you on our progress. And with that, I'll turn it back over to Ann.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

Thank you, Ed. Okay, Carmen, we're ready for questions.

Operator

And it comes from the line of Steven Fox with Fox Advisors. Please proceed.

Steven Fox
Founder & CEO at Fox Advisors, LLC

Hi, good morning and thanks for all that detail. I guess for my question, Wendell, you talked a lot about the different aspects that could play out in this new world order. I guess the one that maybe you left out, was wondering if you can touch on is just your pricing power in uncertain markets and how you think all this plays out versus competition. Obviously, you got pricing sort of settled on the display side, but how do think about just where you're at with some of the other key markets like solar and auto and especially optical? Thanks.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

It's a great question, Steve. The most recent example we've had of our ability to pass cost, increasing cost on to our customers in the form of price was part of the recovery from the pandemic where we successfully shared the impact of inflation with our customers. And so we're coming off of that knowledge and those tools. At this moment, we're actually seeing in solar, because of the increased customer interest in US sourced solar, and because of events in trade raising our potential realized price in that business and our customer dialogues. Similarly, our product sets in Opto, the bulk of the growth is being driven by unique products.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

We haven't really been exposed to any tariff friction cost in those businesses. Should there be some changes or things like that, that fundamental competitive moat we have should serve us well. Automotive, as of yet, we just don't have enough exposure to tariff structures, to have entered into direct dialogues with our customers. So more to be seen on that space. In general, we feel really good about the way our footprint naturally reduces our exposure to changing tariff structures and our relationships with our customers are such that we feel good about our ability to mitigate any impact that comes our way.

Steven Fox
Founder & CEO at Fox Advisors, LLC

Great. That was very helpful. Thank you.

Operator

Thank you. One moment for our next question, please. It comes from the line of Wamsi Mohan with Bank of America. Please proceed.

Wamsi Mohan
Wamsi Mohan
Senior Equity Research Analyst at Bank of America Merrill Lynch

Yes. Good morning. Thank you so much. You spoke about temporary capacity ramp costs in optical and solar, but your CapEx outlook did not change. It stayed at $1,300,000,000 So is this largely an OpEx ramp?

Wamsi Mohan
Wamsi Mohan
Senior Equity Research Analyst at Bank of America Merrill Lynch

Is it a pull forward of any demand that you're seeing or are there under the power changes in CapEx allocation? And if I could, could you also address maybe just your visibility in Gen AI orders? Obviously, you had very strong growth, but there are some concerns around pullback in data center, spending. I'm just trying to get some sense from you if you're seeing anything different in your order patterns at all. Thank you so much.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Thanks, Wamsi. Great questions. Let me take the first one on the cost ramp. So, as we bring up capacity, you heard Wendell talk about, for example, in solar us adding 1,500 jobs. So, we're bringing on fixed cost to actually get that capacity up and running.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

So, we're actually at scale producing at the level we're capable of and selling, we actually have a fixed cost that is embedded in our financials and that's how we think about that cost drag. It remedies itself when we're actually at scale and selling and in solar, for example, we believe that's in the second half. And then, in optical, as an example, we are bringing on capacity but where we're bringing it on is not really costly CapEx. And so I think if you think about our CapEx guide, we've reflected our view of what we think we need to be able to deliver the 6,000,000,000 and the 4,000,000,000 in our SpringBoard plan as we go forward. We'll obviously continue to update you on that, but that's sort of how you should think about it.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Remember in SPRINGBORD that what helps lead to the very powerful incrementals that you're actually seeing this print with EPS going up three times as fast as sales, is that we already largely have the capacity and the capability in place to service the growth. So what tends to hit here is, let's say, thought Ed did an excellent job on SOLO, let's do Opto, is these are products that we're making for the very first time. So that the amount of throughput we're getting through those given lines that we're dedicating when we switch a line over to do this product, is a lower throughput, lower productivity than our more established. As those revenues grow, as we get better and better at making the product which we do every week, we'd also see some of those friction costs drop away. Wamsi, did that answer your question effectively?

Wamsi Mohan
Wamsi Mohan
Senior Equity Research Analyst at Bank of America Merrill Lynch

Yes, absolutely. That super helpful, Wendell. And if you could comment on the visibility of Gen AI orders too, that'd be great. Thank you.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

So we just completed our quarterly detailed dialogues with our major hyperscaler customers. And what we see is that is reinforcing of our growth estimates. I think what causes noise level to some extent is Different players can alter their plans in various sort of subtle ways. But given the range of our customer footprint, what tends to happen is these will balance out so that in total what we see is continued reinforcement of our growth expectations, and by and large, the dialogues tend to be how can they get more of our new product sets, and how can they take advantage of our advanced manufacturing footprint in The US. So those tend to be where all of our attention with our customers are, is that we're not quite getting them as much as they would like from us.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Now, that being said, it can be hard for us as those dialogues are happening to determine the difference between are we gaining share or is it increase in market. We tend to only be able to sort that out, usually in the rearview mirror, after we get into the next month or the month after to be able to reflect on what other people report. Was that helpful to you, Wamsi?

Wamsi Mohan
Wamsi Mohan
Senior Equity Research Analyst at Bank of America Merrill Lynch

Yep. That's great, Wamsi. Thank you so much.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

Next question.

Operator

Thank you. One moment, please. It comes from Assia Merchant with Citi. Please proceed.

Asiya Merchant
Asiya Merchant
Director - Equity Research at Citigroup

Great. Thank you for taking my question. Just back on the comment on optical, obviously very strong demand here. And I'm wondering, is this an environment that's very supply constrained at this point? And if there is an opportunity, you know, to further press on pricing or further strengthen Corning's Moat in this in this segment?

Asiya Merchant
Asiya Merchant
Director - Equity Research at Citigroup

Thank you.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

The answer is I think strategically, you're right. Strategically, you're right. I think it'll be especially applicable to sort of the next generation of products we're introducing. So more to come in that space. You see some of what you're talking about already reflected in the financials because you see the rising profitability of our optical segment.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

That includes actions around that strategic centrality of what you're pointing out, Asiya. If our next gen innovations, are as competitively advantaged as we hope, we would believe that improvement in margin profile would continue.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

Next question.

Operator

Thank you.

Operator

One moment Thank you.

Operator

Comes from the line of Samik Chatterjee with JPMorgan. Please proceed.

Samik Chatterjee
Samik Chatterjee
Executive Director at JP Morgan

Hi. Thank you for taking my question. Wendell and Ed, thanks for all the prepared remarks in terms of tariffs as well as a potential sort of recession. Maybe Wendell, if I can ask you more in relation to what your customer conversations have been since Liberation Day tariffs and whether when you're sort of outlining the scenarios in relation to a recession, is that a discussion that's becoming more frequent with your customers? And maybe even rates to tariffs, what are you seeing in terms of customer behavior since liberation rate tariffs?

Samik Chatterjee
Samik Chatterjee
Executive Director at JP Morgan

Has that really changed compared to prior to that? And just adding on to that in terms of capital investment plans, when we think about your solar ramp, how should we think about sort of the flexibility in that plan if we were to go into a more significant downturn? How should we think about flexibility around sort of moderating that plan? Thank you.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

On the first one, what we're experiencing was in that sort of third area that I spoke about on tariffs is we're seeing early evidence of increasing demand from our existing and new customers for our advanced manufacturing platforms in The US. These are significant, these dialogues are ongoing. We would hope to close some of those agreements and potentially they're significant enough that we would share those publicly in the coming months. Once again, because of the fundamentals of SpringBoard, we have available capacity here in The US. And so we would expect that incremental demand to come in at really strong profitability performance as well.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

So what our dialogues with our customers tend to be about is less, capital risk because we have that in place, and more we want to have very long term commitments from them. Because what the exact tariff structure becomes over time, is difficult to predict at this moment. So as we allocate that capacity, we want it to be with folks who have a long term commitment to US based sourcing. Does that make sense, Samik? Is that responsive to your question?

Samik Chatterjee
Samik Chatterjee
Executive Director at JP Morgan

Yep. And specifically on cellular, is that when you think about your plan there, is it sensitive to the macro or given the long term nature, should we think of it as largely, you can continue on that plan? Thank you.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Yes, Samik, maybe I'll take that one. I think, you know, a couple of thoughts. First, the need for energy is somewhat insulated from the macro. And as Wendell said, we're seeing a demand for US sourced solar. That demand is increasing.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

I think that's somewhat again insulated from the macro. In fact, we may actually have some further commercial announcements in the near term. When we were with you in March, we actually shared that our capacity for the wafer facility we're building and actually all of our solar capacity is essentially sold out for this year, what we believe we can make. We're obviously trying to make more. And then we have 80 of that capacity sold out for the next five years.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

And in this space, we generally use tools like long term supply agreements with take or pay provisions. So I think, again, this is an area where we feel really good about the growth trajectory from where we are now as we go forward. And I don't think the macro environment has a significant impact on that.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

A way to think about the strategic situation of where our demand is, it's got about forty, fifty gigawatts in that range of solar was installed, it will be installed this year in The US. Our plan has less to do with that growing as it does as import substitution. Today, the part of the value chain that we're moving into has close to 0% of the ingots and wafers and polysilicon that are installed in The US today come from The US. Our strategic plan is that we would like to take double digit sort of share of that product that is installed in The US for US source. So it's less about macroeconomics and it's more about the success of our low risk, high return entry strategy, which is why with the current sets of trade dynamics and a number of different areas in which trade action is taking place, it has made that job of share substitution from imported product to domestically produced product a little bit easier, get a little bit more valuable.

Samik Chatterjee
Samik Chatterjee
Executive Director at JP Morgan

Thank you. Thanks for all the color.

Operator

Thank you. One moment, please. It comes from the line of Mehdi Hosseini with Susquehanna International Group. Please proceed.

Mehdi Hosseini
Senior Equity Research Analyst at SIG

Yes. Thanks for taking my question. A couple of follow ups. Wendell, can you tell me what you hear from your panel customers regarding end market demand? Obviously, the TV as part of the consumer electronics is very sensitive to macro trends, I was wondering what you're hearing from your customers?

Mehdi Hosseini
Senior Equity Research Analyst at SIG

And I have a follow-up.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Sure. Hey, Mehdi. This is Ed. So our view of the display market is that units for the year will essentially be flat, roughly two zero seven million, somewhere in that zone. We do expect there to be growth in the glass market driven by screen size increasing somewhere in the zone of about an inch.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

In the first quarter, I would say that China stimulus has had some impact on demand, but we're not necessarily hearing anything that would take us off of our view of the numbers I gave you for the end market at this point in time.

Mehdi Hosseini
Senior Equity Research Analyst at SIG

So a follow-up here, given your reported q one and assuming that there is a price increase embedded and your outlook for flattish volume shipment, does that imply significant uptick starting in q two?

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

So what we're seeing in q one is, as you know, we did the price movements, in conjunction, with a move to the new core rate so that we would have the same profitability in US dollars. That's what we're seeing in quarter one. On the volume side, quarter one panel maker utilization was a little higher than we would have expected for normal seasonality. So, that could be that some folks were building some ahead of any trade actions. What we've done is we have reflected in our quarter two guide that panel maker utilization would fall some towards the end of the quarter to correct for any sort of movement one way or the other in supply chain.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

Overall, what we're seeing in this market is, that glass supply and demand are in balance and relatively tight. And we don't see any reason at this time to raise our forecast that television unit demand would stay where it's at. We're just assuming all this sort of evens itself out and that our growth is primarily driven through diagonal growth.

Mehdi Hosseini
Senior Equity Research Analyst at SIG

Alright. Great. Thanks for the details, Wendell. And actually, going back to Ed, you talked about having confidence with a strong free cash flow. You're investing in operation, given your $1,300,000,000 CapEx.

Mehdi Hosseini
Senior Equity Research Analyst at SIG

You have also done really well in bidding and raising. So given that context, why not step up and be more aggressive with buyback? What is holding you back? If you're so confident with the SpringBoard and how you actually executed better than expected, why not reflect that in a more aggressive buyback? Any thoughts?

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Yeah, thanks for that question, Mehdi. So, just as a reminder, we started buying back shares in the second quarter of last year. We've continued to do that every quarter and we bought back 100,000,000 in the first quarter and we certainly expect continue to buy back our shares. I think for us, we like to maintain a really strong balance sheet, so that's important. And as we go forward and generate that cash, I think you should expect us to continue to buy back shares.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

That will be our primary vehicle for which we return cash to shareholders.

Mehdi Hosseini
Senior Equity Research Analyst at SIG

Thanks.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

All right. One more question.

Operator

Thank you so much. And it comes from the line of John Roberts with Mizuho.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

Thank you. I think of tariffs a little bit like Scope one, two and three emissions. Your $01 to zero two that's basically Scope one and two, and there's nothing from Scope three or tariff impact on your customers in there. Right?

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

What we try to do correct. What we try to do is instead say if our customers have a tariff based impact, or the macroeconomies have a tariff based effect, we try to capture that in our overall risk adjustment. What we see for most of our customers is their degree of supply chain sophistication is extremely high. And that they, what our main dialogues with them is how they can shift to be able to optimize around tariffs. So given that, it's hard to predict sector by sector and customer by customer exactly how their tariff profile will look.

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

So instead, we try to put all that into our risk adjustments and capture that in total and then how that would impact our demand scenarios.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

And then something like

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

I'm sorry. Go on, John.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

I I was gonna say something like a customer moving their production from China to India, that's there. Is that something that would be material to Corning, or how would you have to adjust for that?

Wendell Weeks
Wendell Weeks
Chairman, Director and CEO at Corning

So we started a number of years ago to be able to effectively build the channel to finish our products in India to be able to support our customers' thoughtful moves to different regions. Similarly, for different customers, we've done the same thing, for long standing, positions with Samsung in Vietnam. What we try to do is it takes a while to get these change in place and our production in place. So we try to preemptively prepare for it. As far as a shift to India versus a shift to China, either one of those, we will capture the revenue from those, and we are already in place to be able to supply it.

Edward Schlesinger
Edward Schlesinger
EVP & CFO at Corning

Great. Thank you very much.

Operator

Thank you so much. And this concludes our Q and A session, and I will turn it back to Ann Nicholson.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

Great. Thanks, everybody, for joining us today. Before we close, I wanted to let you know that we're going to attend the JPMorgan Annual Global Technology Media and Communications Conference on May 14. Additionally, we'll be scheduling management visits to offices in select cities. Finally, a replay of today's call will be available on our site starting later this morning.

Ann Nicholson
Ann Nicholson
VP, IR at Corning

Once again, thanks for joining. Operator, that concludes our call. Please disconnect all lines.

Operator

Thank you all for participating. You may now disconnect.

Executives
Analysts
Powered by Quartr
Earnings Conference Call
Corning Q1 2025
00:00 / 00:00

Transcript Sections