Corning Sees $20B Run Rate Early as Verizon Deal Fuels Data-Center Growth

Key Points

• Corning expects to reach a $20 billion annualized sales run rate in the third quarter, earlier than planned, with high-teens year-over-year growth expected to continue into the fourth quarter and next year.
• A new multi-year, multibillion-dollar Verizon agreement, along with deals with Lumen and Zayo, strengthens Corning’s data-center connectivity outlook and could accelerate its targeted $1 billion annual data-center interconnect opportunity.
• Strong optical communications demand is driving capacity investments, while improving solar conditions and higher-value products support profitability; Corning expects operating margins to remain above 20% and free cash flow to grow.

Corning NYSE: GLW executives said demand in optical communications, solar and selected glass applications is supporting momentum behind the company’s long-term “Springboard” growth plan, while new customer agreements are improving visibility into data-center connectivity demand.

Speaking at Citi’s TMT Conference, Executive Vice President and Chief Financial Officer Ed Schlesinger said Corning expects to reach a $20 billion annualized sales run rate in the third quarter, earlier than previously anticipated. Based on the company’s July outlook, Schlesinger said this implies third-quarter sales should be at the high end of, or slightly above, prior guidance.

“The third quarter is running really well, and we expect the fourth quarter to be bigger than the third quarter,” Schlesinger said. He added that Corning expects its high-teens year-over-year growth rate to continue into the fourth quarter and next year.

Verizon agreement boosts data-center outlook

Schlesinger highlighted Corning’s recently announced multi-year, multi-billion-dollar agreement with Verizon to support the telecommunications company’s long-haul network buildout for broadband and data-center interconnect applications. Corning has had a supplier relationship with Verizon for 30 years, he said.

The agreement follows previously announced arrangements with Lumen and Zayo. Schlesinger said those deals have led Corning to conclude it will achieve its previously stated goal of generating a $1 billion annual data-center interconnect opportunity sooner than the end of the decade, and that the opportunity could be larger.

Corning’s Springboard plan calls for annualized sales of $20 billion by the end of the current year, $30 billion by the end of 2028 and $40 billion by the end of 2030. While Schlesinger said the company was not increasing its $30 billion or $40 billion targets at the conference, the new customer agreements provide greater confidence in its ability to reach them.

In optical communications, Schlesinger said enterprise and AI data-center demand remains strong, with orders rising and customers signing long-term agreements. Some customers are also providing cash to support capacity expansions and reserve production, he said.

Schlesinger said current growth is being driven primarily by “scale-out” network needs, including larger data centers, additional GPUs and the fiber needed to connect them. Larger cluster sizes can add another layer to networks and increase fiber requirements, he said.

Longer term, Corning sees a larger opportunity from optical technologies used inside servers and switches, as optics potentially replace copper connections. The company is planning for a $10 billion business by the end of the decade selling into near-packaged optics and co-packaged optics applications, despite having no sales in those areas today, according to Schlesinger.

He said the pace of adoption for those technologies will be a key variable in determining whether Corning can close the gap between its higher-confidence projections and its internal planning assumptions. The company expects to begin seeing some sales next year and anticipates scale-up networking demand to become more meaningful around late next year through 2028 and beyond.

Capacity expansion tied to customer commitments

Corning has been expanding cable and connectivity capacity for several quarters and is also increasing fiber capacity in the United States. Schlesinger said the company is not fiber-constrained today but expects that it could become constrained, prompting its investment plans.

The company’s fiber capacity expansion is connected to customer agreements, he said. Corning plans to use much of the fiber it produces in its own connectivity solutions, differentiating its model from competitors that may produce only fiber or buy fiber from external suppliers.

Schlesinger said Corning is significantly expanding connectivity capacity because it expects demand for scale-up optical networking to be a major growth driver. He also identified the buildout of a supply chain for co-packaged optics as an area investors should watch, saying the required scale does not currently exist.

To manage risk from potentially uneven data-center construction schedules, Corning is using long-term agreements that can include customer deposits, technology-sharing arrangements and phased capacity additions. These structures provide more certainty around investment and allow Corning to align production with customers’ technology roadmaps, Schlesinger said.

Mixed end markets, with solar improving

Outside optical communications, Schlesinger said solar market conditions are improving amid strong demand for solar energy and regulatory developments, including a Section 232 ruling that he said supports pricing in the sector. Corning is expanding wafer and module capacity while optimizing its polysilicon operations.

Corning expects solar profitability to improve as production volume increases and the company reduces the cost drag associated with building manufacturing infrastructure. Schlesinger said the solar business should reach its expected profitability level by the end of 2027 and be at or above the company’s corporate average.

In Glass Innovations, Corning said the display television market remains solid, with panel makers operating at relatively high utilization rates and screen sizes continuing to increase. Handheld consumer-electronics markets are expected to decline year over year because of memory prices and shortages, but Corning expects to outperform the underlying market by increasing the dollar content it sells per device.

Automotive conditions remain muted, though Schlesinger said Corning expects to outperform that market through increased emissions-control and glass content. Advanced optics serving semiconductor applications is also a relatively strong market and is expected to grow over the next several years, he said.

Margins and cash flow remain priorities

Schlesinger said Corning reached its 20% operating-margin target earlier than expected, helped by fuller capacity utilization, product innovation and a shift toward higher-value products. The company has not established a new formal profitability target but expects operating margins to remain above 20% and earnings per share to grow faster than sales.

He also said Corning is targeting return on invested capital in the upper teens and sees the potential to reach 20%. Free cash flow is expected to grow year over year, though customer deposits and capital-spending schedules may cause quarterly variability.

“If we can grow in the high teens and have an ROIC at that level, it is a huge value creation opportunity,” Schlesinger said.

About Corning (NYSE:GLW)

Corning Incorporated NYSE: GLW is a global materials science and technology company that develops specialty glass, ceramics and optical fiber products. Founded in 1851 and headquartered in Corning, New York, the company combines expertise in glass science, ceramics science, optical physics and manufacturing to serve communications, consumer electronics, automotive, life sciences and other industrial markets.

Corning's products include optical fiber, cable and hardware used in telecommunications networks; cover glass and other components for mobile devices, laptops and other electronics; display glass for televisions and computer monitors; emissions-control products for automobiles and trucks; laboratory vessels and equipment; and specialty glass and ceramic products for industrial, semiconductor and aerospace applications.

The company serves customers worldwide through manufacturing, research and commercial operations across North America, Europe and Asia.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.