Corning (GLW.US) Q3 conference call: AI demand is not slowing down, and vertical expansion of optics can be expected to accelerate in 2028

The Zhitong Finance App learned that Corning (GLW.US) announced the results for the third quarter of 2026 before the US stock market on October 27, and then held a conference call. Core sales for the quarter were US$5.81 billion, up 19% year on year, higher than market expectations of about US$5.02 billion. The company said this was the strongest growth rate since the launch of the “20-30-40” Springboard growth plan; core earnings per share were 0.91 US dollars, up 36% year on year, and higher than the expected 0.89 US dollars. Under GAAP, net sales of $4.855 billion and diluted earnings per share of $0.78 were up 18% and 56%, respectively.

Management said in a conference call that optical communication is still the main engine of growth, with revenue up 44% year over year, corporate business growth of 84%, and sales of generative AI products more than doubled. The annualized revenue of the enterprise business has increased from $1.4 billion when Corning's multi-year growth plan Springboard launched to $6 billion. The company reiterated that optical scale-up (vertical expansion) will accelerate in 2028, when the number of fibers per GPU is expected to increase from 16 to 160, bringing ten times the demand space; operators have signed long-term agreements with Zayo, Verizon, and AT&T, and DCI opportunities will exceed the previous target of 1 billion US dollars. The company maintained the goal of doubling revenue to 40 billion US dollars by the end of 2030 and smoothed production capacity investment cash flow through a customer prepayment mechanism. The first nine months had already generated free cash flow of 2.3 billion US dollars; although the solar energy business was still losing money, the Section 232 trade ruling improved the pricing environment and is expected to gradually improve in 2027. Management said AI demand has not slowed down, customers continue to demand more, faster, and broader products, and are highly confident that the optical scale-up will accelerate in 2028.

Here are the details of the Corning conference call.

I. CEO Wendell Weeks's speech

Corning performed well in the third quarter. Revenue increased 19% year over year to US$5.1 billion, and earnings per share grew faster, rising 36% year over year to $0.91, all exceeding guidance. Gross margin increased 150 basis points to 40.5%, operating margin increased 310 basis points to 22.7%, and return on invested capital (ROIC) increased 330 basis points to 16.7%. While investing more than $500 million in production capacity to support future growth, the company still achieved free cash flow of $661 million.

Fourth quarter outlook: Revenue is expected to increase 19% year over year to 5.2 billion to 5.3 billion US dollars, and earnings per share will increase by about 36% year over year to 0.96 to 1.00 US dollars.

Springboard plan progress: In May of this year, the company upgraded and extended the Springboard plan. The goal is to increase the annualized operating rate to 20 billion US dollars by the end of 2026, 30 billion US dollars by the end of 2028, and 40 billion US dollars by the end of 2030. The company plans to increase the compound annual growth rate to 19% from 2027 to 2030, 400 basis points faster than Springboard's 15% compound growth rate in the previous three years. Revenue for the third quarter has reached 5.1 billion US dollars, with an annualized operating rate of 20.3 billion US dollars; based on the median value of 5.25 billion US dollars in the fourth quarter guidelines, the annualized operating rate will reach 21 billion US dollars. This means that after just one quarter of the upgrade plan, the company has surpassed the target operating rate of 20 billion US dollars at the end of 2026 and has shown the accelerated growth expected in the next phase.

Today marks the 3rd anniversary of the Springboard Program. In the first three years (to the fourth quarter of 2026), the company's revenue will increase by 60%, earnings per share will increase by more than 150%, ROIC will nearly double, and free cash flow will more than double throughout the year.

Looking ahead to the next phase, the company plans to double revenue from $20 billion to $40 billion. Earnings per share will grow significantly faster than revenue, ROIC will continue to increase, while maintaining strong free cash flow while continuing to invest to seize growth opportunities.

Customer relationships and risk sharing: The company has established long-term agreements with key customers. These relationships have two common characteristics: one is to focus on technology and joint innovation, share technology and development plans; the other is to seek reasonable sharing of risks and rewards. The customer is responsible for determining the quantity of products required, and the company is responsible for providing products that meet performance standards on time and completing the production capacity climb. The company uses a variety of mechanisms to balance the parties' obligations. One successful tool is for the customer to fund production capacity in advance, and the company then returns the cash when the customer buys the promised amount. The mechanism has been successfully used in the glass and solar energy business, and is now being applied to the optical communication business.

Financial performance: In the first phase of Springboard, the company's free cash flow more than tripled throughout the year, while investing heavily in new production capacity. Entering a new phase of accelerated growth, the company sought to continue to increase free cash flow and improve its financial structure while investing to double the size of the company.

II. Statement by Chief Financial Officer Edward Schlesinger

Overall results for the third quarter: Revenue increased 19% year over year to US$5.1 billion, and earnings per share increased 36% to US$0.91, all above the guidance range. Gross margin increased 150 basis points to 40.5%, operating margin increased 310 basis points to 22.7%, ROIC increased 330 basis points to 16.7%, and free cash flow of US$661 million.

Optical Communications: Revenue of US$2.4 billion, up 44% year on year; net profit of US$532 million, up 80% year on year, once again setting a profit record for this sector. The company's business revenue increased 84% year over year. Among them, sales of generative AI products increased by more than 100% year on year, which was significantly faster than the increase in GPU shipments, mainly due to the rapid widespread adoption of the company's innovation and continuous expansion of production capacity. When Springboard launched, the company's annual business revenue was 1.4 billion US dollars, and now it has quadrupled to an operating rate of 6 billion US dollars. Currently, growth is mainly driven by scale-out. As optical communication penetrates into the scale-up portion of the network, revenue opportunities will increase dramatically. Carrier business revenue increased 4% year over year, mainly driven by data center interconnection (DCI) growth. This quarter, the company announced long-term customer agreements with Zayo, Verizon, and AT&T to provide fiber and connectivity solutions for its broadband and data center internet expansion. These agreements prove long-term opportunities in the operator sector and give the company confidence that DCI opportunities will surpass the previous $1 billion target.

Glass innovation: In the terminal market, which is significantly affected by memory prices, the company achieved superior market performance with the “More Corning” strategy. In the third quarter, TV sales fell 4%, and notebooks and handheld devices fell by about 20%. The sector's revenue was 1.5 billion US dollars, down 3% year on year (decrease of 54 million US dollars); net profit was 328 million US dollars, down 10% year on year. The company continues to promote nearly 20 years of cooperation with Apple. By the end of 2026, all cover glass for iPhones (including iPhone Duo) and Apple Watch sold globally will be manufactured at the Harrodsburg, Kentucky plant. Furthermore, the company recently announced a price adjustment for display glass substrates, which will take effect in the fourth quarter to cope with the weakening yen and rising costs of key materials and energy. The automobile business revenue increased 4% year on year, and the recovery in the North American Class 8 truck market offset the impact of the 3% decline in the light vehicle market; net profit was 67 million US dollars, down 1% year on year.

Solar Energy: Third-quarter revenue of US$436 million, up US$117 million year on year, an increase of 37%; the sector's net loss was US$7 million. The company continues to increase production at its wafer and component plants, but at a slower pace than expected. As productivity improves, production and profitability will increase. Demand remains strong, and the market's preference for US-made solar products continues to grow. Recent US trade actions under section 232 of the Trade Expansion Act of 1962 have improved the overall pricing environment and demand for Corning solar products. The company is steadily advancing the establishment of a solar business with revenue of more than 3 billion US dollars, and its profitability is higher than the company average.

Life science and emerging growth business: Revenue increased 1% year over year, life science business outperformed the terminal market; net profit decreased by 13 million US dollars year over year, mainly due to investment in emerging growth projects.

Fourth quarter outlook: Revenue is expected to increase 19% year over year to 5.2 billion to 5.3 billion US dollars, and earnings per share will increase by about 36% year over year to 0.96 to 1.00 US dollars.

Capital allocation and cash flow: The company plans to double its size from $20 billion to $40 billion by the end of 2030. Historically, companies were required to invest capital before revenue and free cash flow were realized, followed by high returns and strong free cash flow. The company is continuously improving this model by properly sharing investment risks and responsibilities with customers. The customer advance payment mechanism is reflected in the operating cash flow as a “customer deposit” account. The amount for the first nine months of this year was US$639 million, including the net advance payments received from customers during the period (after deducting previous deposits refunded due to customer purchase commitments). The mechanism smooths out the cash impact of increased production capacity at the macro level, first providing funding for upfront investments and then returning customer deposits through operating cash flow generated by profitable delivery commitments.

In the first nine months of this year, the company generated $2.3 billion in free cash flow while steadily investing $1.3 billion in capital expenditure to increase production capacity. The planned capital expenditure for 2026 is approximately US$2 billion, mainly to support the growth of optical communications. The company plans to keep this flywheel running in the new phase, continuing to increase free cash flow and improve its financial structure while doubling the size of the investment.

In terms of capital allocation, the company prioritizes investing in organic growth opportunities that provide significant returns while maintaining a strong and efficient balance sheet. The company's debt maturity is among the highest in the S&P 500 constituent stocks. Currently, the average debt period exceeds 20 years, and no major debt matures in any year. The company is expected to continue to maintain a good record of returning excess cash to shareholders. With strong dividends already in place, the main way to return cash in the future will be share buybacks.

Key Takeaways: The Springboard program has been hugely successful to date, achieving significant growth and significant improvements to the financial structure, while building strong capabilities, manufacturing platforms, and a deep customer relationship foundation. The third quarter results and fourth quarter outlook have shown Springboard's momentum in the next phase. The company expects revenue to double from $20 billion to $40 billion by the end of 2030. Earnings per share will grow significantly faster than revenue, the financial structure will be further improved, and free cash flow will continue to grow throughout the planning cycle, even with continued investment.

III. Q&A session

UBS — Josh Spector: What is the pace of optical communications profit margins? The incremental profit margin before tax is still above 40%. Are you confident in setting the target?

Edward Schlesinger: The net profit margin of optical communications has been raised from 10 to 20 years lower. There is still room for further improvement, and it has significantly pushed the company's operating profit margin to as low as 20. The company will continue to increase optical communication production capacity, while the solar energy business is still dragging down profit margins. No new targets are currently being proposed, but it should be expected that the company will continue to maintain current levels and gradually improve as it grows.

Josh Spector: The year-on-year reduction in company expenses was an important reason why the third quarter met expectations. Did it involve cost sharing between the company and divisions? What are the scenarios for season four?

Edward Schlesinger: No special changes. Variable compensation expenses in the second and third quarters were slightly higher than normal. They have leveled off in the third quarter, are not expected to accelerate in the fourth quarter, and reset after entering the next year. Operating expenses will grow more slowly than revenue, which is the company's leverage point.

Citi — Asiya Merchant: The market is concerned about the continued demand for generative AI, including restrictions on financing. How does the company view these constraints and incorporate them into Springboard?

Wendell Weeks: Anthropic's recently submitted S-1 document shows three points: strong growth; the implied profitability of inference tokens appears very impressive; its primary and continuing constraint is computing power, and Corning provides network connectivity for computing power. Customers continue to demand more, faster, and a wider range of products. Through multi-year agreements, the company requires major hyperscaler customers to help fund and lock in production capacity to reduce shareholder risk. Currently, there is no reduction in customer requirements; they are all demanding more new products, faster and wider.

Asiya Merchant: Scale-up Opportunities any updates? How will the photonics roadmap be until 2030?

Wendell Weeks: The current demand mainly comes from scale-out, that is, connecting each GPU in the cluster. Currently, the architecture is about 16 fibers per GPU. The scale-up architecture currently uses 100% copper cables; if 100% is converted to optical scaling, the number of fibers per GPU will increase to 160, or tenfold. The company still believes that optical scale-up will begin to accelerate in 2028. This is a classic technology development process. The company is within this ecosystem, and is highly convinced of this.

Morgan Stanley — Meta Marshall: Is there a capacity allocation dispute between operators and corporate businesses? How has solar energy drag been quantified before?

Wendell Weeks: The company started early, production capacity was laid out ahead of schedule, and revenue growth was relatively smooth. The speed and breadth of adoption of the latest high-density products has exceeded expectations. Traditional operator customers also want to use this product in DCI architectures. The same pipeline can accommodate 2 to 4 times more fiber; generative AI is also driving demand for high-density products. The tight production capacity is mainly due to customers wanting the latest products, and the company is still increasing the production of this product on all platforms. In terms of distribution, the company gives priority to customers who have been cooperating for decades; when adding production capacity, they tend to choose customers who are willing to fund production capacity, which will change the revenue distribution ratio.

Edward Schlesinger: The most important thing about solar energy is the Section 232 ruling in the third quarter, which had a positive impact on the pricing environment and demand for American-made solar products, strengthening the company's confidence in establishing a profitable business of more than $3 billion. The company produces polysilicon, wafers, and components in the US. It has bottomed out in the second quarter and remained roughly flat in the third quarter. The profit margin drag is similar to that of the second quarter. It is expected to gradually improve by 2027, and the increase in productivity will drive profits.

JPMorgan — Marc Vitenzon: Revenue growth increased from 17% in the second quarter to 19% in the third quarter. How much came from demand and how much from new production capacity?

Wendell Weeks: Supply and demand are tight, and revenue growth comes from both new capacity and demand. The company already has production capacity plans to support the next phase of increasing the compound growth rate from 15% to 19%. In addition, implementation prices are also rising. New products create value for customers, and the company increases revenue per unit of production capacity by sharing value creation with customers.

Marc Vitenzon: Carrier business has historically grown in the middle single digits. With Verizon and AT&T signing contracts this quarter, plus previous Lumen and Zayo, how will the operator grow in 2027? Are DCI and fiber-to-the-home contributions respectively?

Edward Schlesinger: DCI is a greater opportunity for operators and is expected to drive good growth next year and beyond. The company previously expected DCI to reach 1 billion US dollars in business by the end of this decade, which will clearly advance and exceed this target. No new targets have been set, and will be updated later. Fiber-to-the-home will also continue to be the driving force for growth. Large operators will push ahead with deployment, and the company is well positioned.

BofA — Wamsi Mohan: How much of the $2 billion capital expenditure in 2026 will be funded by clients? How will the ratio change in 2027 and beyond? How much impact will customer deposit rebates have on 2027 and 2028 free cash flow?

Edward Schlesinger: Not all capital is optical communications or growth related; some is maintenance capital. After excluding maintenance capital, most of the capital is funded by signed long-term agreements. In the long run, it will tend to balance, and may not be fully matched in a single quarter. Companies usually receive cash before capital is expended. In terms of cash flow, the company aims to continuously increase free cash flow with growth and investment throughout the planning cycle, as reflected in 2026. Even if customer deposits are returned, the company still expects good growth in free cash flow, as sales commitments will generate good profits and cash, some of which will be returned through incremental operating cash flow. This mechanism smooths cash flow, reduces volatility, and drives free cash flow growth as sales increase.

Wamsi Mohan: How much has the price of display glass increased? How much did the fourth quarter reflect? Does it completely offset the weakening yen? Can the fourth quarter return to normal?

Edward Schlesinger: The price increase is being implemented and will take effect in the fourth quarter, but the impact of the fourth quarter is not expected to be significant, mainly for 2027 and beyond. The yen continues to weaken, and some investment costs have risen. The company lowered the yen assumption in the long-term plan to 150 in May and continued hedging, hoping for better hedging performance. This is the reason for the price increase. Specific increases will not be disclosed; please refer to previous adjustments.

Wolfe Research — George Notter: How is fiber in China impacting business? Are you seeing China's optical fiber enter the market?

Wendell Weeks: China's optical fiber market exposure continues to decline, in part because more and more optical fibers are used in highly integrated complex connectivity products. After integration, transportation costs and tariff costs are higher, and it is no longer as simple as transporting optical fiber discs. The company has always competed with Chinese manufacturers in China, and has long relied on the world's position as the highest quality, lowest cost, and largest producer, and continues to expand its advantages. We are currently not seeing significant competitive pressure, but we are always preparing for the moment that may arise.

Truist — Matthew Niknam: How was fourth-quarter revenue of $5.2 billion to $5.3 billion distributed across segments? What are the relative changes compared to the third quarter? Also, the company submitted an ATM equity plan of 2 billion US dollars a few months ago. There is 2.5 billion US dollars in cash on the account and the cash flow has increased. What is the reason for setting up an ATM? Under what circumstances would a debt or customer advance be used instead of a debt?

Edward Schlesinger: Optical communications will be very strong in the fourth quarter, contributing most of the year-on-year increase; the AI data center portion of the enterprise business grew 100%, and demand is very strong. Solar energy will also continue to drive growth. As production capacity is put into operation and productivity improves, it will begin to affect profits, but at a slow and steady pace. The overall dynamics are similar to those of the third quarter. On the ATM side, the company has already registered a debt shelf. This is similar to an equity shelf registration. It is a regular arrangement. Currently, there is no intention to use it; it is just a tool when needed in the future. The company attaches importance to a strong balance sheet and invests in innovation over a long period of time. Currently, it is growing rapidly, increasing production capacity, and has many technical opportunities. It hopes to ensure that it can continue to invest through the cycle regardless of the external environment, so it continues to improve its balance sheet. ATM is just a regular tool on the shelf.

Oppenheimer — Martin Yang: How profitable is solar energy in the medium term? The company's operating profit margin continues to rise. Is the goal of solar energy reaching the company average by the end of 2027 still effective? Is it catching up with the mobile target or reaching the previous company average?

Edward Schlesinger: Solar energy is currently below the company's operating profit margin, causing a drag. As productivity improves, profitability will increase at a slow and steady pace. Section 232 rulings are beneficial to the pricing environment and have a positive impact on profit margins. It should be viewed as continuing to help increase the company's average profit margin as it improves. A solar profit margin of more than 20% would significantly improve the company's overall average. The average profit margin of a company may increase faster than the speed at which solar energy reaches the final profit level. This is a “happy worry.”

Mizuho — John Roberts: Starlink is often seen as a competitive threat, but after it expands to terrestrial networks and data centers, is it even more important to become “friend and foe”?

Wendell Weeks: The company is optimistic about low-orbit satellites (LEO). First, the company has related product content; second, LEO can connect sparsely populated areas and network blind spots, and shared architectures can increase bandwidth; as it enters more data centers, it will become an important driving force for the company's products. A data landing network must rely on optical fiber. Overall, I am very positive about LEO. I think it is an important part of the ecosystem, and the company loves customers.

John Roberts: The yen hedging ratio has been reduced from 98% to 94%, are there any plans to reduce it by about 4% every quarter?

Edward Schlesinger: There is no such plan. The company did its best to hedge most of its exposure each quarter, with the ratio fluctuating slightly from quarter to quarter, with the goal of hedging as fully as possible.