Corning saw its Optical Communications unit revenues dip in the fourth quarter of 2023 due to what many industry pundits call inventory digestion. Still, the company is betting that its service provider customers will start spending again on fiber and other related materials.
In Optical Communications, Corning’s fourth-quarter sales were $903 million, down 2% sequentially, which the company said reflects temporarily lower demand from carrier customers as they continue to draw down inventory. Net income for the quarter was $88 million, down 3% sequentially on the lower volume.
Despite the near-term challenges, Wendell Weeks, CEO and chairman of Corning, told investors during its fourth-quarter earnings call that upcoming broadband rollouts could have a positive impact for the company as we advance.
“We anticipate Optical Communications sales will spring back because we believe and our carrier customers have confirmed that they purchased excess inventory during the pandemic and that they've been utilizing this inventory to continue deploying their networks,” he said. “We believe these carriers will soon deplete their inventory and execute on the increased broadband deployment plans they've communicated to us over the last several months.”
Navigating carrier inventory correction
As Corning’s Optical Communications division talks to service provider customers, they are finding that they are likely to ramp up new fiber and connector purchases.
During the fourth quarter, Corning saw what it said was a slight uptick in fiber shipments, but they remain more than 30% below trend line. This is due to what Weeks said is “elevated carrier inventory levels.”
“Our regular sit-downs with key customers indicate that they are deploying at a higher rate than they are purchasing as they continue to make progress on drawing down inventory and they have plans to increase deployments in 2024,” he said.
Additionally, Corning is upbeat about the Broadband Equity, Access, and Deployment (BEAD) Program projects that various large and small service providers will conduct. BEAD provides $42.5 billion to expand high-speed internet access by funding planning, infrastructure deployment and adoption programs in all 50 states, Washington D.C., Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.
It is anticipated that more BEAD projects, which will focus on serving areas that have had limited broadband access options, will continue to ramp up this year. “We expect speed funding for network builds in underserved areas to begin in the second half of 2024 and continue adding to our addressable market for several years,” Weeks said.
Hyperscale opportunities ahead
Besides the BEAD funding opportunities, Corning is anticipating potential growth in the hyperscale data center space.
Fiber cabling offers several advantages to data centers by enabling significantly faster data transmission than traditional copper cabling. Since hyperscaler data centers host large amounts of content, a new fiber system could carry 800 Gbps.
Weeks said they are seeing encouraging signs in hyperscale. “We expect to grow hyperscale sales in support of the growing role of cloud computing and the need to build the second optical network necessary to connect the GPUs that drive artificial intelligence directly,” he said.
While Corning sees potential in serving hyperscalers deploying AI, it is still in its early stages. “So there's an area where we're starting to get nice confirmatory to our anecdotal understanding of what will need to happen with these new generative AI networks,” Weeks said. “And we're seeing sort of the cloud and the beginning, the leading edge of that second optical network that will need to get built to do these generative AI programming.”
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