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Optical 'Demand Signals' Strong

Corning’s Q2 Display-Glass Decline ‘in Line’ With Lower Panel Utilization

Corning’s panel maker customers “accelerated” their capacity utilization reductions in Q2, with the “sharpest reduction” taking place in June, when utilization levels plunged "to their lowest levels since the first quarter of 2009 when we were at the height of the financial crisis," said Corning CEO Wendell Weeks on a quarterly earnings call Tuesday. That resulted in a 6% year-over-year Q2 sales decline in Corning’s display-glass business to $878 million, while net profit in the sector was $228 million, down 8% from the same 2021 quarter.

Corning’s Q2 display glass sales volume declined “in line” with panel makers’ lower utilization rates, said Weeks. “We expect June’s low production level to continue throughout the entire third quarter, and our volume to again decline in line with the market,” he said. “We expect our second-half volume to be lower than in the first half.” Weeks in Q&A said Corning expects its glass volume in Q3 alone will be down by 15% sequentially from Q2.

Panel makers have been reducing their utilization rates “for the last few quarters,” said Chief Financial Officer Ed Schlesinger. “In June, we saw a significant decline in panel-maker production, versus April and May,” he said. “Importantly, glass pricing was up slightly sequentially,” and that resulted in a 3% Q2 net profit decline sequentially from Q1 in Corning’s glass business, less than half the sequential sales decline in the segment, he said. Corning expects Q3 glass pricing trends to be “consistent” with those in Q2, he said.

Corning now expects TV unit sales at retail will “probably be down this year, given what has happened with the China shutdowns” due to COVID-19, said Weeks. “But they could be flat,” he said. “It’s just too early to talk about next year.” The degree to which panel makers are reducing their utilization levels represents “a pretty significant correction that we’re working our way through,” he said.

Q2 sales in Corning’s optical communications segment increased 22% year over year to $1.3 billion, while net profit of $182 million was up 23% from the 2021 quarter, said Schlesinger. “We believe we’re in the early phases of a multiyear build cycle across multiple segments in the passive optical market,” he said. “We’re responding to this demand by ramping up production and opening new facilities.”

Corning is hearing from its carrier customers that “their investment in fiber optics is their top strategic priority,” said Weeks. Customers “are actually asking us to commit to supply more, into next year and beyond,” he said. “We’re in the midst of that type of discussion with our customers. It’s a little early to tell exactly where that all will turn out, but we’ll be public as that gets a little bit closer.”

All of Corning’s “demand signals” in optical communications “continue to be quite robust,” said Weeks. “If we could make more fiber and cable, we could sell more fiber and cable. We’re seeing continued strong demand as we look into next year.”