Corning, Nokia Q1 earnings show strong demand, constrained supply still an issue

The optical communications market continues to be one in which demand and order growth continue to be robust, but ongoing supply chain challenges are keeping technology vendors in the space from making the most of the obvious opportunity.

Earnings reports this week from Corning and Nokia suggested as much. Specifically, Corning continues to see strong growth in its optical communications segment, its biggest market. Ed Schlesinger, EVP and CFO at Corning said during the company’s first quarter 2022 earnings call this week that optical sales grew 28% year over year, reaching $1.2 billion in the quarter, largely reflecting increased capital spending by network operators but also the effects of Corning’s strategy to pass price inflation occurring throughout the supply chain onto its customers. 

Corning’s net income in optical was up 50% year over year and 7% sequentially to $166 million. “Corning continues to outpace the passive optical market and capture growth which is driven by increased spending on 5G and broadband projects, along with the accelerated pace of data center builds as applications rapidly move to the cloud,” Schlesinger said on the call, according to the Motley Fool earnings transcript. “Looking ahead, we continue to see strong demand for our optical communication solutions. We believe the industry is at the beginning of a large multiyear wave of growth for passive optical networks.”

Yet, Corning’s own capacity to meet demand continues to be challenged, keeping lead times for fiber longer than usual, Corning officials said. The company is trying to answer the need by opening new manufacturing sites, such as one in Poland opening this year that Corning said will ease supply constraints in North America and elsewhere, as well as adding jobs and capacity to existing sites.

“If we could make more, we could sell more,” Weeks said, repeating a line he has used on previous earnings calls when asked about manufacturing constraints. In addition to building out new sites as in Poland, “we're working with our customers to see if they're willing to make the appropriate level of commitments to be able to make us feel comfortable that we would add additional capacity. Those discussions have not been completed as of yet. So what we are doing is we're focusing on ramping the already announced expansions, and we're trying to accelerate those as much as we can.”

Nokia

Nokia’s first quarter 2022 earnings report found it much in the same boat as Corning regarding optical – strong demand, but order backlogs resulting from supply challenges. Nokia CEO and President Pekka Lundmark said on the company’s earnings call Thursday that Nokia’s network infrastructure group had a “fantastic quarter,” with a 9% overall year-over-year increase in revenue, driven largely by a 29% growth in fixed networks and 25% sales growth in submarine networks. Even the IP networks segment of the group was up 3% in the quarter, but optical communications was down 13% compared to the same period last year.

“There was one business inside NI [network infrastructure] with a weak top line, and that was the optical business, and that was exactly the business that was hit by some critical supply chain challenges... We have good product competitiveness, strong order books, so we expect to recover also in this business later in the year.”

But Lundmark suggested that, like Corning, price increases may become a more prominent ingredient in revenue growth as it also passes inflated costs on to the customer.

Responding to an analyst question, Lundmark explained, “We all know there's strong inflationary pressure in the world at the moment,” and that it is becoming a larger factor in Nokia’s pricing, along with the competition Nokia is facing to land particular customer deals. 

He added, “Every single deal is usually a separate price negotiated, and I can assure you that in all new deals that we are making, we are putting in all the input cost increases that we have seen. Of course, I believe the whole industry has some interest and intention to pass on as much of the input cost increases on the customer price as possible.”