Corning’s results for the fourth quarter and full year 2023 showed sales “well below” its long-term trends, CEO Wendell Weeks told investors during earnings this week.
Wendell echoed his third-quarter warning that demand in most of the company’s markets has been temporarily depressed as the optical equipment supply chain corrects.
In the fourth quarter of 2023 Corning saw a slight rise in fiber shipments, but they still remained more than 30% below expectations. Throughout the year, Corning’s customers worked through extra inventory, deploying at a higher rate than they were purchasing – a period of digestion that affected the broader optical market in North America.
Following a COVID-driven supply chain crisis that caused a run for optical equipment through 2021 and 2022, supply improved throughout the past year, resulting in a slowdown for many optical component and optical system vendors, Dell’Oro analyst Jimmy Yu explained.
Yu said lead times for finished product also shrank back to normal timelines. “So, rather than waiting 12 to 14 months for goods, the time between ordering and delivery has returned to normal—less than 6 months,” he told Fierce Telecom.
As excess inventory is worked down, Corning expects increased deployments in 2024, with Wendell telling investors its markets should “begin to normalize in the midterm.” And Yu’s estimates aren’t far off. He said that inventory correction will take at least three quarters to work itself out, somewhere in mid-2024.
Wendell claimed Corning could boost sales by over $3 billion as carriers deplete their inventory and execute on broadband deployment plans. That opportunity is expected to expand in 2024 with an incoming surge of funding for network builds in underserved areas that will continue adding to the company’s addressable market for “several years.”
Additionally, Corning plans to expand hyperscale sales to meet the growing demand for cloud computing and the need for a second optical network connecting GPUs for artificial intelligence.
“As we capture that growth, we expect to deliver powerful incrementals because we already have the required production capacity and technical capabilities in place,” Wendell said. As the specific timing of a recovery is unpredictable, Corning told investors the first quarter will likely be its low quarter of the year.
Corning’s full year sales were $13.6 billion, down 8%, reflecting its markets being below long-term trends. Despite the lower sales, the company improved profitability and cash flow by restoring “productivity ratios back to historical levels and offsetting inflation by raising prices,” CFO Edward Schlesinger said during earnings.
As a result, in Q4 2023 Corning expanded gross margin (the portion of revenue left over after direct costs are subtracted) by 330 basis points when compared to the fourth quarter of 2022, despite sales being down by more than $350 million. The equipment provider also grew free cash flow sequentially every quarter from first quarter levels.
Q4 core sales of $3.3 billion dropped 10% year on year. In Corning's Optical Communications segment, sales for the fourth quarter were $903 million, down 2% sequentially. Net income for the segment was $88 million, down 3% sequentially.
Looking ahead, Corning expects sales in the first quarter of 2024 to land around $3.1 billion. Schlesinger said the expectation is to do better in the later quarters of this year as carriers complete inventory drawdowns and increase deployments.