Corning’s Weeks: 5G could provide revenue momentum for our optical products

Fiber going into a LAN box
Growing wireless backhaul needs as the industry migrates to 5G could be “an extremely significant demand driver" for its optical product, said Corning CEO Wendell Weeks. Image: Corning

Having won a large fiber purchase order with Verizon to enable 5G wireless and business services, Corning foresees an opportunity to further grow its optical communications segment revenue base.

In April, Verizon awarded Corning a $1 billion per year optical solutions purchase agreement that will support the telco’s wireline broadband and future wireless expansion efforts.

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Wendell Weeks, CEO and chairman of Corning, told investors during the second quarter earnings call that the fiber-based wireless backhaul needs of wireless operators migrating to 5G could be “an extremely significant demand driver for our product.”

Wendell Weeks
“If truly 5G as it is defined by the industry becomes the standard way to do wireless connectivity, then we are looking at a very significant secular driver for our product, perhaps one of the more significant that we have seen in our long and storied history in this business,” Weeks said during the earnings call, according to a Seeking Alpha transcript.

However, Weeks said the jury is still out about what technologies all of its largest wireless customers will use to deploy 5G.

“If Verizon's architecture it chose to deploy, is correct, this is a huge opportunity,” Weeks said. “So we'll have to see as our own work progresses, as our deep engagement with other customers progresses, how the architectures will evolve. But there's just no question that it is a positive momentum driver for us.”

Verizon may have been the most vocal about its fiber densification plans, but Weeks said that Corning is having similar discussions with other large service provider customers.

“The Verizon agreement is not unique among the deep conversations we are having around the globe with telecom players," Weeks said. "Whether or not we will announce those or not deals more with our customers' preference.”

FTTH growth remains strong

While it will take time to sort out how Verizon and other large wireless operators will deploy their architectures to accommodate 5G, Corning reported strong optical communications results during the second quarter, with sales rising 13% and core earnings up 26%.

Unsurprisingly, the company said the growth in the optical communications was driven by the North America FTTH market.

Tony Tripeny, CFO of Corning, said during the earnings call that the company expects further boosts in the optical communications segment.

“Throughout this year, we have been saying we expect low-teen sales growth for 2017,” Tripeny said. “In line with this, we expect third quarter sales to be up more than 10%.”

From an overall financial standpoint, Corning’s revenues rose 13% to $2.5 billion on healthy demand in the fiber-to-the-home market.

Project timing is key

While FTTH growth and future 5G backhaul builds are ramping for Corning, the big challenge for Corning and other suppliers is the timing of projects.

Once a service provider puts together a deployment schedule and plan for a new network, other factors such as getting local permits and access to a city and town’s right of way infrastructure also plays a role.

Corning forecast that optical sales could be up more than 10% on a year-over-year basis in the third quarter.

Tripeny said that while the company is confident that optical revenues will rise during the rest of 2017, it is hard to accurately know when a customer is going to start a fiber build.

“Given the strong momentum in the first half, optical sales have the potential to be up mid-teens for the full year like many sell-side analysts are modeling,” Tripeny said. “We are always cautious about our guidance to you because sales are driven by large civil works projects that are subject to delays that can lead to quarterly volatility.”

Regardless of the near-term uncertainty over project timing, Tripeny emphasized that ongoing FTTH builds puts Corning “on track to achieve our goal for optical communications of $5 billion in annual sales by 2020.”