Corning struck a major coup in the fiber business last week when Verizon revealed it won a $1-billion-a-year optical solutions purchase agreement that will support the telco’s wireline broadband and future wireless expansion efforts.
To fulfill this agreement, Corning plans to expand capacity and to invest more than $250 million in its optical fiber, cable and solutions manufacturing facilities. Corning expects these capacity expansions to begin to come online in 2017 and become fully operational in 2018.
Wendell Weeks, chairman, CEO and president of Corning, told investors that Verizon showed how it can help service providers address their next-generation network vision.
“Our focus and leadership attracts some of the world’s leading companies to collaborate with Corning because they see how our expertise and unique combination of capabilities can help them address some of their toughest challenges,” Weeks said. “Verizon’s announcement is a great example.”
Weeks said that Corning is currently talking to a number of its largest service provider customers about similar transitions.
“We are engaged in deep dialogue with major telecom players across the globe as they anticipate transformations in communications, healthcare, transportation and ultimately the way we all live,” Weeks said. “Corning’s optical communications market access platform is central to realizing their vision because of our ability to economically expand capacity and deliver innovative solutions.”
A new model
Verizon is one of the first service providers to deploy what may be seen as a new model to lay fiber cable to satisfy multiple needs.
The service provider is rolling out a multipurpose network that will satisfy different uses: wireless 5G, business and FTTH broadband. Verizon is also looking various options to either build out new fiber itself or purchase a regional fiber provider that has desirable assets to fulfill its network expansion efforts.
Having already worked with Verizon deploying Fios, as well as its predecessor company GTE and others on deploying FTTH, Corning is in a good position to help the telco.
Weeks said if additional service provider customers adopt a similar architecture it could provide new opportunities for Corning’s Optical Communications business.
“What you saw with this announcement is a statement of their strong belief and technology bet on an architecture to deliver 5G and 4G densification that is largely dependent upon our capabilities,” Weeks said. “If others follow this technology choice, it would be extremely significant for us over time.”
While building out FTTH takes a large amount of resources, Verizon’s new deployment will use a lot more fiber resources.
“If you compare to something like a FTTH build, this particular architecture will utilize about two to six times more fiber than an FTTH build,” Weeks said. “That range comes from what exact coverage you want and how neighborhoods are laid out.”
FTTH boosts optical revenue
Similar to the fourth quarter, Corning saw that sales of its fiber and related products to North American service providers building out FTTH networks were a key revenue driver in its Optical Communications segment.
First-quarter sales in optical communications rose 34% and core earnings more than tripled year over year. The company saw strong growth in the North American FTTH market.
Optical communications sales were $818 million, rising 34% over $609 million in the first quarter of 2016.
“Even if we exclude the effects of the software implementation issue that constrained sales in last year’s first quarter, sales grew mid-teens in both carrier and enterprise,” said Tony Tripeny, SVP and CFO for Corning. “In particular, we benefited from strong growth in the North America FTTH market.”
Corning will see further growth in optical communications, bringing it closer to its broader revenue goals. The vendor has forecast sales are expected to be up about 10% year over year.
“We are well on our way to deliver low teen sales growth for the year,” Tripeny said. “We see spending by key industry leaders, among them Verizon, shifting more towards optical solutions.”
Tripeny added that “this is an important lever for us to realize our own goal of growing optical communications from $3 billion to $5 billion by 2020.”
Overall, Corning’s first-quarter revenues were $2.4 billion, up 16% from $2.5 billion in the same quarter a year ago.