Conference Transcript - GLW 2026-03-03

Mita Marshall, Analyst — Morgan Stanley

All right. While we all get situated, I will read the disclosures, the really boring stuff. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com slash research disclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I'm Mita Marshall. For those who don't know me, I cover networking here at Morgan Stanley. We're delighted to have Corning here with us today, Ed Schlesinger, CFO EVP. Ed, I'm going to kick off with you to kind of give some of your own forward-looking statements and other context.

Edward Schlesinger, CFO

Thanks, Mita. Great to be here. Thanks for hosting us, and thanks for joining us here today. So I just want to make a reminder that I may make forward-looking statements today, and you should review our filings and our website to see potential reasons that actual results may differ materially from the perspectives that I offer. And maybe just a few points of context sort of for the environment we see ourselves in. I think it'll help a little bit with Mita's questions. About two years ago, we rolled out a growth plan we call Springboard. It's been extremely successful. We've actually upgraded the revenue targets in that plan twice. If you go back to the beginning of that plan through the end of last year, we've grown our sales about 40%, earnings more than twice that rate, almost 90%. We've improved our operating margin about four points from about 16% to 20%. And we improved our ROIC into the mid-teens. And we think of that as a financial profile that we really like, and we want to be able to grow our business from that profile. And just recently, we upgraded our sales outlook for the next three years, 26, 27, 28. We had originally expected to add about $8 billion of sales run rate from the beginning of our springboard plan through 2028. That would get us to around a $21 billion company. We upgraded that by $3 billion to $11 billion, kind of gets you to about a $24 billion company. We're starting to get close to being able to double the size of the company over a five-year period of time. A lot of drivers of that, I'm sure we'll talk about that with Mita today. Additionally, when we rolled out Springboard, we had talked about having capacity and technical capabilities in place to being able to support a significant amount more of growth. And in some of our businesses, we still have capacity and we expect to fill that over time as we continue to grow. But in other places, we'll have to invest. Optical Communications is a place we are investing today, and we will continue to invest to capture growth. That'll be our primary vector for capital allocation. And with that new financial profile, we expect our free cash flow to go up significantly, and we continue to expect to invest to grow organically. And maybe just one last comment. I think those of you who know us well know this. Maybe some of you who are new to us don't, But this is our 175th anniversary as a company. You don't hear that too often. Companies in their existing form don't typically exist that long. And we think the reason we're able to do that, and we seek another 175 years, by the way, is because we take a long-term view. We look to innovate and invest into secular trends where we believe our capabilities and skills, optics, glass, et cetera, really matter. We have other areas we're looking at today beyond optical communication, so we expect to continue to be able to do that. So thanks for being here. I'll turn it back to Amita.

Mita Marshall, Analyst — Morgan Stanley

I think I was recently going through my dishes and found an old Corning dish, so definitely a long-lived company. you know we're delighted to have you back here we you guys weren't able to make TMT last year and just a lot has changed for Corning in the past couple of years you know two years ago we were still kind of coming out of that tight telco digestion worrying about the yen just how have you guys been able to position yourself to take kind of this outsized portion of the AI opportunity you know both in kind of today's markets but kind of as these markets start developing

Edward Schlesinger, CFO

Yeah, thank you. So we invented low-loss optical fiber, commercialized it over 50 years ago. We've been in this space for a really long time. We look to capture the next technology nodes as we see them. And so in the data center, we saw the need for denser connectivity applications. We've been working on those applications, you know, five, six years ago. we started doing that, getting ready for this inflection up in the data center space. We commercialized new fibers, smaller fibers, cables, and connectors. About the middle of 2024, we introduced those products into the market, and that's actually been extremely successful for us. I would say that the market itself has exceeded our expectations and our ability to sell into that market and when business has exceeded our expectations. So I think it's this long-term view and really being close with our customers that's been able to do that.

Mita Marshall, Analyst — Morgan Stanley

Got it. You know, ahead of earnings or the day before earnings, you announced kind of this long-term agreement with Meta, significantly increasing the amount of fiber you sell to this customer. You know, we are seeing kind of a wide variety of approaches being taken in terms of pricing and tightness. you know, why have you favored maybe these long-term agreements versus maybe just kind

Edward Schlesinger, CFO

of optimizing pricing today? Yeah, we really value longstanding customer relationships. I think it helps us to continue to innovate in a space. We do that in optical communications, but we do that in a lot of our other markets in display. We do that. We do that in Gorilla. We're doing that in solar. We want to understand what our customers want and how we can help them. And that actually adds a lot of value relative to sort of a short-term pricing opportunity. So a long-term contract also does something that's very important for us because we make things, we have to put capital in the ground to be able to supply. We want to make sure we get a really compelling return on that capital. Think of a greater than 20% ROIC on new capital that we put in the ground, and we want to be able to do that for a sustainable period of time. So having customers co-invest with us, having them sign up for revenue commitments of some sort, de-risks that investment that we make over time. And of course, price is very important and we use price in the environment we're in as a way to ensure we have the right return on those investments. Okay, got it. You

Mita Marshall, Analyst — Morgan Stanley

noted on earnings that there were other LTAs that you were working on. Just where are we on this? When should we expect to have a better sense? You know, do any of them start to include scale up or kind of, you know, moving past into new markets?

Edward Schlesinger, CFO

Yeah, maybe starting with the first part, we continue to work on a number of long term agreements. We will defer to our customers in terms of how public we'll be with respect to those agreements. but I'm highly confident that we will have a lot of other arrangements that are similar to the meta arrangement in this space. You know, maybe on the second part of your question, you know, you actually wrote a report. I thought it was a really good report. For those that haven't seen it, it came out last week. It sort of lays out the optical communication space, and I think terminology is important. So what we're primarily seeing, you know, demand for is in scale out, sort of more traditional data center architecture, but a lot larger clusters and a lot more capacity, and that's driving the need for more connectivity. We are starting to also see scale across. I don't think we're going to see scale up, you know, probably for a couple years. I mean, our view is it sort of inflects up in 28 maybe, and then it sort of continues to grow through the end of the decade. But you mentioned CPO, And I think CPO is actually going to be in scale out and scale up. And I think there's an opportunity to start to see some scale out CPO connectivity happen maybe next year, maybe a little earlier than 2028. What we're primarily signing up contracts for is the scale out part of the network. But we are actually talking to a lot of folks about CPO in particular, which may mean new innovations for us and different kinds of relationships in the ecosystem.

Mita Marshall, Analyst — Morgan Stanley

Just how are the kind of needs of that scale-up opportunity different? And, you know, how can you guys continue to differentiate just like you've done on the scale-out opportunity?

Edward Schlesinger, CFO

Yeah, so for scale-up or even for CPO in scale-out, you're actually connecting different parts of the network, so you're going to need new types of connectors. They may need to be even more dense than the connectors that exist today. There's going to be other components that are going to go closer to the chip set that will be optical. So it allows us to continue to expand into the supply chain. And I think in a lot of cases, and I would say probably scale up CPO, there's still a lot of work happening around what that architecture will actually look like.

Mita Marshall, Analyst — Morgan Stanley

Okay. Got it. And then, I mean, just a question. You clearly have a lot of demand right now. So just how are you prioritizing hyperscalers, neoclouds, just judging kind of what customer set kind of gets that prioritization?

Edward Schlesinger, CFO

Yeah. I mean, all customers are important. We like to have these long-term relationships with important customers in a particular industry. Again, we do it in optical and in other places. So I think it is more likely that you'll see long-term arrangements like the meta deal with a hyperscaler or someone else in the supply chain, but of that scale versus, say, a neocloud. That said, we're certainly selling to neoclouds and, you know, helping them build out their networks.

Mita Marshall, Analyst — Morgan Stanley

Maybe last question there and just a different question that we get from investors. You know, there's been a lot of attention right now to kind of this, like, spot market for fiber in Asia. and just kind of how do you guys think about kind of that long-term agreements versus kind of some of the spot pricing that we've seen even more elevated as of late? Yeah, I think we're

Edward Schlesinger, CFO

advantaged in that we're the world's largest fiber cable connectivity maker. So we actually have our own fiber supply. We control that. That puts us at an advantage. And again, we innovate a lot. So that others follow on with versus are leading with. And I think for capacity in general, we're adding connectivity capacity and cable capacity. We've been talking about that. We started doing that in the back half, and we'll continue to do that as we go into 2026 and so on. As we look to make bigger investments, potentially fiber and other bigger cable investments, We'll ensure that we have a high confidence on the return in that investment. Either someone's co-investing with us or, you know, they're committing to take the revenue or even better, both of those aspects. I think it's highly likely we'll make those decisions in the near term. We may or may not talk about them in detail. It'll depend a lot on the customer and how they're thinking about it.

Mita Marshall, Analyst — Morgan Stanley

Got it. You know, maybe jumping on to other agreements that you guys have. on the scale across and kind of DCI side, you've had a relationship with Lumen that you announced over a year ago and some of the new consortiums. Lumen is a clear revenue driver today. Just when do you see some of the new consortiums or just how to think about kind of where Lumen is and then

Edward Schlesinger, CFO

where these new consortiums are in their build-outs? Yeah, I think on scale across, you probably saw lumen announced their earnings i think a couple weeks ago two three weeks ago they referenced you know expanding the relationship we have with them beyond the original deal that we had signed and you know that will increase our volume you know specifically with them as they continue to do a lot of that work we have other customers in that space um we haven't talked publicly about those so i so i can't specifically mention them i think that is a nice business for us. We had talked about going from essentially nothing to a billion dollar opportunity by the end of the decade. I have high confidence in that. I think it certainly could happen faster and it certainly could be larger than that. And the thing that we haven't talked about directly or seen as much directly is the hyperscalers themselves may wind up doing some of their own build outs. They may hire somebody to do the install and that could be a direct customer for us as they build out their network. To date, I would say it's primarily more the carriers that are doing the build-outs.

Mita Marshall, Analyst — Morgan Stanley

Okay. With the data center business being higher margin, just how does it change how you guys think about resource allocation? Yeah, I think as a general matter,

Edward Schlesinger, CFO

we will allocate capital to the best available opportunities. I don't think we're constrained to the point where we're not adding capital. We think of it, I think, in two ways. You have research, development, engineering. We're spending over a billion dollars a year on that. We've got a number of top programs. We always ensure those top programs are funded well. Sometimes they're a program that's generating revenue now or in the near term, and sometimes it's a program that's several years out. We never under-allocate capital there. And then we have tens of programs beyond that, maybe 100 programs beyond that, and we'll ensure that we allocate some capital to those programs. They may be small cost reduction-like programs, or they could be things that are a decade out that we believe highly in and we think there's a secular trend and we want to make sure we're investing now to capture that. That's kind of our model for research, development, and engineering, and we prioritize that spending kind of within that framework. And then when we get into adding capital, putting capital in the ground, it's a little bit more expensive to do that, and we want to have a higher level of certainty. You don't want to build a factory and then have that factory sitting idle for a period of time. So, you know, we're definitely adding capital. I mean, it's a little long-winded way. You know, we're definitely prioritizing the data center space without a doubt. That is a place where we're putting capacity in the ground and investing in technology. But there are other places where we're investing, and I don't want people to think that those opportunities aren't critical for us, let's say, for the next decade.

Mita Marshall, Analyst — Morgan Stanley

You know, I often get this question from investors about whether you guys have too much share in fiber. You know, and just does that kind of create some ceilings for you guys? You know, I'm sure you guys also get that question from investors. And so just how are you thinking about that?

Edward Schlesinger, CFO

Yeah. I mean, the best way I think about the optical communications activity, opportunity, I should say, today is, you know, the market for traditional data center, you know, call it scale out, is growing significantly. So putting market position share aside, huge market opportunity. Then you have two components within that that are not optical today. So it's less about share and market position and more about copper converting or converging to optics, and we believe that will happen. So it is a huge market opportunity that today we really don't have a share, you know, we're not participating in that I think drives growth well beyond this next three-year springboard window of time.

Mita Marshall, Analyst — Morgan Stanley

Okay, got it. But we talked about earlier, you noted that the $3 billion increase to the project springboard targets for 2028, only a portion of that was fiber. Is there a general way that we should be kind of thinking of the split of these businesses or just as we start to move on off of some of the optical businesses, just kind of laying the framework for what that increase was?

Edward Schlesinger, CFO

Yeah, so when we first rolled out our plan, we had kind of laid out broadly the areas that we thought would drive a lot of growth from going back to like the beginning of 2024, and optical was one of those areas we thought was a significant opportunity for us. So for sure, that opportunity is bigger. I think it's bigger just in general, more capex being spent by the hyperscalers than we would have thought at that time. I don't think that surprises anybody. Additionally, I think the opportunity to take some real estate from copper and move it to optical is happening maybe a little sooner than we would have thought. I think the scale across opportunity is also something that probably wasn't on our radar to the degree it is today. And that's driving a good hunk of why we upgraded our sales outlook. And I think we picked a window of time the next three years, but I think you could go out farther than that, and the growth would continue beyond that. Our confidence in solar, which is another area that we've invested into, is actually a lot higher today than it was two years ago. It's actually increased pretty significantly over time. So we feel really, really good about going from roughly a billion-dollar business to greater than $2.5 billion business in that space. um at corning level profitability you know we're not there today we have a long way to go and i think that'll you know accrete up over the next several years but that's another area that gave us confidence to be able to upgrade our plan and then i think specialty materials there are three things that sit in specialty materials that i think are important to note you have gorilla glass think of smartphones and other devices in that space we expect to be able to grow that business and we have pretty good confidence in that. We have a business we call Advanced Optics, which makes specialty glass for a number of different market segments. Semiconductor equipment is a segment that we expect to be able to grow that business. And then aerospace and defense is another segment that we play in. Those are two smaller businesses, but we would expect to have growth there. And so all of that combined is why we upgraded our plan.

Mita Marshall, Analyst — Morgan Stanley

Sure. You know, you talked about kind of already having hit the 20% operating targets that were part of Springboard. Just how are you thinking about the potential of increasing this target, you know, particularly as optics, which maybe has traditionally been lower margin,

Edward Schlesinger, CFO

is kind of a source of outsized growth? Yeah. So first of all, for us, this was a really important thing. We wanted to get our operating margin to 20%. We've been striving to do that for a while. So we feel great about it. It has really changed our ability to generate a lot more cash as we grow. So we believe that having that level of profitability is sort of a base. So our operating margin may go above 20%. I think it will go above 20%. We may or may not set another target, but I think you all should think of our ability to grow and the plan we laid out has double-digit sales growth for the next three years at a 20% operating margin or better, and that that incremental growth would convert to cash at a very high rate. Think of almost like 100% conversion on that incremental cash. That's the model that we want to run for the next several years. We're going to add capacity from time to time, and in any given time period when you add capacity, there could be an impact to your margin. We're seeing that today actually in solar. So even though we're at 20%, we actually have a drag on our margin a little bit from capitalizing the solar business. So like I said, we like this base. We think it's a great place to operate from. We could go higher. I think we will go higher, but we may or may not change our

Mita Marshall, Analyst — Morgan Stanley

target in the near term. Okay. Got it. We've spent the vast majority of time talking about the fiber business. I'm sure there's more questions that we might get to, but I want to move on to the solar opportunity. You guys have talked a lot about this over the past couple of years. How are you progressing on kind of efforts to move that business beyond what has traditionally been the polysilicon business into the wafer business? Yeah, maybe stepping back for those

Edward Schlesinger, CFO

that aren't following what we do, we make polysilicon for the semiconductor space and the solar space. We've owned a part of Hemlock for, I don't know, 50 years or so, something along those lines. We actually took majority ownership of that business in 2020. So we've expanded our polysilicon capacity. We have the ability to make more for the solar space, and we have the ability to make more and grow with the semiconductor space. And the semiconductor space is really only three players that make polysilicon for that space. In the solar space, we've got that capacity up and running. We've got to make it more efficient, so it's dragging our margin a little bit, and we'll do that over the next several quarters, but I feel good about our ability to sell and make the stuff that we have in the ground. About two to three years ago, we made a decision to go into the next step in the solar supply chain, which is to make wafers. We built a very large wafer facility right near our polysilicon facility. And that facility is now up and running and producing wafers for the solar space. We have to continue to add equipment. So to get to the actual capacity level that we can produce, we still have several quarters before we get to that level. And we have to be able to run that asset at the right efficiency level. So we get the right output from that facility. And again, we'll do that over the next several quarters. We're making nice progress there, and I feel highly confident that we will achieve the outcome. And then additionally, last year, we acquired a modules business as the OBBB was put in place, and there were certain regulations around who could own U.S. assets and benefit from any incentives in the solar space. We were able to acquire that business, and we've got maybe a little more than half of that capacity up and running, and we're making modules and selling modules. We'll add the rest of that capacity in 2026. So a ways to go to get to our target, but I think we'll continue to make nice progress, and we're pretty much sold out. So I think it's mostly about us capacitizing the assets, getting them up and running at the right efficiency level, and we should be able then to get to that $2.5 billion plus sales level. We had originally set that target for kind of a 2028 time frame, I feel confident we're tracking, you know, a little better than that.

Mita Marshall, Analyst — Morgan Stanley

Okay. I mean, there's been a lot of changes over the past couple of years, you know, between administrations, just in kind of treatment of green energy. There's been a lot of changes with tariffs. You know, just how are you, you know, viewing that solar opportunity in light of maybe some of the changes to either tariffs or kind of administration?

Edward Schlesinger, CFO

Yeah, I think our view is, you know, it is a very important part of the energy build out in the United States. It's essentially the lowest levelized cost of energy. It's relatively fast to put in place relative to other types of energy sources. And we expect it to be part of the grid, you know, going forward. I think it's more about the cost and effectiveness of it than it is about the politics. And I think that's why it's stayed in place. We will have capacity to supply, you know, maybe in the teens percent of the market, right? So we're not, you know, we don't need the market to grow from where it is. We mostly need to displace other sources of solar. And I feel confident we'll be able to do that.

Mita Marshall, Analyst — Morgan Stanley

You know, another announcement that's been a positive for you guys over the last year was with Apple, noting that 100% of the production of Gorilla Glass would be out of Kentucky. or for Apple would be out of Kentucky and securing share in future innovations. You know, you already had meaningful share here, but just how did that agreement kind of change your planning process around specialty materials?

Edward Schlesinger, CFO

Yeah, I think we're in a great position in general because we typically will make our products where our customers are. So we have a footprint in the United States that's actually quite large because we've been serving customers out of that footprint for decades. You know, Apple liked the ability to produce in the U.S., so that actually worked out really well for them, and that sort of spurned that agreement. And I think the most important thing about the agreement is that there's a technology collaboration aspect to the agreement. So we're deeply embedded in their supply chain. We have been, you know, kind of since their onset, but actually it allows us now to continue to do things that maybe others do for them today as we continue to innovate together. I think that's probably the most important aspect. But additionally, just being able to serve them, you know, to make all of the glass for their mobile devices and watches is critical for us to continue to sustain that profitability level in that segment.

Mita Marshall, Analyst — Morgan Stanley

I'm going to move on to some of the other businesses, but I wanted to open it up if there's any questions just on the optical business. Okay. I think we hammered it. We have a question?

Edward Schlesinger, CFO

Yeah. I think that opportunity is meaningful for us. I think we'll see on the timing. Yeah. We will come back and talk about this more, but I don't know how to do it if I think about CPO for scale out and up combined. But when we originally were thinking about scale up as a general matter. We have an enterprise business today. Last year, we did about $3 billion, I think a little over $3 billion. We think the scale-up CPO-like opportunity for us is at least two to three times that business. So it's a significant market. But the more I spend time on it, I think the more we spend time on it with partners in the ecosystem, I think it's actually bigger than that. I think the timing is where I would be cautious. We're typically a little conservative on the timing. It takes time to change supply chains out. We could be wrong. We'll be ready if it's faster. So we could be wrong to the positive, but I just want to make sure people don't model this really high inflection rate for scale up. Yeah. I mean, I'm referring to just our perspective. I mean, we've actually been working. We've believed this was an inevitability for more than a decade. You know, we have co-packaged optics prototypes that we've been working on since, you know, the mid 2015, you know, timeframe, maybe even earlier than that. So for us, it's mostly about when does the technology and the economics converge that it's actually cost neutrality or cheaper to do optics and as effective to do optics as it is today to do copper. And we're seeing that happen faster than we would have thought. And I think, I'm certainly not an expert, but I think that is because of the adoption of these really powerful compute units at a high rate. If you go back two or three years, I don't know that anyone would have expected these tech generations to come as fast as they're coming today. So I think that's what's causing it. So I don't know that I can answer your second question probably. We do have a controlling interest in U.S. Connect. They make a lot of the ferrules and connectors for our products and for the optical space. They're the largest maker of various different, I call it high-density multi-fiber connectors.

Mita Marshall, Analyst — Morgan Stanley

All right, perfect. You know, maybe just kind of last question, just in terms of kind of you've laid out kind of clearly some ROAC thresholds or just kind of prioritizations for optics investments. But just how are you thinking about kind of capital allocation in the coming years?

Edward Schlesinger, CFO

Yeah. So philosophically, we invest organically. That's our primary driver of value for investors. We try to prioritize our capital in that space. Within that space, we look to prioritize against the highest return, most certain opportunities. Clearly, we're prioritizing a lot of that capital today to optical communications, but we're also thinking about things in the future. Some examples, semiconductor packaging is a place that we really like because it uses a lot of our core capabilities. So we think about prioritizing within that, but that is our primary vector. Because we invest long-term and we really think long-term, we want to have a strong balance sheet. So we always want to make sure our balance sheet is investment grade plus, if you will, and we'll ensure that we continue to manage a balance sheet like that. We're in good place today, but that is really important because we never want to go through a cycle, an economic cycle, where we can't invest. So we want to be able to use our balance sheet when we can. We did that, actually, through the pandemic period. We didn't have to cut our investments, and we didn't have to stop putting capital in place because we had a strong balance sheet and we could do that. And then, of course, we want to, you know, reward shareholders. We have a really strong dividend. We've been working to get our payout ratio down. I feel really good about where we are. We doubled our free cash flow from 23 to 25. Our payout ratio is more like 50 percent. I'd love to be sub 50 percent on the dividend because then it just gives us more financial flexibility. And then, of course, we buy back shares, and we've proven that over the last decade. We do that opportunistically. We've bought back maybe half or so of the shares outstanding of the company since, you know, the early 2000s timeframe. That's how we think about it philosophically. And then, you know, we look at where we think the closest in opportunities are, and we'll prioritize those from a research, development, and engineering perspective. We'll look for co-investment. We'll look for somebody wanting to sign up for our investments, and that actually will allow us to lean in a little bit more in a specific area.

Mita Marshall, Analyst — Morgan Stanley

Well, perfect. Ed, thanks so much for being here today, and a little shout-out for Ann. We will all miss you. All right. Thanks so much.