Q3 2022 Corning Inc Earnings Call
Welcome to the Corning incorporated third quarter 2022 earnings call.
Place yourself into the Q&A queue. Please press star one one on your telephone.
It is my pleasure to introduce to you Ann Nicholson, Vice President of Investor Relations.
Thank you and good morning, welcome to Corning's Q3, 2022 earnings call with me today are Wendell weeks, Chairman and Chief Executive Officer, That's lessened your executive Vice President and Chief Financial Officer, and Jeff <unk> Executive Vice President and Chief Strategy Officer I'd.
I'd like to remind you that today's remarks contain forward looking statements that fall within the meaning of the private Securities Litigation Reform Act of 1995. These statements involve risks uncertainties and other factors that could cause actual results to differ materially.
Factors are detailed in the company's financial reports you should also note that we'll be discussing our consolidated results using core performance measures unless we specifically indicate our comments relate to GAAP data.
Our core performance measures are non-GAAP measures used by management to analyze the business.
For the third quarter. The primary difference between GAAP and core EPS was from primarily noncash charges associated with capacity optimization and noncash mark to market adjustments associated with the company's currency hedging contracts.
Increased core earnings in the third quarter by $234 million to be clear these charges and mark to market accounting has no impact on our cash flow reckon.
A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at Corning Dot Com you May also access core results on our website with downloadable financials in the interactive analyst Center.
Appointing slides are being shown live they're also available on our website for downloading and now I'll turn the call over to Wendell.
Thank you Anne.
And good morning, everyone.
Today, we reported solid third quarter results demonstrate strong execution.
We continue to operate each of our business as well.
And our focus on leadership and distinctive capabilities allow us to capitalize on important secular trends and drive.
Hi, I'm more Corning approach.
Sales were $3 $7 billion up slightly versus a strong third quarter last year and EPS was 51 says.
We were able to offset a sales decline in display technologies with growth in optical communications and solar.
While we believe.
That display panel maker production bottomed in September .
We would like to see additional positive evidence before diving a significant recovery.
In glass demand.
In total we performed well despite the economic environment.
Okay.
Before we get into the details.
I wanted to set some context on what we're facing across our markets.
On our last call. We told you that end markets in multiple businesses were down.
Smartphone sales in the second quarter declined 8% year over year.
Panel maker utilization in June 2022 was at its lowest level since 2009.
And the yearly automotive production was 10 to 15 million vehicles below its pre COVID-19 right.
Yeah.
Several of these dynamics continued or even intensified in the third quarter, our smartphone unit sales declined 14% year over year in the quarter with tablet and notebook demand down 17%.
Panel makers utilization decreased even further from its June level with September being the lowest month of the quarter.
And annual automotive production is still 10 to 15 million cars sure due to continued component shortages.
Nevertheless, we delivered results within our guidance range and expectations.
We continue to benefit from infrastructure investments in broadband and clean energy.
Two secular trends, we're strategically positioned to address.
We delivered 60% year over year growth in optical communications, and we captured ongoing demand in the solar market, which contributed to 33% year over year growth in <unk>.
Hemlock and emerging growth businesses.
Okay.
So let's take a deeper look.
What we're seeing in some of our key markets how we're responding.
And why we're confident that our strategy continues to position us.
To deliver profitable multiyear growth.
Yeah.
I'll start with display.
In the third quarter, the glass market and our volume both decreased almost 25% sequentially.
Which significantly reduced our sales and profitability.
In September panel maker utilization reached the lowest level since the fourth quarter of 2008.
Okay.
More than a year ago, we said, we expected a correction in the display industry during 2022.
In the second quarter panel makers began reducing production levels with accelerated reductions in June .
In the third quarter panel maker production reached an even lower level.
And we believe that panel maker production reached the bottom.
In September .
So now the question is when will the glass market recover.
Now our answer is that we would like to see additional positive evidence before we guide a robust recovery in glass demand.
We've maintained stable price and market position during this whole correction.
Consequently, we expect our volume and profitability to increase sharply.
When panel maker utilization rebounds.
Can we expect to exit the correction with strengthened customer relationships and importantly.
Refresh manufacturing fleet.
As always we will keep you informed as we progress.
Overall, we feel very good about our execution.
In display.
In mobile consumer electronics customer product launches and strength in semi conductor drove sequential growth in specialty materials.
But as I noted smartphone it.
Retail unit sales declined significantly in the quarter.
We now expect smartphones to be down about 12% for the year.
And we expect notebook and tablet demand to decline 15%.
We expect the year over year decline in smartphones notebooks and tablets to be greater in the second half.
Then in the first half.
This will limit the growth we normally see in our second half sales relative to the first half.
Now that said, we continue to outperform the market through our product leadership or more according approach and our ongoing collaboration with industry leaders.
Over the long term our content strategy in mobile consumer electronics will help us grow as we continue to develop and launch premium glasses and optical treatments for existing and new form factors.
Okay.
Additionally, we are executing our more according approach in the semiconductor industry.
In July Senator Chuck Schumer, and New York Governor Kathy Hogle joined Us to announce government funding that supports an expansion of our advanced optics facilities, which make equipment and materials vital to semiconductor manufacturing.
Of course semiconductors are fundamental to virtually all technology, we interact with today.
We've helped advance the industry for more than 50 years, and our expansion will keep us well positioned to support nearly every step of the chip manufacturing process.
And to respond to new customer needs, including products for <unk> technology.
Let's turn to automotive.
Environmental technologies, we delivered sales and profit growth. Despite the constraints that vehicle production and we're outperforming the market for the year.
We continue to adjust our operations to effectively navigate the variability in auto production.
And we are prepared to meet demand when industry production increases to normal rates.
Okay.
We're also generating significant wins in our automotive glass solutions business pull is strong for our technical glass and Opex innovations during the quarter car UX, a leading card display company owned by Interlocks announced its use of our patented co.
Florida technology to help drive the future of auto interior displays.
Corning continues to be well positioned to further grow its automotive business as the industry offers more advanced designed oriented cabins and enhanced driver assistance features.
Let's move to optical communications, which was the largest contributor to third quarter sales.
The industry continues to experience a large multi year wave of growth for passive optical networks and we continue to increase our capacity to support this growth.
In August U S Secretary of Commerce, Gina Raimondo joined At&t's, CEO , John Stankey and me to announce a new manufacturing facility in Arizona.
You May recall Secretary I remind those leadership helped past infrastructure legislation dedicated to the idea of Internet parole.
Our new plant will boost optical cable capacity to meet record demand.
Yeah.
In September we opened a new optical fiber manufacturing plant in Poland to serve committed demand.
And we're innovating to support every phase of broadband deployment as network access is increasingly viewed as a fundamental human right in.
In the quarter, we announced additions to evolve connectivity portfolio, which helps operators streamlined permitting accelerate field installation and optimize network testing.
Optical sales have grown 22% for the first three quarters of the year setting us up for another strong year of growth.
However, we expect fourth quarter sales could be down sequentially due to the timing of customer.
<unk> projects.
Turning to solar the renewable energy industry is evolving rapidly and our ongoing growth continues to indicate that the market's behavior is more closely tied to our global imperative than the current economic trends.
We re energized our participation in the solar market by starting up idle capacity and securing customer commitments through new long term take or pay contracts for solar grade polysilicon.
Third quarter sales grew significantly year over year, and we will benefit from the state of Michigan infrastructure investment program, which will help us expand operations to meet increasing global demand for polysilicon.
We believe the coatings broader technical and manufacturing capabilities are three and four.
Will prove to be highly relevant.
In helping advance the renewable energy industry.
And we see excellent growth potential.
And solar.
Okay.
Now as I can.
Conclude my robotics, here's what I'd like to leave you with today.
We remain very well positioned to deliver profitable multiyear growth.
And we will continue to execute with discipline, we'll invest.
Where we see strength.
We'll pace to meet demand.
Our cohesive and focused portfolio provides strategic resilience that is playing out well in this current environment.
We've established a deep relevance to secular trends along with the ability to drive more content into our markets over time.
We've been leading in the automotive and life science markets for 100 years display for 80 years telecommunications for 50, and mobile consumer electronics since the inception of smart devices.
The basis of our ongoing success is our distinctive set of capabilities and long track record of life changing.
And even lifesaving inventions.
And that's what enables us to power through moments like the present.
While maintaining an attractive long term growth trajectory.
Now, let me turn the call over to Ed who will share more details on our results financial priorities and outlook.
Thanks, Wendell and good morning, everyone.
Let me start by emphasizing that we are executing well in a challenging environment.
Our performance in the third quarter was a proof point of the inherent balance of our cohesive portfolio and the fact that our more Corning approach is working we're built to be resilient even in a downturn.
Now, let's look at our financial results for the third quarter sales were $3 $7 billion up 1% from a strong third quarter in 2021 optical communications environmental technologies life Sciences, and hemlock and emerging growth businesses all delivered year over.
Here growth.
In September display technologies experienced the lowest panel maker utilization levels since 2008 <unk>.
Resulting in a 28% year over year decline in sales for this segment in the third quarter.
In specialty materials, we outperformed the smartphone market, which was down double digits year over year.
Turning to profitability gross margin was 36, 1% and operating margin was 16, 9% down sequentially 140, and 190 basis points respectively.
Driven by the lower volume in display technologies.
In the third quarter free cash flow was $255 million and year to date, it was $866 million keeping us on pace for another year of healthy cash generation.
And despite the challenging environment during the quarter, we were able to offset significantly lower volume in display technologies, and we outperformed our underlying markets overall.
Now, let's turn to the segment results.
In optical communications sales grew 16% year over year, reaching $1 3 billion or year over year growth was driven by network operator investments in five G.
<unk> band and the cloud net.
Net income was $183 million up 32% year over year, driven by leverage from strong incremental volume.
Passive optical networks continue to experience a large multi year wave of growth.
We believe that this demand is strongly supported by private and public infrastructure investments to help connect the unconnected and bring broadband to a much larger share of the population.
We continue to secure customer commitments and we're investing to appropriately scale production to serve our incremental demand from current and new customers.
And we're also taking further pricing actions to more appropriately share recent cost increases in energy and certain raw materials with our customers.
As we've mentioned in the past this business can be lumpy from quarter to quarter and you'll see that play out in the fourth quarter as we expect optical sales to be down sequentially based on the timing of customer projects.
<unk>.
Now moving to display as we updated you in September panel makers reduced their production levels below our already low expectations for lower volume resulted in displays sales declining 28% year over year, and 22% sequentially and we saw a 40.
6% year over year, and 41% sequential decline in net income due to the high fixed cost nature of glass manufacturing.
In the third quarter glass price was once again consistent sequentially.
And we believe the glass pricing environment will remain favorable and factors that continue to drive that favorable pricing include glass supply demand balance as panel makers reduce production Corning and other glassmakers took additional tanks offline for maintenance and.
<unk> after an extended period of glass tightness.
And we're also taking this opportunity to upgrade some of our fleet with our latest technology, which enables us to reduce costs and extend the life of new tanks.
As we continue to work through these upgrades, we are actively managing restarts to align our supply to demand.
Another factor is glassmaker profitability. It is challenging for Glassmakers, who have high fixed costs to maintain profitability during periods of low volume and the current inflationary environment amplifies that challenge.
We expect fourth quarter glass prices to be consistent with the third quarter and glass prices to be stable or up in subsequent quarters.
So overall, we continue to operate from a position of strength in the display market.
And as Wendell noted, while we believe that panel maker utilization reached the bottom in September we would like to see more evidence before we got a significant recovery in glass demand.
But when glass demand grows we expect our volume to increase and our profitability to improve.
Sure.
In specialty materials, the market for smartphones was down 14% and tablets and notebooks were down 17%.
<unk> outperformed the market with sales down only 7% year over year, driven by strong demand for premium glasses and strength in semiconductor materials.
Third quarter sales were up 7% sequentially driven by demand for our premium cover materials to support customer product launches.
And adding to our resilience in this segment advanced optics delivered record sales for the second quarter in a row and we are bringing additional capacity online at our facilities and Fairport and canton in New York.
Net income for the segment was $96 million down 10% year over year due to lower volume and continued development expense related to next generation products.
The weakness in the smartphone tablet and notebook markets intensified in the quarter, and we expect fourth quarter sales and profitability to be down sequentially and year over year.
Long term, we expect to outperform the market as we continue to develop and launch new premium glasses and optical treatments.
Turning to environmental technologies in the third quarter sales were $425 million up 10% year over year and 19% sequentially.
The motor production improved from a very low second quarter as China demand recovered after second quarter Covid Lockdowns.
Vehicle production remains constrained due to the continued component shortages.
In addition to our sales growth, we improved profitability with net income up 45% year over year.
Our content driven strategy is working gasoline particulate filters remain a critical component of that strategy driving revenue even in a weakened market.
Our next generation filters are now shipping to customers as emission standards reached near zero levels and require enhanced filtration performance.
In life Sciences sales were $312 million consistent sequentially and up 2% year over year.
Lower demand for Covid related products was offset by growth in research products net income was $43 million.
We continue to commercialize innovations, including a new cell and gene therapy production platform and looking ahead, we expect to see continued growth in both research and bio process.
Finally in hemlock and emerging growth businesses sales were $407 million up 33% year over year and down 3% sequentially.
We continue to see increased demand for semiconductor grade polysilicon and strong demand for solar materials.
And we continue to ramp solar capacity and sign up new customers with long term take or pay contracts.
In September Corning pharmaceutical technologies announced that it was awarded a $104 million in additional funding from BARDA to support our planned capacity expansion for advanced high quality pharmaceutical glass tubing and vials.
These expansions are designed to help the health care industry rapidly scale manufacturing to address current and future public health challenges.
Now I want to take a minute to talk about currency exchange rates.
As you know the dollar has been strengthening over the past year.
As a reminder, we have actively hedged our foreign currency exposure over the past decade.
We're very pleased with our hedging program and the economic certainty. It provides we've received more than $2 billion in cash under our hedge contracts since their inception.
We expect sales in the range of 345 billion to $3 $65 billion in EPS in the range of 41 to 47.
And our first question will come from maybe hosseini from Susquehanna. Your line is open.
Yes, thanks for taking my question.
The two things that I wanted to.
Moving parts, especially with macro headwind.
Our next question. Thank you and one moment for our next question. Please.
Hi, Good morning, two questions on optical if I could first of all in terms of some of the project.
<unk> or push outs youre seeing what gives you confidence that it's not something worse than that you've seen more delays, especially as you get into the winter months.
And with some of the issues in Europe , and then secondly can you give us a sense for how the rash.
The ramping of the plants, the new plants for optical isn't helped I assume it help margins during the quarter.
And how that helps into next year and what the offset is what with the build out for Arizona.
So Steve.
First as to the macro.
And you followed all pretty closely.
Macro demand.
Auto is incredibly strong.
And so but as you know what we do is we try to make sure that we're supporting those customers are going to be big long term players and the nature of telecommunications is that it is.
Pretty concentrated industry.
So that all of that has to happen is when some of our bigger customers.
End up changing their timing.
Altering their timing that's what leads to the lumpiness of our revenue.
So we're highly confident in the.
Demand drivers here.
And as you know I tend to be pretty pessimistic on auto.
But just sort of overwhelming evidence.
That demand is very strong.
Now as that how long these timing moves can happen I think youre right to say.
What could happen during the winter, which is tends to be a little bit slower time for us just seasonality wise in a building that's legitimate.
Whether the last three months or a little longer than three months, that's hard to tell.
With easy to tell though.
As demand for off Super strong.
Thanks, and then on the new plant impact.
Yes.
And Steve I was going to say I think the plants that we recently opened our ramping fine.
Feel like we've added some capacity will be able to use that as we go forward, but it takes a little while for all the cost drag to kind of go away.
We should see that sort of fully ramped and the financial impact in 2023.
Yes.
Great. That's all helpful. Thank you.
Alright next question. Please thank.
Thank you one moment for our next question.
And our next question comes from Martin Yang from Oppenheimer. Your line is open.
Hi, Good morning, Thank you for taking my question.
First can you maybe share with us one or two mostly closely monitored to reliable leading indicator for display segment, where you will be you will be more comfortable calling a recovery after seeing changes.
Indicators.
Yeah.
Great question Mike.
So our analytics are really good at being able to say for instance.
Last year, we said there is going to be a correction in 2022.
And then they're very good at doing things like calling a bottom because we can tell sort of where our panel makers are operating or what exactly is happening with their inventory et cetera.
They're not as good at calling the exact timing of a turn.
So for instance, our analytics would have set the panel maker industry should have started its correction and a much more robust way in quarter four of last year and carried through but they did it actually start.
Until quarter, two and then accelerated in the quarter three so we're really comfortable with our analytics that we're a bottom.
The calling on when that upswing comes now really gets into sort of what is the psychological behavior of buyers in this industry.
And so the way we tend to try to do that it's a little softer, but we do take a look at panel price inflection points.
So much with the absolute level is but when do they turn.
And that is actually a buy signal for buyers right and it makes single signal for.
Panel makers.
How are how does the retail and set maker commentary as we as we have interviews with them constantly how are they actually feeling about what it is they're seeing because thats going to drive thereby behavior.
And then finally, just how tight things are becoming in the value chain overall.
So as we look at all of those things what we'd say is.
We can't tell yet what exact month.
We see the sharp recovery right, we'll need to see more of that accumulate.
But we can say with pretty high confidence.
That September was a bottom and now it's just a question of when do we pop up.
Got it. Thank you very much I don't have any other questions.
Thanks, Brian next question.
Thank you one moment for our next question. Please.
Our next question will come from <unk> Mohan from Bank of America. Your line is open.
Yes. Thank you.
Wanted to follow up on that prior.
<unk>.
Would you say you guys have disclosed in the past levels of weeks of inventory in the display supply chain I was wondering if you could characterize maybe not an absolute but at least in relative terms.
Where we are relative to past cycles in terms of weeks of inventory and Ed If I could I. Appreciate the fact that you guys are largely hedged for 2023, but.
<unk>, obviously moved to 149 year core rate is 107, maybe you can give investors a little bit of a longer term view on the yen hedging strategy and maybe some calibration on potential impact beyond 2023, how investors should think about it. Thank you.
Thanks <unk>.
Value chain inventory, we would say right now is at the healthy range.
And is starting to approach.
Sort of a little bit tight for healthy.
So that's like one of the analytics, where we can say okay right.
That the correction has done what it is it's supposed to do so that's how we're feeling about that.
About overall value chain inventory once he does that answer your question on that item.
Yes. It does Wendell I was I was just wondering if there was any.
I think you guys had mentioned in the past 10 to 15 weeks, depending on various times.
In various cycles and are we at the at the lower end of that at the higher end of that and does that give you some increased confidence that February at the bottom of sort of where.
Utilization rates could be.
So the pandemic sort of changed what is healthy and what's not healthy in all of the challenges in the supply chain, but what we should do is we should probably update you. If this is.
A question that you have sort of how we view it overall and and we'll follow up with you and give you the benefit of our thinking of how we analyze the industry.
Thanks Wendell.
And while Lindsay on the yen or on currency in general I'll make a couple of comments.
So I think you know, we're obviously wrong. The yen we are short in other currencies, most currencies are weak or weakening versus the dollar. So we are taking an opportunity. During this time period and some of the currencies, where we're short and they are weakening against the dollar to put hedges in place farther out.
So we're trying to be opportunistic despite the fact that the yen is weak and that obviously impacts our overall core rates as we think about them sort of as a basket of exposures and then with respect to the yen. We continue to look for ways to protect ourselves beyond 2023, we do have some hedges in <unk>.
Beyond 2023, and the farther out you go the spot rate or the forward rate sorry. The forward rate is below where the current spot rate is and that affords us some opportunity to do things farther out. So we will keep investors updated we understand.
How people are thinking about it and we're gonna be opportunistic and try to protect ourselves at this current core rate level.
Thanks. Thanks next question.
Thank you one moment for our next question. Please.
And our next question comes from Tim Long from Barclays. Your line is open.
Thank you.
Two questions if I could on the optical segment first could you talk a little bit about <unk>.
Talking about the timing.
A lot in this industry maybe just.
Looking at the next few quarters are you seeing that a little bit more in the telco side or the data center side, maybe if you can just parse out how those two splits are looking in the pipeline.
And then on the telco side.
We're increasingly hearing.
The world about pressures on macro and energy costs and whatnot potentially affecting.
Fiber builds which have been obviously really strong over the last few years.
Are you starting to hear more caution from the customer base looking out maybe a little bit on the telco side because of macro or do you think there's enough government initiatives.
Just push for broadband.
Make that total spending.
For the telco vertical.
But.
So I'd say that is our numbers like our posted because when you've got a macro environment. That's really strong and then all of this is really happening is customer timing. So then it really ends up being us being able to answer from our order book, what's going on and in our order book It would.
Basically be some key telcos.
Is just what's affecting our project timing more than anything else.
And so those are long term projects and so.
As they kick off one they conclude one they started another and so those.
Can be lumpy.
In terms of the macro.
Don't know that were the right ones.
Ask because there's so much demand, we're still short specially in fiber and cable.
That all will tend to get.
More signals that they want more and more and they share how aggressive their plans are so we're probably getting a lot more of that than we are the sort of macro or they cautious.
The combination of major government programs around the world that don't really start to kick in.
For almost another year right.
As well as catching up to all the demand that happened during the pandemic and how much of their capacity.
Basic there guardrail capacity got consumed by demand.
As well as just five G cloud holder broadband initiatives all of these things still really sort of positive bullish signal to us.
That doesn't mean that you are not right.
Net.
No.
May be experiencing something.
In macro we're just not hearing it does that makes sense.
Yes, that's very very helpful. Thank you Randall.
Okay next question.
Okay.
Thank you one moment for our next question. Please.
Our next question comes from Josh Spector from UBS. Your line is open.
Yes, hi, Thanks for taking my question just two quick ones. If I can so just curious on your level of confidence on the pricing comments and display a little bit surprised you're talking about pricing there still.
Into next year, it seems a little bit early at this point. So I'm curious if that depends on utilization rate, increasing or is that something you see playing out potentially regardless of that scenario and then just a follow up on the restructuring charges in the quarter can you just provide some comment on kind of what was restructured within the emerging growth business. Thanks.
So our confidence on price really has been driven by our performance through this correction.
Going into our prices have been.
To stable throughout every single stage of it including here in this last quarter.
So.
<unk> heard from Ed sort of the dynamics that have led to this.
But we feel.
Good about where we're at.
We expect pricing to continue to be stable as we exit the correction.
As it has been up to stable throughout going into the correction into the bottom of the correction.
Yeah.
And Josh I'll make a comment on the restructuring charges. So what you saw this quarter was primarily related to sort of an early stage business moving more towards commercialization oftentimes we have gen. One assets and as we move into like a high volume manufacturing state we.
Vince our technology, our cost goes down significantly and we sort of obsolete those gen one assets in.
Primary driver of what happened in the third quarter.
Okay. Thank you.
Okay next question please.
Okay.
Thank you.
One moment for our next question.
Our next question will come from Shannon Cross from Credit Suisse. Your line is open.
Thank you very much for taking my question.
I wanted to ask a bit about solar can.
Can you talk about what Youre thinking maybe the contribution from the.
<unk> and <unk>.
Backlog or or how we should think about orders and then potential for.
Additional capacity over time, because it seems to me like this could be.
A big opportunity for hemlock, especially if they start bringing more capacity back to the U S. Thank you.
Yeah, Hi, Shannon So first I would say, we feel great about our solar business. You know that was a great part of our ability to offset the lower volume of display in the third quarter and our orders are strong and we continue to sign customers up and sell out the capacity, we brought online and we see.
That is a secular growth trend going forward.
As we've shared we have more capacity that we can bring online and we're in the process of evaluating that and the exact timing of when all of that will happen and we're certainly taking a look through all of the legislation that recently passed and how that impacts us I think you can or you can view that as all positive for us and we will come back over time in.
Talk a little bit about it more in detail.
Shannon Youre right to look at it and say gosh I.
I think this is probably really good for Corning.
We will update you as we turn into the year to on.
What we think that will be.
Thank you.
Great next question please.
Thank you one moment for our next question.
And we'll take our next question from Matt <unk> from Deutsche Bank. Your line is open.
Hey, guys. Thanks for taking the questions.
Just two if I could first more on the macro and demand backdrop I know there was a question asked about optical but more broadly across your end markets are you seeing tighter financial conditions impacting your customers' propensity to invest heading into next year and then secondly on pricing I know you've talked a little bit about pricing.
Pricing increases it sounds like there's a little bit more that could be coming in optical just wondering if you've seen any sort of pushback or hesitancy to digest these increases.
In light of maybe some of the tighter financial conditions.
So we're seeing the economic.
Conditions really play out in our end markets.
So.
As I shared in my opening.
That.
Whether it's in smartphones notebooks panel maker utilization automd.
Automotive.
We're seeing those markets.
That are.
Highly consumer electronics related or highly consumer related to be.
Down significantly already.
As of yet.
That has definitely caused our customers of a pace.
We haven't seen them come off their long term.
Ideas about what they have to invest in.
Much like us our customers take a long time to build.
Productive capacity and develop new technologies.
So so far we haven't seen a reduction in their long term appetite.
Most people see that.
The economic concerns are already happening to them. So the real question is when does it come out as opposed to getting ready.
For it so I'd say, that's sort of the animal spirits were experiencing so far.
On price.
Yes, we are saying that in opto we've experienced.
Some more inflation and we will go.
Approaching our customers to more appropriately share that.
In this coming quarter.
Throughout the year, we have done actually quite a good job.
Being able to share the inflation, we experience with our customers.
With price increases really across our business base.
So so far we've been able to do that successfully.
And.
Asked me the question again.
Next quarter and I will tell you how this latest round with.
Excellent Thanks, a lot.
Our next question.
Thank you one moment for our next question. Please.
And our next question will come from Sonic Chatterji from J P. Morgan Your line is open.
Hi, Thanks for taking my question I guess I had to.
A similar macro question for you Windows, which is I mean for a long time, you've been outperforming most of the underlying market.
Participating on the table, there and has it been more corning content delivery and market I'm, just thinking as we sort of go into next year and the macro is tough or have you seen in Boston cycles any change in customer willingness to sort of continue to increase content, particularly in sort of a challenging macro and.
Sort of.
Pushback that you're seeing on pricing as well at this time given that inflation is obviously something you need to pass through but at the same time, the macro starting to worsen a bit more.
Than expected. So are you starting to see any hesitation from customers as well in those negotiations.
Great question.
Most of our more Corning plays.
Tend to reduce our customers' cost.
Or.
Improve their ability to deliver a vital customer functions that they see.
So in macro.
I would say.
No.
We're not seeing a reduction in their capability that will give you a good example, clough.
Cloud based players so art.
<unk> set of innovations.
Basically involve us.
Being able to delivered.
Totally engineered.
Connectivity systems, so that we save.
40% of materials for them.
We can save months and installation time.
We improved the quality of everything.
And so that in total you give us a lot more price a lot more revenue, but it saves you money and time that as like a typical angle for us and more Corning and we're continuing to see good adoption of those.
I'll make sure your question interesting as well.
When you move into mobile consumer electronics is youre seeing some differing strategies theres, just some clear power winters.
It's happened there who continue to invest really strongly in improving the product attributes that they offer to their customers.
Some of our other mobile consumer electronics players, particularly in China.
Sort of.
Lost in that premium battle and are doing a little bit less of our of our key innovations but in total.
The winners are investing more with us. So that's all I still think that fundamental more accordingly.
<unk> strategy is playing out well very strong heartbeat. So that is still playing out but I do understand the question. It's an interesting question sneak.
Thanks to make okay, we'll take the next question. Please.
Thank you.
One moment for our next question.
And our next question will come from meta Marshall from Morgan Stanley . Your line is open.
Thanks.
Maybe first question on optical I know, it's been asked a couple of times, but just kind of circle around it but it's a couple of <unk>.
Americas based service providers or is that more global and that's what we're seeing I know you said it was mostly within the telcos, but just wanted to get a sense is that largely concentrated within the U S or international and then maybe second question for me.
Inventories has been a pretty big use of cash this year, just wanted to get a sense of.
Major drivers of that and if that's part of what you would expect to reverse in Q4 to help with the achieve free cash flow generation targets. Thanks.
First question North America based.
Right.
Relatively limited in terms of its.
<unk>.
Of.
The number of people that are involved so telco North America base just timing.
And I think if you.
Talk to the industry more broadly youll see that.
Yes.
By and large to refrain from almost all of our customers is we can't get enough.
And so that's still the backdrop, that's still the heartbeat and it's just timing and a few key customers.
And meet on inventory.
You're right you can see it in our cash flow, we definitely built a lot of inventory through September and we definitely need to make that reverse.
What were thinking will start to happen in the fourth quarter and as we as we go into 2023, I mean, I think there are a few factors that drive it higher and it's one of the reasons why we haven't been able to.
Sort of slow it down and reverse it sooner first and foremost just in general the supply chain has been difficult and we want to make sure. We can serve our customers. So we're carrying a little more inventory than.
And then we might otherwise have and as we brought our sales forecast down for the back half of the year, we need to sort of catch up and digest a little bit of the inventory that we have and that we've produced and then lastly, just the cost of the inventory right. So as inflation hits us it manifests itself in inventory and then we get that back.
We raised price when we sell that through so there's a little bit of a delay in that those are really the factors that drive it up and yes. Our goal is to get it down starting here in the fourth quarter.
Great. Thanks, I appreciate it.
We've got time for one more question.
Thank you one moment.
And our last question will come from Nathan Hosseini from Susquehanna. Your line is open.
Yes.
Quick follow up is I would like to go back to.
The 2019 2020, the last time that you display revenue were declining you avid.
20% net income I mean, if I fast forward to Q3, Youre revenues are about $70 million less than that period, but youre still able to.
Almost 20% and net margin is that just a reflection of the terms that have come offline or is it something else that helps with.
Relatively better margin given the lower revenue volume.
So it would be great.
I'll ask some questions.
So.
First I would say youre right.
And that's one of the things that.
While we feel good about our execution and display during this correction.
So what you're seeing come through is all of that tremendous improvement in productivity that our new technology brings.
And the outstanding cost performance that we've been able to do with that.
With a long.
A long period of time of prices being stable to up.
And so that is what we've been trying to do in display that has been our strategy in display.
As.
We build our strength through this time period.
Very stable pricing very stable market position.
And then use our big technology lever.
To continue to drive our cost performance and drive up our profitability and.
And it's one of the things we're excited about.
When we see these the correction be over and the market start to move up in glass demand to go up because the incrementals will be powerful and the beautiful thing.
To be hold.
Thank you.
Yeah.
Thanks, Manny Thanks Wendell.
Thank you all for joining us this morning before we close I wanted to let you know that we will attend the credit Suisse 26th annual Technology Conference on November 29, and the Barclays Global Technology Media and Telecommunications conference on December eight.
<unk>.
<unk> management visits to investor offices in select cities. Finally, a replay of today's call will be available on our site. Starting later this morning. So once again. Thank you all for joining US operator that concludes our call. Please disconnect all lines.
Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
Yes.
Okay.
Okay.
Yes.
Sure.
[music].
Yes.
Yes.
[music].
Okay.
Yes.
Okay.