Q2 2023 Corning Inc Earnings Call
Speaker 1: You
Speaker 2: Welcome to the Corning Incorporated Quarter 2, 2023 earnings call.
Speaker 2: To place yourself into the Q&A queue, please push star 11.
Speaker 2: It is my pleasure to introduce to you Anne Nicholson, Vice President of Investor Relations.
Speaker 2: Thank you and good morning everybody. Welcome to Corning's second quarter 2023 earnings call. With me today are Wendell Weeks, chairman and chief executive officer, Ed Schlesinger, executive vice president and chief financial officer, and Jeff Evenson, executive vice president and chief strategy officer.
Speaker 2: 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. These factors are detailed in the company's financial reports.
Speaker 2: You should also note that we'll be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to gap data. Our core performance measures are non- GAAP measures used by management to analyze the business.
Speaker 2: For the second quarter, the difference between GAAP and core EPS stemmed primarily from restructuring charges and from non-cash mark-to-market adjustments associated with the company's currency hedging contracts and Japanese yen-denominated debt. In total, these decreased core earnings in the second quarter by $19 million.
Speaker 2: As a reminder, the mark-to-market accounting has no impact on our cash flow. A reconciliation of core results to the comparable gap value can be found in the investor relations section of our website at Corning.com. You may also access core results on our website with downloadable financials in the Interactive Analyst Center.
Speaker 2: Supporting slides are being shown on our webcast. We encourage you to follow along. They're also available on our website for downloading. And now I'll turn the call over to Wendell.
Speaker 3: Thank you, Anne.
Speaker 3: Good morning everyone.
Speaker 3: Today we reported second quarter results to demonstrate strong progress.
Speaker 3: on the priorities we've outlined to improve profitability and cash flow in the current weak end market environment.
Speaker 3: Sales were $3.5 billion, EPS was 45 cents, gross margin and operating margin increased sequentially to 36.2% and 17.5% respectively.
Speaker 3: and free cash flow improved to $310 million.
Speaker 3: How ad will give you the details on each of these in just a few minutes.
Speaker 3: Our results reflect solid execution on our plan to deliver financial and operational improvements.
Speaker 3: in response to the significant after effects of the pandemic still rippling.
Speaker 3: across the global economy.
Speaker 3: Now we've been discussing this plan with you for several quarters, so let me just briefly recap the primary factors we've been addressing.
Speaker 3: For one, a supply chain disruptions caused higher logistics, freight, and input cost.
Speaker 3: Additionally, inflation led to interest rate hikes, then a spike in the US dollar.
Speaker 3: And consumers shifted spending from goods to services as the pandemic abated.
Speaker 3: Against this backdrop, demand grew below historic trends in end markets that constitute the vast majority of our sales.
Speaker 3: Further, as supply chains started to normalize again over the last year, our customers began to draw down inventory to facilitate their transition from just in case.
Speaker 3: Further, as supply chains started to normalize again over the last year, our customers began to draw down inventory to facilitate their transition from just in case back to their typical.
Speaker 3: Just in time, approach.
Speaker 3: Consequently, we're seeing a synchronization of lower sales across our portfolio that is highly unusual.
Speaker 3: Now this is because the while R3 core technologies and four manufacturing platforms do apply to all of our markets.
Speaker 3: The demand drivers in the different markets we serve are fundamentally uncorrelated.
Speaker 3: TV sales don't move with automotive production.
Speaker 3: The life sciences market isn't correlated.
Speaker 3: with bi-buretropic deployments and so on.
Speaker 3: Over the past several quarters, I've noted how all the factors I just outlined have taken a toll.
Speaker 3: profits and cash. And that's why we introduced a comprehensive plan to improve both profitability and cash flow at our current sales run rate.
Speaker 3: while also innovating to generate additional near and longer term revenue streams.
Speaker 3: I would like to now walk you through the elements of our plan and the strong results we're delivering.
Speaker 3: Taking pricing actions, most recently in display.
Speaker 3: We expect these actions will contribute to overall profitability improvement in the third quarter.
Speaker 3: We've reduced our staffing levels to online with demand, and we are returning our productivity ratios to historic levels.
Speaker 3: And we're bringing inventory down across the company because we no longer require buffer inventory as supply chains are improving.
Speaker 3: These sets of actions.
Speaker 3: are delivering the intended results. In the first quarter, we improved gross margin by 160 basis points.
Speaker 3: And in the second quarter, we improved by another 100 basis points.
Speaker 3: Collectively, we've improved gross margin by 260 basis points.
Speaker 3: to 36.2% versus where we ended 2022.
Speaker 3: As I said earlier, we also approved our free cash flow to $310 million in the quarter.
Speaker 3: as we move into the second half.
Speaker 3: We're not counting on a strong recovery in our end markets.
Speaker 3: or a significant increase in our sales.
Speaker 3: But we do expect our profitability and cash generation to continue going up.
Speaker 3: Importantly, our actions will further improve profitability and cash generation when our markets recover. Our volume returns and our sales increase.
Speaker 3: The products and services we enable, smartphones, cars, TVs, broadband...
Speaker 3: These are central to many facets of daily life, so we're confident.
Speaker 3: that volume in our markets will recover to historical trend minds.
Speaker 3: In display, for example, we believe the volume recovery has already begun.
Speaker 3: When we will have spoke.
Speaker 3: Panel makers had started to increase utilization at the end of the first quarter.
Speaker 3: Improvement continued in the second quarter, and we grew sales more than 20% sequentially driven by higher volume.
Speaker 3: When we coupled this volume return with the display pricing actions I mentioned earlier,
Speaker 3: We expect to show additional profitability improvement in the third quarter.
Speaker 3: Now our goal is to return display to pre-pandemic profitability levels.
Speaker 3: as we exit the third quarter. Let me now turn to how we intend to increase our profitability and grow our sales beyond our pre-pandemic run rates.
Speaker 3: Across our markets, we expect the man to normalize and our volume to return.
Speaker 3: As we drive more corny content into those markets, we will further increase our profit as we create additional revenue streams. Now here are just a few exciting examples of more corny innovations than are arriving in the near term.
Speaker 3: In optical communications, leaders in large language models are building data centers with what is essentially a second optical network.
Speaker 3: which is increasing connectivity by up to five times within individual data centers. So we're commercializing a gen2 high density, high value optical interconnect system designed to enable the requirements and capture the growth driven by AI.
Speaker 3: In mobile consumer electronics, we're launching two products.
Speaker 3: This fall
Speaker 3: And next year, featuring innovations that significantly increase our value for device.
Speaker 3: in automotive.
Speaker 3: We continue to increase the amount of corning content in vehicles across the industry.
Speaker 3: As we pursue our $100 per car content opportunity, we recently commercialized the solution in our auto-glass exterior business.
Speaker 3: that takes a significant step to achieving this goal in electric vehicles.
Speaker 3: And for ICE vehicles, adoption of our gasoline particulate filter technology is now expanding to India.
Speaker 3: And the US EPA has proposed regulations that would boost our content in the very large domestic market. And the US EPA has proposed regulations that would boost our content in the very large domestic market.
In life sciences, we just launched Viridian vials to address the growing need for sustainable products in the pharmaceutical supply chain.
Viridian cuts the CO2 emissions from biomanufacturing by about a third and reduces glass by 20%.
all while improving feeling line efficiency by 50%. We're expanding our collaboration with West Pharmaceuticals, a leader in drug packaging to accelerate adoption.
Now these are just a few examples of innovations and new product sets that you can expect to see in the near term.
Additionally, we're scaling our solar business.
which we expect to add hundreds of millions of dollars in annual profits and cash flow beginning
in a couple of years. We expect all of these opportunities to further increase our profits as we create additional revenue streams.
across our markets. Whether it's in automotive.
cloud computing, broadband, 5G, solar, pharmaceutical packaging, next generation displays and cover materials, augmented reality, or semiconductors.
A role in key secular trends is material.
The role in key secular trends is material and compelling.
We built a robust opportunity set that will drive durable long-term growth.
So, before I turn things over to Ed, here's what I'd like to leave you with today.
The world is working through some significant after effects of the pandemic and they're not trivial for our company.
Our approach in this environment.
is not to count on conditions in our end markets or are sales improving significantly from the second quarter.
And that's why we're guiding based on our current order rates.
When we see our orders increase, we'll reflect these developments in our operating plans.
and of course our guidance.
offers.
Corning is executing well on a comprehensive plan to improve profitability and cash flow throughout this low volume period.
And to emerge stronger, our efforts are already demonstrating significant results.
In the first half of the year, we improved profitability in cash growth despite lower sales.
Even in a muted sales environment, our pricing and productivity actions will continue to drive improvement in the second half.
at the same time.
Our more according approach is driving new product launches that will create additional revenue streams.
Altogether, as our end markets recover,
And our volume returns to the historic levels.
We're positioned to deliver improved profitability in cash flow with significant operating leverage.
Unsells it will go faster.
that will grow faster than our markets.
In total, we feel good about our execution. We're taking the right steps to improve our performance today.
And further improve our results when...
sent phrases and words they are called knel ????? ??????
And I look forward to updating you on our progress. Now I'll turn the call over to Ed so he can get into the details of our results and outlook. Thank you Ed!
All right, thank you, Wendell. Good morning, everyone.
As expected, in the second quarter we improved profitability and cash flow in an overall weak demand environment. Second quarter sales were $3.5 billion, up 3% sequentially.
EPS was 45 cents, increasing 4 cents from the prior quarter. Gross margin and operating margin increased sequentially by 100 basis points to 36.2% and 200 basis points to 17.5% respectively.
Reflecting progress on our pricing and productivity improvement actions.
These results demonstrate the progress on and benefits from our comprehensive approach to improve profitability and cash flow, including continued actions to offset inflationary costs.
return productivity ratios to historical levels, and reduce inventory.
return productivity levels to return productivity ratios to historical levels and reduce inventory. Now let's turn to our segment results.
Let me start with optical communications. I shared with you back in May that we were not seeing the typical seasonal uptick in our orders, near-term demand for passive optical network products remains weak. And as the quarter progressed, orders came in at the low end of our expectations. As a result,
Sales in the second quarter were $1,066,000,000, down 5% sequentially and 19% year over year.
As I'm sure you're hearing across the industry, carriers and enterprise operators are pushing projects into 2024 due to high inflation and rising interest rates.
For now, we are sizing our operational plans based on the orders in our books.
Net income was $140 million down 12% sequentially and 23% year over year. The decline on lower volume was moderated by productivity improvements as I shared in the first quarter. We raised price in the segment to more appropriately share inflationary costs.
While the demand for passive optical network products remains weak, longer term we remain confident that the industry's underlying growth drivers are intact.
We're pursuing four significant secular trends. Broadband 5G.
significant secular trends. broadband, 5G, the cloud.
and the paradigm shift in computation necessary to train large language models and other advanced AI.
We've got major innovation programs underway for each category, and our connectivity solutions offer economic advantages for a broader range of customers than ever before.
And demand for optical networks is strongly supported by trends in computation, as well as by private and public infrastructure investments.
to help connect the unconnected and bring broadband to a much larger share of the population.
Turning to display technologies, sales in the second quarter were $928 million, up 22% sequentially and 6% year-over-year. Net income was $208 million, up 30% sequentially, primarily driven by higher volume.
Second quarter panel maker utilization played out in line with the expectations I described three months ago. After reaching historic lows in 2022 and as recently as January , panel maker utilization has increased consistently.
driving significant sequential volume increases. We believe that the display industry recovery is underway. Now, let me update you on what has happened since our display price increase announcement in May.
Since then, we've engaged with our customers and they understand our need to offset elevated costs.
We expect to finalize agreements for double-digit price increases.
that will begin to go into effect in the third quarter. We expect our profitability to improve and to return to pre-pandemic levels as we exit the quarter. Moving to specialty materials, second quarter sales were down 13% year over year.
This reflects continued end-market softness.
Sales increased 4% sequentially on higher Gorilla Glass sales. Net income was $33 million, down 15% sequentially, impacted by continued development costs for new product launches.
Looking ahead, we believe that there are new innovation opportunities for us in emerging trends like augmented reality, bendable devices, and AI that will extend our more corning opportunities far into the future.
For example, our world leading optical materials and systems in our advanced optics business power EUV lithography technology. We enable the manufacturing of smaller, faster, more powerful chips including GPUs.
Global AI initiatives are accelerating demand for GPUs and for our EUV related products. In environmental technology, second quarter sales were 457 million dollars, up 6% sequentially and 28% year-over-year. Net income increased to 107 million dollars on stronger sales.
and improved productivity.
In automotive, our sales were up 8% sequentially driven by the ramp of GPF sales in China based on regulations that are now in effect.
We do not expect to see this level of GPS sales in China in the third quarter. Auto production levels remain steady, quarter over quarter in North America and Europe .
Year over year, our automotive sales were up 40% driven by the GPF ramp in China that I just mentioned and versus low auto sales in China during the 2022 COVID shutdowns.
and 2022 supply chain issues for automakers globally.
In diesel, our sales were up 13% year over year driven by heavy duty demand in North America and Europe , which more than offset languishing demand in China.
Turning to life sciences, second quarter sales were $231 million, down 10% sequentially, and 26% year over year. Both the sequential and year over year sales declines resulted from lower demand for COVID-related products in China.
by segment that would be even more helpful. Thank you.
Can I ask a clarifying question? Are you speaking about display or the broader company? Just so I can make sure I answered your question specifically. We can start with display because it seems like obstacle, you know, there's some weakness and then specialty, you know, if you guys can talk about what you see in the back half, it was more a broader commentary.
So in display we expect to return to pre pandemic levels. This year as we exit Q3.
And then we would expect that level of profitability. What our plan is is that we'll continue to carry forward.
Into next year.
Is that.
Does that address your question.
Okay.
Ed do you want to speak to the two yes sure I'll build on one of those comments. Thanks, Assia. So first I want to sort of start with where we are in Q2, if you think about where our gross margin and operating margin. In Q2 are we've made a significant move up from where we were at the end of the year gross.
Margin at 36% operating margin at about 17, 5%, So 260 basis point improvement from the.
The fourth quarter, and 300 basis point improvement I think on the operating margin from the fourth quarter. So as we've sort of talked about our goal is to continue to marching up to March up profitability wise now our sales are muted so they're at a lower level and that obviously impacts overall profitability.
Now as we go forward display we shared our view, we expect to continue improving overall profitability for Corning, Yes led by display but also across all of our segments and then when sales return I think it is possible for us to get back to real pre pandemic historical.
<unk> at some point in the future. So that's kind of the way you think about it I think of it as a continued march upward display very specific given where we are and where we've seen this volume recovery and then our pricing and productivity actions will continue to take effect in the third and fourth quarter.
Does that help.
And then just in terms of share buyback at what point now.
Now that.
Preferred share of the payments.
Statements that you had for the purchase from Samsung I mean, there was a hopefully come to an end now when would you expect to turn on share repurchase.
When we started piling up more and more cash flow every quarter as we are aiming at so this improving in our profitability and cash flow even at this muted sales level, we want to see that first.
Before we think deeply about our capital allocation model as always.
You can expect us.
To hold our shareholders near and Dear in our heart, but the first step is we've got to restore that profitability and cash flow.
To our pre pandemic levels, even at these muted sales levels.
Great. Thank you.
Thank you.
Our next question comes from the line of Mehdi Hosseini with <unk>. Your line is now open.
Yes. Thanks for taking my question actually I have one clarification when you talk about the pre pandemic margin profile for it.
Display business I'm little bit confused.
Is it 'twenty.
19 with.
A 24% and net income margin for display.
In the prior year, it was like 26% to 27%.
When you restaurants pre pandemic.
As far back should we go given the NIM margin difference in 2018 in 2019.
Yeah, Hey, Matt. This is Ed So I think the way to think about it is we've been running closer to 20% and.
And we think of pre pandemic closer to 30% right. So I think that's a big delta that we seek to achieve so not the end of 2019 levels, but more like that.
Back half of 2018, maybe the front half of 2019, and maybe even earlier than that depending on how successful we are.
Okay very helpful and then.
You highlighted the opportunities with.
Poly silicon.
Sure.
I'm trying to understand how the hemlock and other emerging growth revenue scale without the.
Significant or material increase in Capex, you did 77, Q2 and $3 86.
Prior quarter and then.
In the latter part of last year, you were doing higher revenue should I assume that you can actually do like closer to $500 million without significant capex.
Yeah, Hey, Matt So I'll take that one also so a couple of things just a reminder, in that segment you have hemlock you have our auto glass business and you have our Corning pharmaceutical technologies business think valor velocity.
I think all of those businesses will grow their sales. So I definitely think the level you're thinking about is very achievable for us in hemlock. We're currently working through additional capacity. So that we can expand that business there'll be some capital spending, but I don't think you need to think of it as significant.
At this point.
Okay. Thank you I think when we were not quite ready yet.
To discuss.
Sort of the precise.
Hey.
And which we expect to expand.
Profit streams is solar so what we're trying to do is to provide you.
Insight.
As to how much more income we expect.
In that segment.
And a rough idea of the timing of that.
Without yet fully disclosing the details of our plan.
To be able to realize that expanded value footprint.
Yourself.
We'll be more forthcoming.
As.
This finalizes and it is in our benefit.
To come out of the more stealthy mode that we are in.
But at the same time it is significant enough that we wanted to make sure.
That we had provided for you a rough idea on how to think about it financially so.
Yes.
That's what I think you have a good question here.
So we're trying to we've given you the answer without all the inputs that makes sense.
The reason I ask is your margin the margin profile for this business unit has continued to improve.
And I attribute that to poly so would it be fair to say that Hollywood is a much better margin profile than others sub segments within that business unit.
I think that there is a lot going on.
In that segment.
And.
You are right to think that a significant amount of the growth to which we have outlined here and we've given in our sort of longer term what happens in a couple of years.
Is rolling out hub, our fundamental capabilities in solar because I think youre right to think about it that way.
<unk>.
I think.
Concluding much more than that from the statements sort of runs the risk of.
Youre not being exactly in line with what our strategic plan is so high.
Ask for a little bit of patience.
And.
It will be forthcoming in the not too distant future.
Great. Thanks, so much.
Thank you.
Our next question comes from the line of <unk> Mohan with Bank of America. Your line is now open.
Yes. Thank you so much good morning.
When I look at display revenue in the quarter was up 6% year on year, but profitability is down 9% year on year.
You're obviously.
Calling for an inflection in display.
Expecting significant profit improvement as you as you just answered in prior questions.
So I was wondering how much of your cost actions benefit did you already realized in the second quarter and as you think about the margin improvement.
How much of that would you say is going to come from pricing actions versus.
Continued benefit from from productivity initiatives that you're undertaking.
That's the first part of the question. The second part of it is as you think about.
The improvement in display.
Would you say that the this pricing sort of supersedes any of the prior market based pricing agreements that you had with with some of your customers.
This new paradigm or is that like old paradigm still impact. Thank you.
Yeah I'll take the first part of your question.
First one Z so.
The main reason we are taking the price action is the point, you're making we are absorbing higher costs, we have elevated costs in this business and we expect the price to offset those costs and I think about that as being the significant most significant driver of our prop.
Profitability improvement as we go forward.
Alright, I agree with you I mean, the right way to think about it once he is.
If you take a look at our quarter two results and it's a.
Great example of why we need to increase our prices.
So then.
There is this is a paradigm.
A new paradigm loop.
This is significant enough wants that.
It's going to take a little time to settle.
Into what this does to the overall dynamic in the industry. So.
This type of significant move does represent a new paradigm for us.
It is still going to be based on a same fundamental principles.
Unlike many of the other players of our competitors in this industry. We are the most reliable supplier.
We are going to be able to continue to maintain our position in this business would be the technology leader. If you follow the space closely Youll see.
Significant announcements in the glass industry here actually capacity being taken out of this.
Our system because of the profitability challenges came glass.
So the core reason that we are the leader in this business is.
Our reliability the.
The advantages inherent in our technology to play itself out in both cost advantage and product leadership.
And those will still underpinned the new paradigm, but it is a new pricing paradigms.
So if I could just follow up on that.
In the past.
Obviously went through a period, where price decline was in the mid teens and that stabilized down to low single digits.
Given that.
You guys did.
Did something really interesting with locking in market share of volume.
Yeah.
Some of your largest customers, which created an incentive to not take price down.
I understand that we're in a recovery phase in the display market at the moment, but if you think over the next two to three years.
Why should we not think that the competitive response would go back to the historical ways of maybe.
Trying to gain incremental share through pricing.
Well.
Let me get through this quarter and a reset of double digit increase.
While we maintain our share and keep in place our long term agreements right and after we get done executing this.
Love to sit down with you and lets talk it through and maybe bring in some of our display leaders.
We will talk it through but right now.
While we're focused on is getting this strategic move.
Completed does that makes sense rumsey.
Yeah, Yeah. It does.
I appreciate the the response Wendell and thank you all right.
Thanks Lindsay next question.
Our next question.
Comes from the line of.
Shannon Cross with credit Suisse. Your line is now open.
Thank you very much for taking my questions I have two the first just sort of a follow up on pricing, but looking at optical I'm. Just wondering what the carriers are saying given the weakness in demand in relation to some of the pricing that you were putting in place early or is that holding in or is there any softness there.
And then Wendell can you just give us an update on how you're thinking about the timing and rollout of government stimulus.
Both some of the broadband as well.
Benefit on the poly side from the IRA. Thank you.
Our pricing continues to hold in optical.
As far as the timing.
Hey.
And that is happening.
Right as we speak.
And I think it's a little early though there is plenty of news and Theres been awards out to the states and you're beginning to see the first of them Tech place on B.
I think it's a little early.
Early for us to be able to call here's when its happening <unk>.
<unk> started to see that in our demand next year.
Do you think it's a I mean do you see it delayed or just progressing along what you had expected.
No.
We started with a pretty cynical view right.
Of how long it would take so.
You pulled the App right.
We expected really not to start feeling it until next year and.
That really hasnt changed once again I'd say.
This is a very large program.
That's got to flow from that.
The federal government out to the states and they have to do awards.
At.
Our various customers are competing for right and then those customers have to put orders in.
And so we've always thought it would start to make a big impact until we got into next year.
I believe that is still our belief.
Double check Shannon.
And in that we'll get back to you.
And if I'm wrong okay.
Yes, thank you very much.
Thank you. Our next question comes from the line of.
Matt nickname.
Deutsche Bank. Your line is now open.
Hey, thanks for taking the questions.
Just wanted to follow up on optical then I have one on cash flow as well.
On the optical side are we at a point now where higher rates and macro dynamics are more of a.
Driving more of a sustained lull in spend relative to the sort of inventory digestion.
It was being message a cup.
Quarters back and then just on cash flow. So I think you are slightly negative for the first half of the year.
Do you see there is some gross margin tailwind from the display price hike. So maybe Ed if you can help us frame expectations for the second half of the year and how meaningful the quarterly.
<unk> can be relative to the 300 Mil you posted this quarter.
So I'll take the first one maybe you had to take the second so yes.
That was very broadly reported throughout all the different people who serve.
In the telecom space.
That.
There was.
Inventory buildup.
Various customers.
As youll recall sort of our.
Feedback for that is yes, we're seeing that too.
But.
I think it's more complicated question than just working our way through.
It.
Sort of just in case inventory build is at our telecom customers and that move to just in time like normal it's certainly part of it.
But.
We don't feel at this point in time confident enough.
In our forecasting models for telecom to say, yes, we see that consumption of the inventory.
Behind Us and then we're going to start to see that recovery.
A return to sort of our normal seasonality and a recovery in the back half. So we just think there's more going on here.
The fundamental drivers are in place and up down.
But the exact timing on when it Pops back I think it's difficult to call.
And Thats why were not planning on it and why we've just taken a look at what's in our order book right now and why you heard Ed Guide you sequentially down.
And after despite.
Despite the fact this would normally be an up quarter.
If everything was sort of operating in a normal cycle.
So that's the way we tend to think about that part of that.
I want to turn to cash flow and yeah sure. Thanks, Matt So.
I would say on cash flow a couple of things our goal is to improve our operating cash flow with the actions. We're taking we've made a significant move from Q1 to Q2 as you articulated and I think we have room to continue to increase operating cash flow in the back half relative to what we did.
In the second quarter.
On capital we've spent a good bit in the first half we expect our full year to be slightly down from last year. So I think you should also see a slight decline half over half on capital spending. So I think the combination of improving operating cash flow and slightly less capital spending should mean.
The back half is stronger than what you saw in the second quarter. So I definitely think theres room, a meaningful room for improvement in the back half.
Just any anything.
To note on working cap in the second half of the year at all.
No I mean, the thing I think that's most notable for us and we've talked about it over the last several quarters as we built a significant amount of inventory during the supply chain disruption period and our goal is to work that down I think the good news is we've made a little bit of progress in the first half on lower sales, which is hard to do so.
So I think that that's good and we're going to continue to keep chipping away at that so that should help us as well.
Thank you.
Thank you.
Our next question comes from the line of Steven Fox with Fox Advisors LLC. Your line is now open.
Hey, good morning.
Sorry, another question on just the display price increases.
So youre seeing volume increases into the second half of the year. So can you isolate the margin accretion just from increasing display prices for 'twenty, three and 'twenty four and how successful while you versus that original bogey you put out in the press release of 20% and then just one last housekeeping thing can you.
Describe what prices did in the.
In Q2.
Yes, so Steve I just wanted to make sure I understand can you can you repeat the first part of your question again, I wasn't 100% sure I followed it yes. So you are saying display margins are going to go up.
But volumes are also going up into the second half of the year I assume it seems like Thats, what Youre also signaling signaling. So if we just think about the price increases what does that impact on the margin improvement got.
Got it yeah, I think I'm.
I'm not sure we're necessarily signaling volume increase from the second quarter relative.
Relative for the back half certainly the first quarter was lower given panel maker utilization levels at really low levels in January .
But when I think about the margin the net income margin improvement in the second half relative to say second quarter pricing is really the predominant driver that we see.
Taking us there and remember it's offsetting costs that we're absorbing.
In our income statement.
And in terms of how successful pricing was versus end versus what Q2 pricing was.
Well, what we've said here is that we expect say versus Q2.
I'm sorry, Steve do that again, how successful pricing is yes. So originally the faster we expect the double digit to close on a double digit.
Nice increase right. So I'd. Originally originally you said, 20% price increases so I'm just trying to gauge whether you got the full 20 part of it.
You could again turn.
So our guide today as our guide today, Steve It's a double digit price increase and when we get to the end of the.
Third quarter.
I think it will be a little more evident where is double digits that ended up being.
Okay, and sorry to drag this out, but what was Q2 pricing like.
Well it was Q2 pricing.
Relatively consistent with Q1.
Okay. Thank you very much.
Thank you.
Our next question comes from the line of Josh Spector with UBS. Your line is now open.
Yeah. Thanks for squeezing my question here.
I was just wondering if you could expand upon some of your comments around data centers, and AI and kind of what that means for Corning.
And if possible kind of quantify where things are today, so you've talked about more efficiency and some products you talked about more data transfer with NII versus other data centers. So is there a content opportunity you could scale and again, what's the base that we should be thinking of that on today. Thanks.
Okay.
The easiest way to think about this is Pat.
Expect.
Our hyperscale.
Revenue opportunity.
Fundamentally to more than double.
For the same number.
Of.
Hyperscale data centers and that is because of a combination of the amount of interconnects required.
To do.
The AI ml compute it needs more.
Glass.
Within that data center, a lot more of it is happening within the.
The data center level of connections within the data center that are going out just because of the way those.
Large language models are trained.
And then you do influence beyond.
With a new set of innovations, adding to our content.
And so that's the way we tend to think about it.
How much more than doubling.
Remains to be seen on how successful.
Our innovations continue to be.
And what ends up being sort of the final architectures.
We work through a variety of different wiring diagrams here to be able to deliver.
This new.
Compute package.
The way to think about your Hyperscale revenues whats youre recognizing today.
Okay.
So.
We will do is that that's in our enterprise segment right.
Let us were flat to a little given this.
Size and scale of these changes.
Hello, and think through what is the.
Great way.
To be helpful too.
Think about.
How that embeds in that piece of our pickle and how sizable is it.
Good question, Josh let us reflect on that and then we'll get back to you.
Thanks, Matt we'll take one more question operator please.
Thank you.
Our last question comes from the line of George Notter with Jefferies. Your line is now open.
Hi, guys. Thanks, very much and thanks for squeezing me in I guess I had another question on the optical business.
Just curious if you guys are enforcing delivery dates with customers or allowing folks to reschedule further out into the future.
And then also I'm just curious if youre seeing any incremental competition in fiber and I'm thinking more specifically about gray market fiber.
People looking at selling excess inventory in the open market that we now compete with you.
Any sense for that thanks, a lot.
Yes, George I, just wanted to repeat back your question you're asking if we're if we're seeing customers asked to push their delivery dates out into the future is that the question.
Correct.
That happens.
Daily one way or the other pull ahead Stu.
Yeah.
I don't really needed that data it now because they're they're executing pretty complicated.
Civil works projects.
We're not seeing beyond what we've already guided in our sort of order rates sort of a new risk.
The way, maybe which you are getting at is that normally we're working with our customers on what they're going to take like the entire next year because it was such an important part of what they do and we have to plan. It and there certainly has been strong variation between them.
What they told US last year right and what they are taking this year. So I think that's more of a play.
Then.
To look through what is the fundamental heartbeat here rather than shifting delivery dates with within any given quarter. It does happen and it is what is behind sort of our operating shift to just plan based on what we're seeing in our order book.
As opposed to what our customers are telling us for the year.
Or is what.
One of stochastic models are telling us.
Has two grade fiber optic cable.
We're not seeing that.
Any sort of significant play here.
It would be unusual.
Are you hearing something because if youre hearing something I will check back with the optical folks but it.
It would be the first stop inherited about that if its any sort of significant number.
Got it great. Okay. Thank you very much I appreciate it guys.
Yes.
Thanks, George and thank you everybody for joining us today before we close I want to let you know that we will attend city 2023 Global Technology Conference on September 7th and will be hosting management visits to investor offices in select cities.
Finally, a web replay of today's call will be available on our site. Starting later this morning. Once again. Thank you all for joining us and operator, you can disconnect all lines.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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