Corning Incorporated (GLW) Earnings

Management highlights

- Strategic Plan Update * Launched the first phase of the Springboard plan in Q4 2023 with an initial annualized sales run rate target of $13 billion; the updated plan is branded Springboard 2030-40, targeting an annualized sales run rate of $20 billion by end of 2026, $30 billion by end of 2028, and $40 billion by end of 2030. * Management expects a 19% sales CAGR from Q4 2026 to Q4 2030, with earnings growing faster than sales, higher returns on invested capital (ROIC), and substantially increasing free cash flow. A risk-adjusted high confidence plan for investors targets $27 billion annualized run rate by end of 2028 and $35 billion by end of 2030, which also doubles the company's size from 2025 levels. - Q2 2026 Core Financial Performance * Consolidated sales grew 17% year-over-year to $4.74 billion, EPS grew 30% year-over-year to $0.78, gross margin expanded 120 basis points to 39.6%, operating margin expanded 190 basis points to 20.9%, ROIC expanded 180 basis points to 14.9%, and free cash flow reached $1.42 billion. * Since the start of Springboard in Q4 2023, EPS has doubled, operating margin has expanded 460 basis points, and ROIC has expanded 610 basis points, creating a strong base for future growth. - Key Customer Partnerships * Management has secured large long-term agreements with major technology leaders to support AI infrastructure growth: a multi-year up to $6 billion agreement with Meta, a multi-year commercial/technology partnership with NVIDIA, and a multi-billion dollar agreement with Amazon to supply optical connectivity solutions for U.S. data center expansion. Apple previously committed to sourcing 100% of iPhone and Apple Watch cover glass from Corning's Kentucky facility. - AI Optical Growth Drivers * Three core technical drivers position Corning to grow faster than overall GPU growth in the enterprise AI market: (1) Growing AI cluster sizes above 130,000 GPUs require an additional third optical network layer, increasing optical content per GPU by 50%; (2) Bandwidth growth is neutral to positive for fiber content, with the Springboard plan assuming a neutral net impact; (3) Optical penetration of the currently copper-based scale-up network layer creates large incremental content opportunity, potentially increasing total fiber per GPU to up to 10x current levels, with adoption expected to fall between all-copper and fully-optical scenarios. * Corning's new photonics segment, serving co-packaged and near-packaged optics inside GPU boxes, is targeted to reach $10 billion in annual revenue by 2030, with growth dramatically accelerated by optical scale-up adoption.

Guidance

- Third quarter 2026 guidance expects consolidated sales of $4.9 billion to $5.0 billion, representing approximately 16% year-over-year growth, and core EPS of $0.85 to $0.89, representing approximately 28% year-over-year growth. - Solar segment sales and profitability are expected to improve beginning in the third quarter, following completion of the planned facility maintenance and upgrade in Q2. - Full year 2026 capital expenditure is expected to total approximately $2 billion, focused on expanding optical communications manufacturing capacity to support AI-driven growth. Full year 2026 free cash flow is expected to be significantly higher year-over-year. - Management maintains its long-term targets: operating margin will remain at or above 20% during the growth investment period, ROIC will improve into the high teens by the end of the planning cycle, and free cash flow will grow significantly as capacity investments translate into revenue. - The internal plan target of a $20 billion annualized sales run rate by end of 2026 is likely to be achieved one quarter early, but management did not upgrade the plan following the May 2026 update.

Segment performance

1. Optical Communications: Q2 2026 sales were $2.07 billion, up 32% year-over-year, representing 43.7% of total consolidated revenue. Net income was $438 million, up 77% year-over-year, with net income margin of 21% of sales. Within the segment, enterprise sales grew 65% year-over-year to $1.27 billion, driven by accelerating Gen AI product demand, while carrier sales grew 1% year-over-year. 2. Glass Innovations: Q2 2026 sales were $1.46 billion, up 1% year-over-year, representing 30.8% of total consolidated revenue. Net income was $354 million, up 9% year-over-year. Growth was primarily driven by higher display glass sales, with Gorilla Glass expected to outperform the weak handheld end market due to premium product positioning and higher content per device. 3. Automotive: Q2 2026 sales were $471 million, up 2% year-over-year, representing 9.9% of total consolidated revenue. Net income was $82 million, up 4% year-over-year. Sales outperformed the down global automotive market due to higher Corning content per vehicle; diesel sales grew 3% year-over-year and 13% sequentially on improving North American Class 8 orders. 4. Solar: Q2 2026 sales were $438 million, up 90% year-over-year, representing 9.2% of total consolidated revenue. The segment reported a net loss of $7 million, due to $30 million in incremental expenses from an extended planned maintenance shutdown and equipment upgrade at the company's solar wafer facility. 5. Life Sciences and Emerging Growth: Q2 2026 sales grew 8% sequentially, with net income up 13% sequentially, driven by strong performance in the life sciences research business.

Risks & headwinds

- Uncertainty around the timing and penetration rate of optical scale-up adoption in AI factories, a key driver of both enterprise optical and photonics growth, which is difficult to predict due to the newness of the technology. - Weakness in the global handheld smartphone market, with full year 2026 handheld unit sales expected to decline a mid-teens percentage due to memory price impacts, though Corning expects Gorilla Glass to outperform the overall end market. - The global automotive market remains muted, creating continued moderate growth headwinds for the automotive segment, even as higher content per vehicle offsets some weakness. - Technical and supply chain uncertainties for new co-packaged/near-packaged photonics technologies, where customer adoption timing and final network architectures are still being determined.

Analyst Q&A

• Q: The Q3 guidance implies limited sequential Q4 growth even after completion of solar upgrades and optical capacity ramping. Is there hidden weakness in other end markets? /

  A: Management notes that the company is on track to hit the $20 billion end-of-2026 annualized run rate target a quarter early, so the lack of an upward plan adjustment immediately after the May update does not signal weakness. Growth is expected to accelerate to a ~19% CAGR from Q4 2026 onward, driven primarily by enterprise and photonics. Optical net income margins have already improved to over 20% (up from launch of Springboard), and further margin expansion is expected as demand and capacity ramp. (321 characters)

• Q: Has anything changed for photonics and optical scale-up plans since the May Investor Day, given industry chatter about potential supply chain delays? /

  A: Management reaffirmed that no fundamental assumptions have changed since the May update. The Springboard plan already incorporates probability adjustments for variable adoption timing, and steady progress is being made to build the $10 billion photonics platform. Internal ecosystem stakeholders see far less drama than external speculation, as trade-offs can be made to deliver scale-up growth regardless of other component and chip dynamics. Management also clarified that no specific 2027 photonics revenue guidance has been provided, only the long-term 2030 $10 billion target. (417 characters)

• Q: What share of the optical business is covered by long-term agreements (LTAs), and how is pricing evolving for non-LTA business? /

  A: LTAs will become the lion's share of the optical business going forward, as all major capacity expansions are backed by these agreements to share growth risks and rewards between Corning and its customers. Profitability improvement is not driven primarily by raw fiber price increases: Corning creates value via innovative connectivity solutions that reduce customer costs and improve network performance, and captures a portion of that new value, which is driving the 77% year-over-year net income growth seen in Q2. Demand continues to outstrip current supply for the most innovative optical products. (429 characters)

• Q: Is the implied Q3 gross/operating margin step-up directionally correct, and what drives this improvement? Is the margin improvement sustainable? /

  A: The directionally correct expectation is confirmed. The primary driver of the Q3 margin improvement is the return of the solar segment to profitability after completion of Q2 maintenance upgrades. Management reaffirmed that it expects to sustain operating margin at or above 20% going forward. It will update the margin target later this year after gaining more visibility on full solar profitability and photonics investment timelines. (312 characters)

• Q: How much of the scale-up fiber array unit (FAU) opportunity is already baked into the Springboard plan, and is there upside potential? /

  A: FAU and other inside-the-box optical content are included in the $10 billion 2030 photonics segment target, which covers all passive optical content in co-packaged/near-packaged designs. The ultimate size of the opportunity depends heavily on how quickly optical scale-up penetrates AI factories, which creates material upside to the base plan if adoption is faster or more extensive than currently assumed. Higher optical scale-up adoption benefits both enterprise optical and photonics revenue. (348 characters)