The operator introduces Ann Nicholson, the Vice President of Investor Relations, who welcomes everyone to the Corning Incorporated Quarter Three 2023 Earnings Call. She reminds listeners that there may be forward-looking statements and discusses the use of core performance measures. She also mentions the reconciliation of core results to GAAP and encourages listeners to follow along with the supporting slides. Wendell Weeks, the Chairman and CEO, then takes over the call.

In the third quarter, the company's sales were $3.5 billion and EPS was $0.45. Gross margin improved to 37% and free cash flow increased to $466 million due to initiatives to increase price and improve productivity while lowering inventory. Despite lower volume in Optical Communications and Display Technologies, gross margin and cash flow improved. Sales were down compared to the previous year, but gross margin percentage increased significantly. Free cash flow conversion has also improved and the company expects to convert profit to cash at a strong rate in the future. The company continues to make progress in resetting price and cost levels and investing in More Corning technology.

Corning has extended its market leadership by collaborating with Apple to deliver durable glass and Ceramic Shield for the iPhone 15 and iPhone 15 Plus. They have also announced a new technology, Corning Viridian Vials, and expanded their collaboration with AUO to accelerate production of large format curved automotive display modules. While they have consistently hit their sales guidance, weak customer demand has put them at the lower end of their expectations. However, they have the capacity and capability to deliver $3 billion in additional sales with minimal investments. The company is assessing their operations profile and asking when their revenue will return based on long-term market trends.

Corning needs to feel confident in their ability to win in their markets by being the market leader with superior technology offerings and low-cost platforms. They also need to understand the trends in their markets and adjust their operations and staffing accordingly. For example, in the optical fiber market, they have been growing faster than the industry with a 7.3% CAGR, but in recent quarters their shipment run rate has been 30% below the trend line. This affects their entire optical product portfolio, which includes cabling and connectivity solutions.

The company has seen a decrease in demand for their fiber, cable, and equipment sales, but they are confident that they will return to their long-term trend line as customers deplete their inventories. They anticipate a 40% increase in revenue for Optical Communications alone. The company has also built a strong position in key product lines such as Automotive, Display, Mobile Consumer Electronics, and Life Sciences. They are the technology leader and lowest cost producer, and have opportunities to capitalize on growth in their markets. In Optical Communications, they have new product innovations that will increase revenue per installed fiber. In Automotive, they are preparing for new EPA regulations in 2027.

Corning is expecting significant growth in their environmental business due to new regulations requiring adoption of gasoline particulate filters. They have also expanded into new revenue platforms, such as auto glass for interiors, and continue to be the leader in display technology. They are also developing new product platforms for growth opportunities in various industries. Overall, this amounts to a $3 billion plus sales opportunity with minimal investment. The timeline for recovery in certain industries is uncertain, with conventional wisdom suggesting a bounce back in the second half of 2024.

In the third quarter, the company's sales were $3.5 billion, gross margin was 37%, EPS was $0.45 and free cash flow was $466 million. Volume in Optical Communications and Display Technologies was below expectations, but this was offset by strong sales in Specialty Materials. Gross margin and free cash flow were both up compared to the previous quarter and the same quarter last year. This was due to improved profitability and inventory reductions, as well as lower capital expenditures.

Despite a decline in sales, the company has shown improvement in profitability and cash flow due to their programmatic approach. In the Optical Communications segment, sales and net income decreased due to lower order rates, but the company expects growth to resume in the future. In Display Technologies, sales and net income were lower than expected, but the company is on track to achieve double-digit price increases and has seen a significant increase in net income margin. Year-over-year, sales and net income have also increased significantly.

In the fourth quarter, panel maker utilization is expected to decrease due to a pricing dispute between panel makers and set makers, but is expected to recover in the first half of 2024. Despite this, the company expects to maintain or improve profitability levels due to pricing actions. In 2024, the pricing environment is expected to remain favorable due to reduced glass supply. In the third quarter, sales in Specialty Materials increased due to higher Gorilla Glass sales and solid demand for Advanced Optics. In Environmental Technologies, sales increased due to growth in China, while net income was driven by productivity improvements. In Life Sciences, sales remained consistent.

Sales were down in the third quarter compared to the previous year, mainly due to lower demand for COVID-related products in China and customers depleting their inventory. However, net income increased due to productivity improvements. Sales for the Hemlock and Emerging Growth businesses also decreased, driven by lower solar grade polysilicon prices and completed volume commitments for COVID-related products. The company expects sales to be around $3.25 billion in the fourth quarter, with a focus on improving profitability and cash flow. Despite lower sales, the company anticipates strong free cash flow and a similar gross margin percentage. The outlook for EPS is $0.37 to $0.42, and the company remains committed to financial discipline.

The company has a strong balance sheet with a long debt maturity and minimal debt coming due in the next five years. They will focus on improving profitability and cash flow in the near-term, but are well positioned to capture additional sales in the future. The Display segment is expected to improve with price increases and favorable pricing environment in 2023 and 2024, as well as some glass makers reducing capacity.

The company expects improvements in volume and panel maker utilization in 2024, despite a temporary decrease in the fourth quarter due to pricing negotiations. They have achieved their goal of double-digit price increases with customers and anticipate further enhancements in the fourth quarter.

In the paragraph, the speaker discusses the current dynamics in the company's guide, specifically in regards to panel maker utilization and pricing. They also mention their collaboration with AUO in the Automotive industry, which was facilitated by Corning's ColdForm technology. This partnership allows long-time customers in the Display market to enter new market opportunities while facing competition from new players in China.

The speaker, Wendell Weeks, is responding to a question about the Optical business and whether there are different trends between service provider and cloud customers. Weeks confirms that there is a more severe trend among service provider customers, with a 30% cutback in Q4. He also mentions that cloud customers have been stable and are currently focusing on large language model training, which will likely lead to growth in the future.

The speaker responds to a question about the company's outlook and plans for share buybacks and the Optical division. They mention a focus on improving profitability and cash flow, with recent success in those areas. They also mention having more resources for share buybacks in the future and will provide more information on their plans next year.

Wendell Weeks, CEO of Corning, adds on to Ed Schlesinger's response about the company's $3 billion revenue run rate. He explains that the incremental profits from this increase will benefit shareholders, as it requires minimal additional investment and the company has strong operating leverage. As for the visibility of the company's Opto segment, they are currently in the process of gathering detailed information from their major carrier customers to improve their understanding of deployment plans. Weeks is confident that the company will return to its upward trend in the next year, as this technology has consistently shown growth over the past few decades.

The company is optimistic about long-term trends in the fiber optics market, as it becomes more economical and enters new markets. However, they are currently experiencing inventory digestion in the carrier sector. The analyst asks about a potential reset to a lower level of demand, but the company clarifies that the current inventory drawdown is primarily in carriers, not cloud.

The speaker agrees with the statement that the cloud market is now operating in a more balanced manner. They explain that the trend lines are driven by the increasing demand for fiber in the industry, as line rates and bandwidth needs continue to rise. They also mention the use of glass packaging in order to improve communication speed and efficiency. They do not see a decrease in the market opportunity for fiber and compare it to the growth seen in the notebook and PC market.

Wamsi Mohan asks about the long-term exposure and hedging of the yen. Wendell Weeks explains that they are currently hedged through the end of next year and will reassess for 2024. Ed Schlesinger adds that they recently raised prices in Display to address the yen and the forward rate is more important than the current rate. The average over the next five years is below 130, even though the current rate is 150.

Wendell Weeks discusses the company's exposure and hedging programs, stating that they are trying to balance the potential for more long-term hedges with the possibility of implementing an industrial solution, such as price increases. He also addresses the company's new revenue platforms and acknowledges the cyclicality in the business, potentially caused by increased technology and value add. In response to a question about the company's $3 billion, Weeks suggests that they may need to reevaluate their products and consider potential changes.

The majority of the $3 billion gain in revenue is not from new platforms, but from existing products such as fiber optics and automotive. The company is looking to pivot towards new opportunities, such as pharmaceutical packaging for COVID vaccines, and is exploring asset-light strategies to return value to shareholders. However, the current downturn in revenue has made the company more cautious about pursuing new opportunities.

The speaker is discussing the cyclicality of their business and how the addition of more value to their fiber tips has increased the impact of losing a fiber tip. They mention spreading their technologies and manufacturing platforms across multiple markets to offset any potential volatility. They also mention doing further quantitative work to fully understand the effects of this on their business.

The company has managed to decrease correlation between markets, making them less volatile, but the pandemic caused an increase in correlation. However, they are starting to see a return to historical patterns. The CEO would choose more revenue over reverting to mean on diversification. The last question asked about the company's capital investment in relation to the potential $3 billion in pent-up revenue, which could take one to three years to return depending on the strength of the macroeconomy.

The speaker is discussing the company's plans for investment and growth in the coming years. They believe that they can support their current revenue and growth goals with minimal cash investment and high free cash flow conversion. They also mention the unique opportunity to generate high revenue in a short amount of time and the potential for record-breaking incrementals.

The speaker announces that they will be attending the UBS Technology Conference and hosting management visits to investor offices. They also mention that a web replay of the call will be available and thank everyone for joining. The operator then ends the call.

This summary was generated with AI and may contain some inaccuracies.