The operator introduces Ann Nicholson, Vice President of Investor Relations, who welcomes listeners to Corning Incorporated's quarter four 2023 earnings call. She reminds listeners that the discussion will include forward-looking statements and that the company will be using core performance measures to analyze their results. She also notes the difference between GAAP and core EPS and where to find a reconciliation of the two. She then introduces Wendell Weeks, Chairman and CEO, who will lead the call.

Wendell Weeks, CEO of the company, reports on fourth quarter and full year results for 2023, with sales and EPS in line with expectations and a strong gross margin. Despite current lower sales, the company has taken actions to improve profitability and expects to see growth in the midterm, with the potential to increase sales by $3 billion. The company is confident in its leadership positions and expects a recovery in 2024, making the first quarter the low point of the year. Plans have been implemented to improve profitability and cash flow in this lower-demand environment.

In 2023, the company was able to restore productivity and raise prices, resulting in improved gross margin and free cash flow despite a decrease in sales. This success has positioned them well for the future, with potential for a $3 billion increase in sales. The Optical Communications sector is expected to see a rebound as carriers deplete their excess inventory and resume normal purchasing patterns to support their network deployments.

In the fourth quarter, Corning saw a slight increase in fiber shipments, but they remain more than 30% below trend due to elevated carrier inventory levels. However, key customers are deploying at a higher rate and plan to increase deployments in 2024. There are also positive signs in hyperscale, with overall orders growing and early signs of AI-related network builds in the order books.

Corning is focused on returning to their strong growth trend in Optical Communications, which is expected to continue in the future due to the increasing demand for optical fiber in various applications. The company also expects their sales in Display to bounce back after a softer fourth quarter, with a mid-single digit growth in glass volume at retail compared to the previous year. They anticipate a recovery in PC demand and an increase in panel maker utilization after the first quarter, leading to improved financial performance.

In the longer term, the retail market is expected to continue growing due to an increase in television screen size and normalized consumer demand. Corning's technology leadership and focus on larger sized TVs aligns with this trend. In the Life Sciences segment, as markets return to normal, Corning expects to see growth in drug discovery and production. The company is also evolving its products and business model for vials in the pharmaceutical technologies business. In Mobile Consumer Electronics and Automotive, Corning sees more Corning as the primary growth mechanism, with a strong innovation portfolio and collaborations with leading OEMs. Corning has successfully increased its sales of Gorilla Glass by advancing the state-of-the-art for cover materials. EUV lithography presents another more Corning opportunity for the company.

Corning is the market leader for photo mask and mirror materials used in advanced semiconductors and is also seeing growth in its gasoline particulate filter offerings due to proposed EPA regulations. The company is also winning business in the automotive glass market. While the majority of its markets are currently operating below trend, Corning is confident that they will normalize and expects to see a $3 billion increase in annual sales as a result. The company is focused on improving profitability and cash flow in this lower demand environment and is well-positioned to capture growth when markets recover. They plan to continue engaging with customers to understand their deployment plans and expect the first quarter of 2024 to be their low point before seeing a recovery.

In the next few months, Corning plans to update investors on their progress and learnings at conferences. The company's main focus is on inventing, manufacturing, and selling products to drive long-term growth. Despite a decrease in sales, Corning was able to improve profitability and cash flow through increased productivity and raising prices. They expect to see a $3 billion increase in sales in the medium term and have the necessary capacity and capabilities to meet this growth. In the fourth quarter of 2023, Corning saw a 330 basis point increase in gross margin and grew free cash flow each quarter. In the fourth quarter of 2023, sales were $3.3 billion, gross margin was 37%, EPS was $0.39, and free cash flow was $487 million.

In the fourth quarter, Optical Communications sales were down 2% due to lower demand from carrier customers and net income was down 3%. However, the company remains confident in the market's long-term potential due to growth drivers such as broadband, 5G, and cloud computing. In Display Technologies, sales were down 11% due to a decline in volume and softer retail results. The company expects glass market and volume to be down in the first quarter, but anticipates growth in 2024 due to an increase in panel maker utilization and demand for TVs and PCs.

The company expects a significant improvement in financial performance in the first quarter of 2024 due to successful price increases and a favorable pricing environment. Sales and net income for the fourth quarter of 2023 were lower compared to the third quarter, but overall sales for the full year increased. In the Life Sciences division, sales increased sequentially and net income improved due to higher volume and productivity improvements. The Hemlock and Emerging Growth Businesses division also saw an increase in sales. The company expects sales of $3.1 billion and EPS of $0.32 to $0.38 in the first quarter of 2024, and anticipates continued improvements in profitability and cash flow throughout the year.

The company expects gross margin and free cash flow to improve in the first quarter of 2024 despite lower sales, and they anticipate growth in various markets due to increased deployments and orders. The company has actively hedged their foreign currency exposure and plans to keep their yen core rate consistent through 2024, with plans to improve hedge coverage for 2025. The current yen spot rate is weaker than the 30-year average.

The company is confident that they will be able to place long-term hedges at better rates and implement pricing increases for display glass to address currency fluctuations. They prioritize maintaining a strong balance sheet and returning excess cash to shareholders through dividends and share repurchases. The company is in a strong operational and financial position and expects to capture significant sales and profit opportunities in the medium term. The CEO is optimistic about the company's progress and looks forward to updating investors.

During the Q&A portion of the earnings call, Mehdi Hosseini from SIG asked about CapEx clearance, cash flow, and buyback plans for the company. Ed Schlesinger, the speaker, responded by stating that they expect CapEx to be $1.2 billion lower in 2024 compared to 2023 and that they are focused on improving profitability and cash flow. He also mentioned that they prioritize returning excess cash to shareholders through dividends and buybacks, but did not have any specific updates on buybacks at this time. In terms of the optical business, they expect the BEADS program to start translating into demand later this year as the grants are awarded.

During a conference call, Mehdi Hosseini asked Wendell Weeks about the expected timing of the $3 billion opportunity that Corning is anticipating. Weeks explained that the market will normalize at different rates for each segment and their more Corning activities will align with specific innovations. He clarified that the term "midterm" refers to the next three years, but progress will begin at different times in different markets. When asked about the breakdown of the $3 billion opportunity, Weeks stated that it is difficult to determine as the overall opportunity is larger and they have discounted it to focus on the $3 billion.

Wendell and Wamsi are discussing the potential impact of the 40% increase in optical opportunities. Wamsi asks a clarifying question about the company's pricing strategy, and Wendell explains that they have been increasing prices to improve profitability, but they also need to adjust for the lower yen value to maintain a fair return on investment for shareholders.

The speaker responds to a question about the uptick in optical orders in the fourth quarter, stating that it is too small to make any conclusions yet. They mention anecdotal evidence from conversations with customers and data that suggests carriers are deploying at higher rates. They also note a tick up in orders from hyperscale customers, but not yet in shipments. This is in line with their understanding of the need for new Generative AI networks.

The speaker discusses the current state of the second optical network being built for Generative AI programming. They are unable to predict the timing of this development but will share more information as it becomes available. They also address the potential for a sharp snapback in the glass market in the second and third quarters, but cannot provide a specific quarter. In response to a question about changes in share due to pricing increases in the display business, the speaker mentions that it has largely played out as expected.

The speaker responds to two questions regarding gross margin stability and pricing increases in the display business. They explain that productivity improvements, price increases, and cost reductions have helped maintain gross margin despite lower sales. They also mention that there has been no significant change in market position due to pricing actions.

The speaker confirms that they have done an analysis similar to the chart presented on optical fiber and retail demand in China. They explain that China's behavior is different from what is expected in a typical demand cycle and they do not expect it to return to normal anytime soon. The speaker also discusses how major product launches drive the seasonality of the specialty segment.

The speaker introduces the next question from an analyst, Samik Chatterjee from JPMorgan, who asks about the company's $3 billion opportunity and potential revenue for the year if there is no macro improvement. Wendell Weeks clarifies that BEAD will not be a significant contributor until 2025, despite starting in 2024. The speaker, Ed Schlesinger, will address the first part of the question.

The speaker discusses the drivers of growth for the company in the first quarter and throughout the year, including increasing demand in the optical sector, panel maker utilization in display, and market normalization in Life Sciences. They express confidence in the company's performance and potential for reaching a $3 billion goal, even if they do not reach certain levels. The speaker also mentions hedging at a lower spot rate and having industrial options for the future.

An analyst asks Corning CEO Wendell Weeks about the timing and impact of pricing actions and hedging on the company's performance in 2025. Weeks responds that the information will be shared with shareholders this year, but the timing is dependent on the company's customers. He also mentions that the company's free cash flow guidance for the first quarter is a low bar and there are no specific offsets expected.

Matt asks about the $3 billion incremental sales opportunity and how it will affect operating margins and CapEx. Ed explains that they have the capacity and assets in place to deliver the sales, which will lead to higher gross and operating margins. Wendell adds that while data may show one thing, anecdotal evidence from customer conversations suggests a different trend.

The speaker discusses the importance of analyzing data and understanding any discrepancies between different types of data. They mention that anecdotal evidence supports their deeper analytics, which show a need for their demand to revert back to long-term trends. They also mention upcoming events and a replay of the call being available.

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