Corning Incorporated (GLW) Earnings Call Transcript & Summary

Hello. I'm Mike Bell, and I'm standing in the global headquarters of Corning's Optical Communications business here in North Carolina. Today, I would like to share with you why I am excited about the work we're doing and the opportunities ahead of us. More and more of our lives these days exist in the digital world. And the pandemic only accelerated this transformation. The future is connected and full of possibility. And it will be shaped by the applications that are emerging or haven't even been thought of yet. With connectivity increasingly central to the way we live, it's no surprise that access to broadband is coming to be seen as a fundamental human right. I believe passionately that digital inclusion is not just a geographic issue, it's a social equity issue. It makes me so sad to read stories of kids falling behind in school because they lack access to reliable Internet at home. And it makes me excited when high-speed broadband really transforms the community, opening doors to education to health care to opportunity. At Corning, we believe bringing more connections to more people in more places is not simply good business. It's expanding the bandwidth of human potential. That's why we are pleased to see investments in broadband gaining momentum on both the public and private fronts. Later you'll hear from 3 of our customers from the regional, to the national, to the global, who will explain how they're depending on Corning to support their growth during these transformational times. First, though, I want to talk to you about the public investments you've no doubt heard about and how these investments translate into opportunities for our communities, our customers and for Corning. The signing of the bipartisan Infrastructure Investment and Jobs Act is a historic step forward, particularly for our unserved and underserved communities. The program allocates $65 billion in new spending for broadband, of which $42 billion will go towards new infrastructure, connecting as many as 40 million homes. As much as 10% of that $42 billion will go towards passive optical infrastructure, a significant opportunity for Corning. Considering the technical and economic challenges of optical technology, we believe fiber is the most attractive choice for designing these networks. Grant recipients must deliver download speeds of 100 megabits per second and upload speeds of 20 megabits per second. Priority will be given to higher speeds and the higher the speed, the more likely optical fiber will be the deployment choice. We see governments outside of the U.S. investing in broadband as well. The European Commission recently announced a plan to provide an unprecedented EUR 672.5 billion to support economic recovery. an estimated EUR 135 billion will go towards 5G gigabit connectivity or other digital transition initiatives. In the U.K., Project Gigabit pledges GBP 5 billion in funding for gigabit-capable broadband and hard-to-reach communities. The Canadian government has budgeted $2.75 billion for a universal broadband fund, which aims to bridge the digital divide in Canada. The goal is 98% of Canadian households connected by 2026. This is not just a public investment phenomenon. Private companies are also stepping up to augment their own network reach to meet customer needs. As these public and private commitments show the stage is set for a historic expansion of broadband and wireless network capacity and capability. And here's what has us energized as the requirements for these investments are converging around Corning's unique set of capabilities. We are leaders in optical physics, glass science ceramics vapor deposition and precision forming capabilities that will spur innovations that support our customers' growth. At the core of what we do is invent, make and sell. We continuously introduce innovations to help our customers around the world speed and simplify their deployments, a highly relevant capability in the time of labor constraints. We're making the right investments in capacity to support these network builds and cost effectively deliver optical solutions to our customers. We developed deep trust-based relationships with our partners up and down the value chain, and we partner with our customers to solve their toughest problems and develop industry-leading solutions. The bottom line is we're at the beginning of a large multiyear wave of growth for passive optical networks. On top of the private carrier investments, we believe the public infrastructure investments will push the market into double-digit growth territory over the next few years. As the U.S. infrastructure plan rolls out, it could add as much as $1 billion a year to the market. And we're especially well positioned to capture that growth because of our leadership and because of the plans by American Provision. So for Corning, this is going to be big, and it will be for many years. And if what I said so far hasn't convinced you, let's hear from our customers. First, we'll take you to the U.K., where Openreach is gearing up to double the pace of its fiber broadband deployment to 4 million premises a year. Then you'll hear AT&T share some remarkable figures on the growth they're seeing in data usage and why fiber remains central to their network planning.

Well at Openreach, we're the biggest and the fastest builder of full fiber GPON networks in the U.K. Last year, we built past 2 million homes in the nation. And we've recently announced a big upscaling of our deployment program. I need to ramp my deployment over the next couple of years from 2 million premises a year to 4 million premises a year. So I've got to double my builds' run rate on the new network. And that's a big challenge for us, and that is critical to my intention to partner with the best supply chain, the best supply chain partners in the world, and that's why I'm dealing with Corning.

Fiber is absolutely essential to what AT&T does. If you think about it, it underlies all of our lines of business, whether it's consumer customers or business customers or our wireless network. It's all fiber-based once it hits the bottom of the tower. And so fiber is essential. And when you think about what's going on in terms of consumer behavior and business behaviors and the data growth, the data growth over the last almost 20 years has been very consistent, 30% to 40% growth annually every year, year in and year out, whether it's a wireless or fiber-based broadband for our consumer customers. We have customers that are using almost a terabyte of data a month. And that's going to continue to increase at that 30% to 40% annually. So in 5 years from now, the data usage per customer per month is going to be 5x multiple terabytes a month. And so that's the kind of growth that we're seeing. When you think about investing in networks, 5G is absolutely essential for AT&T. It's the next evolution of wireless networks and the way that we're going to provide even better broadband on a wireless basis. So we look at wireless as a way to augment fixed broadband. So think about basically land-based, fiber-based broadband to the home. And you need fiber to scale both in terms of wireless networks as well as fixed network.

It's great to work with partners like AT&T and Openreach as they invest in their next-generation networks. As you may have seen, Corning and AT&T recently announced an expansion of our long-time partnership. Based on AT&T's commitment to its network build-out, we are expanding our cable manufacturing here in North Carolina, about an hour's drive from where I'm standing. That's just one of the capacity investments we've made across our manufacturing footprint, adding equipment and ramping up production to meet the elevated demand levels we anticipate through most of this decade, from the national and the global, now let's go to a regional player. The community of Fairlawn, Ohio, working with Corning has been reaping the benefits of gigabit connectivity for several years now. Listen to folks and Fairlawn explain how this next-generation gigabit connectivity has improved quality of life and boosted economic development.

I'm Bill Roth, I'm Mayor of the city of Fairlawn. This is my 23rd year as Mayor. We have a very broad demographic base. We have individuals all walks of life. We're higher than average as far as the average education. We have a lot of things going for us. And when you talk with business people and a good example was in 2014, speaking with a German businessman, and the individual said I get what you're telling me and it's very attractive, but he said a big drawback why he couldn't locate his business here -- and more importantly, he felt he couldn't attract or keep employees here, was the speed of the Internet. And us putting in the Gig, FairlawnGig, we really see electricity of 120 years ago. You have to put it in. It's a standard of living issue. It's a competition issue. It's a business issue.

I'm excited to live in a city where the government has so much forethought to make a better future for all of us here in the city of Fairlawn.

We have had numerous calls even during this pandemic from companies that want to move in that are exploring Fairlawn. And the only reason why they know about Fairlawn is they have fiber optics. They have FairlawnGig. So yes, it's been a huge driver of this -- of the whole idea of economic development in the area. Corning is gold standard. It makes life easier for your people in the field, makes it more reliable for the people that are using the service, really, we know every day you're coming in and doing the best job for us, and we don't have to worry about it, and we appreciate that.

It's so gratifying to hear partners like Ernie described how gigabit connectivity has transformed their communities. Now imagine that happening in communities all over, thanks in part to these public investments. Network operators need partners who can help them capture these opportunities, partners who can deliver quickly and at scale. Because we work so closely with our customers, we understand the deployment challenges they face. And right now, a constrained labor market is high on the list. At Corning, we pioneered a solution nearly 20 years ago that eliminated splicing in the field and moved that work to our own factories, creating the industry's first preconnectorized solution for fiber to the premises. We've now taken that concept to the next level with our Evolv platform with terminals that are 4x smaller than conventional offerings. That allows operators to deploy fiber in spaces, not originally designed for today's density of connections. We're continuing to add to our Evolv portfolio to meet today's deployment challenges. This year, for example, we introduced a new type of Evolv terminal with a configuration that's especially well suited to rural deployments. Across the Evolv portfolio, our solutions are sleek and inconspicuous even on a building facade. That, along with our global scale, was important to open reach as you will hear next. Then we'll hear once more from AT&T on their appreciation for Corning as a partner.

Corning really is a world leader in innovation in fiber optics. I'll give you an example. We were fibering a very historic city in a city in Britain called Saulsbury -- It's in the southwest of Britain. And this has very historic buildings. It has an ancient cathedral. And Corning delivered for me a very small format connectorized block terminal that was just much less visible on these historic buildings, and it was super appropriate in the context of a historic city where we didn't want to, in any sense, compromise the beautiful look of those ancient buildings. So that's innovation, that's what I received from Corning. I need to work with partners who have global scale and an ability to scale with my need to scale. And again, I get that from Corning. We call Corning, we say we need to ramp up. We describe the time frame. We described the locations. We need the deliveries too. Corning has the scale and the global supply chain underneath the Corning company to meet my needs. That's it, not everybody can do that.

I always look to Corning as being a long-term partner, and you have been for decades and decades. And when I think about Corning, I think customer focused, I think innovative company. I think about a company that's focused on a customer and their problems. And it's more than just someone that's selling something and someone that's buying something. Is people working on solutions together that end up in a customer's hands and they love the outcome. And so I really appreciate what Corning does. You help us engineer, build and operate our networks at a scale that's pretty hard for people to fathom, and I appreciate that. So I look forward to working with Corning for many years to come.

Thank you, Scott. We feel the same way. So in closing, I want to thank Scott, Clive, Bill, Lisa and Ernie for sharing their thoughts with us today. And all of our customers for allowing Corning to help support their growth. As I hope we've shown, our industry is in the early stages of a major growth cycle with network demand surging, operators laying the groundwork for network expansion and governments investing to bring the benefits of broadband to more people and more communities. Corning is uniquely positioned to rise to this historic challenge. We're making the right investments in capacity, and we have the right customer access to support these network builds. The requirements for these networks overwhelmingly favor fiber. And Corning is the largest fiber producer with the lowest cost manufacturing platform. We work side-by-side with our customers to develop solutions that solve their toughest deployment challenges, and we can deliver at scale. We can't possibly know all the transformative applications that will come to life through the next-generation networks being built right now. But this much, I'm sure of, Corning will be foundational to these networks with our innovations once again, moving the world forward. Thank you very much.