Corning (GLW +9%) impresses the market with its positive Q2 guidance, projecting EPS at the high end of its previous outlook and raising its revenue forecast by $200 million. The company anticipates Q2 revenue of $3.6 billion, up from $3.4 billion, marking its first year-over-year growth since Q3 2022. This comes after a challenging period marked by weakened demand.
GLW's revenue is not solely dependent on glass for displays in smartphones and TVs, which made up 45% of FY23 sales. A significant portion comes from its Optical Communications segment (30% of FY23 revenue), which includes low-loss optical fiber used in telecommunications networks. Both segments have faced reduced demand as consumers delay upgrading their devices and telecom companies manage excess inventory from the pandemic. This inventory issue also affected GLW's Environmental Technologies and Life Sciences segments.
Last quarter marked a turning point for GLW, with its optimistic Q2 outlook suggesting a shift in the demand landscape.
- Gen AI has driven significant demand for GLW's Optical business, securing major wins for AI data centers. Management expects this to result in order and sales growth throughout FY24, as AI's computational needs push customers toward fiber-rich connectivity for GPUs.
- TV panel makers are increasing utilization levels in response to growing retail demand. GLW's decision to reduce production last quarter to align with lower volumes impacted profitability but is expected to yield higher profitability in Q2. PCs are also gaining momentum, with AI PCs providing an additional boost in the second half of FY24.
- The smartphone industry is also seeing similar trends, benefiting GLW's Specialty Materials segment. As a supplier for Apple's (AAPL, Financial) latest iPhones, GLW stands to gain from increased demand for the new AI iDevice, with AAPL already experiencing a surge in China-related sales.
GLW's Q2 guidance indicates that the worst of the macroeconomic challenges may be behind the company. While uncertainties remain, such as consumer willingness to upgrade TVs, buy new AI PCs, or purchase the latest iPhone, investors are optimistic, betting that economic conditions will not deteriorate further.
