Optical/IP Networks

Amid price increases, Corning hints at a fiber dip

"If we could make more, we could sell more," said Corning CEO Wendell Weeks this week, in comments about the company's optical offerings.

"Cable and fiber demand remains especially robust," he added during the company's quarterly conference call, according to a Seeking Alpha transcript.

However, the financial analysts at Raymond James noted that Corning's optical revenues in the fourth quarter of 2022 clocked in at around $1.195 billion, down slightly from most analysts' estimates.

"We interpret these comments as supporting our thesis that operators are absorbing inventory, but that the longer term trends and demand remain healthy. Corning faces favorable secular longer-term trends in broadband, 5G and cloud," they wrote.

Broadly, the comments from Corning are important considering the company is a key supplier of the actual wires that help transmit data through the nation's telecom networks. Corning supplies much of the core cabling infrastructure that operators like Charter, AT&T, Verizon and others use to build their networks.

Reading the tea leaves

Weeks, Corning's CEO, said demand for the company's optical cabling appeared to remain sustained despite its latest round of price increases. "We just finished executing perhaps the most significant price increase – not perhaps, the most significant price increase in my 30-plus years of being associated with optical communications, and we did it successfully, which gives you an idea of the extent of planned demand in this business," he said.

However, Weeks declined to speculate on whether Corning is seeing increased demand for its optical products as it heads into the first quarter. "Let me get another month or two into it [the first quarter], and we should be able to tell you how this all looks. We're very close with our customers. We're watching what they're doing. We're talking to them a lot on their project timing," he said.

Corning's comments dovetail with what appears to be a slight fiber pullback among some of its biggest customers. For example, officials from Lumen Technologies recently confirmed concerns that the company has paused its fiber buildout efforts. Separately, AT&T's own massive fiber buildout plan remains on track, but the company outlined a slowdown in the annual pace of its program that had some analysts scratching their heads. And Verizon appears eager to direct its own spending toward an expansion of its fixed wireless offerings, not at its fiber network.

"Corning optical communications results were down quarter over quarter, reflecting service provider inventory absorption, though management commentary was constructive and overall demand remains resilient," noted the analysts at Raymond James.

Ramifications for the broader market

Corning of course is not the only big player in fiber and network infrastructure in general. And broadly, analysts see sustained demand for networking equipment. For example, broadband network spending will steadily climb in the next five years thanks in part to ongoing fiber network builds and upgrades, according to a new forecast from Dell'Oro Group.

Indeed, networking vendors ranging from Calix to Juniper Networks reported relatively positive financial results and outlooks this week.

Further, according to the financial analysts at Evercore, hyperscale cloud computing players like Amazon and Microsoft also plan to spend heavily on their own data centers and networking infrastructure, in order to stay ahead of expected demand. "We have seen mixed customer end market trends for data center companies," they wrote in a recent note to investors. "However, we note that their [cloud computing companies] capex outlook remains positive (supporting increased cloud usage) while investments in next-gen tech solutions (AI/ML/metaverse) will require increased compute power."

Meanwhile, vendors continue to work to meet that demand. As noted by Dan Grossman, an analyst with Strategy Analytics, Cisco's Acacia recently shipped a 1.2 Tbit/s optical module. "This is a milestone. In the past 10-12 years, the state-of-the-art in optical networking has operated at hundreds of Gbit/s per wavelength channel," he wrote on the company's website. "Now commercial systems have crossed the Terrabit mark."

He noted that, in the early days of the Internet, when demand was relatively low, most networks operated in the Kbit/s territory. "Crossing the Tbit/s threshold is a reminder of how far the industry has come in the past 40 years," he wrote.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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