Corning Inc at JPMorgan Global Technology, Media and Communications Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I'll get right into the questions, and we can take some audience questions as we go along. I did want to start with a few more long-term topics for you before we get into the more near-term macro, et cetera, discussion. Your long-term capital allocation decisions, in terms of how you prioritize investments across the different segments or the different market access platforms, is really what I want to start with. How you're thinking about the exposure that you have across these market access platforms to consumer versus enterprise or business spending? And how you're thinking about sort of long-term capital decisions about where to invest?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : No, great. The reason I sort of started with that is you have diversified end markets that you address. But when I look at overall, your exposure to consumer spending, you have limited diversification to overall consumer spending as sort of a driver. How are you thinking about the concentration REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2023 / 1:30PM, GLW.N - Corning Inc at JPMorgan Global Technology, Media and Communications Conference of revenue drivers to consumer spending? Do you see more opportunities to diversify beyond consumers -- the leverage that you have to consumer spending?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. On that front, you mentioned this in terms of more of the Corning product in every end market, but maybe we can go through the different segments. You did sort of touch on it briefly, but when we look at the different end markets, maybe flesh that out a bit more. How do you think about More Corning as a strategy in each of those?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Just to be clear then, in display, how do you think about the More Corning strategy? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2023 / 1:30PM, GLW.N - Corning Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Okay. Let's move to the segments. Starting with Optical, when you think about long-term demand drivers here, how do you think about those long-term drivers? Do they remain intact, particularly if you go through a recession now in consumer spending, and there, the average consumer spend towards some of these services like 5G, broadband were to moderate going forward, how do you think about the long-term demand drivers remaining intact?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Great. Just on that front, though, maybe to look through sort of what's happened in the last few years, how much of the demand slowdown you're seeing right now is a function of pull forward of demand over the last few years? We've seen that across many other hardware categories. We feel that sort of looking at current trends, do you really see this as under-shipping demand and your over-shipping demand for the last few years?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I'll move to a question on margins for the Optical segment. They were up year-over-year despite lower volumes in 1Q. How sustainable are the margin improvements in the near term in the absence of volume improvement? How -- and maybe a follow-up to that. Long-term margins in this business, particularly if you sort of think about the right balance between selling fiber and connected products, where should long-term margins be?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Just a clarification there. Has -- what's the pricing benefit on that front? Is pricing contributing to it? And as some of this demand comes off, what are you seeing on the pricing front?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. You do give us the split for the Optical business in terms of revenue by carrier and enterprise. And if you look at 1Q, carrier was down year-over-year, enterprise was up. The question on that front was going to be, is overall enterprise still holding up a bit better? Is there more risk to downside than in the coming quarters from the enterprise side? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2023 / 1:30PM, GLW.N - Corning Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. And when you think about a rebound between the 2 segments, how do you think about that playing out? Do you see it playing out earlier in the enterprise? Sort of is it a shorter overall or down-cycle for them? Or how are you really thinking about it? Any signs as well of a rebound from either of them?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. For some of the other companies I've hosted, generally, we've started with a question about the macro. And maybe this is the right point to ask you in terms of the capital sort of spending hesitation that you're seeing from your customers. I know there are a lot of macro sort of noise and other things playing out, particularly sort of discussions about the debt ceiling. When you think about sort of when those get resolved as you talk to customers, do customers sort of are waiting for some of these discussions to sort of play out and then wait for a more calmer period before they start spending again? Or any insights from your discussions with customers as to what their inflection not sort of what the trigger might be for them to start spending again?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Last one on Optical. You have the new capacity or the additional capacity you're bringing on in Arizona. Given the broader pullback you're seeing, how you're thinking about pacing it? Is there a more measured approach in bringing that capacity online?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let's switch to Display. Panel maker utilization, you commented on what you've seen in March. I think the obvious question is going to be, how did it track in the month of April related to general 1Q? And are you still continuing to sort of see that improvement? And would your expectations be that we see that improvement continue into 3Q as well?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : The reason to ask about that is I think the sequential increase from 1Q to 2Q is pretty significant. Based on what you're seeing, are you expecting a similar sequential increase or something more moderate? Like if panel maker utilization continues to move up, as you're seeing in April, do you continue to see a strong sequential improvement into 3Q as well?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. On Display pricing, it did decline, I think, slightly on a sequential basis in the March quarter. That was after, I think, 8 quarters of stable to rising prices. Why shouldn't we be thinking of this sort of as the turning point on pricing?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let me open it up here to the audience and see if any questions anyone has. Let me then continue on Display. One more question, and this is in the third party or the public data that we track on Display. And I don't know if you've seen this trend overall because on the Display side, you cater to more of the larger panels. But clearly, through the last year or so, there was a decline or moderation of the average increase in the panel sizes that was evident in third-party data. More recently, it has started being flat again in terms of the increase year-over-year in panel sizes. How should I interpret that? Is that generally a tailwind for you going forward? Or because you really are more concentrated on the larger sizes and didn't see the down moderation on the panel sizes impacting your business, you really won't be a beneficiary on the up cycle as well?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let me switch to Specialty Materials. You've been, as you outlined, outperforming the underlying market there. As you look forward, is there a lot more sort of in terms of new use cases to look on when you particularly sort of focus on the smartphone market in terms of driving content opportunity? Or is more of the increase going to come from like wearables and other products that you can go into?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I mean maybe this is sort of going 1 level down, but in terms of innovation that you're working on in that area, what does that pipeline look like? Because a question that we often get from investors is, you really don't have that much sort of performance improvement on the smartphone glass to really go after anymore. There's probably a bit more on the wearables side as you outlined. But in terms of your innovation pipeline, we've made these visits to your facilities, there's always like new features, new sort of characteristics that you're introducing. What does that innovation pipeline look like? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2023 / 1:30PM, GLW.N - Corning Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Can we talk about the opportunity around AR/VR? Have you sized it up? What that means on the glass side? And is that more again of a bendable sort of higher content opportunity than the normal glass you would do on smartphone?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. The same question, but on the smartphone side and foldable phones. I think one of your primary customers is probably now the only customer that hasn't introduced a foldable phone. So the question on that front is going to be when you think about content per smartphone, how much of an uplift could a foldable phone be? What are you working in terms of innovation to make that sort of glass more essential to a foldable phone? And maybe give us some sense of how long before a customer launches a product with you, something that's as radical as a foldable phone, how long before do you sort of start engaging with them in developing that product?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Yes, please go. Actually, just wait for the mic, sorry. Unidentified Analyst You talked about the automotive marketplace and trying to go after content per vehicle. So how do you make sure you're balancing the margin opportunities in the content per vehicle, so you're not chasing after commodity spaces where there's revenue opportunities? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2023 / 1:30PM, GLW.N - Corning Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Any other questions? Okay. Let me actually follow up on the automotive question here. There are concerns around the automotive market, but still, for the early part of the year, it's held up pretty well. And I think even if I today look at third-party forecasts for automotive, they're expected to be modest growth for the year. How -- I mean it seems like that should be then a segment that you're relatively more positive about relative to some of the others for the year. How are you thinking about automotive and sort of help us balance that out with sort of what are you seeing on the diesel side?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. In the time we have left, let me go through a few questions on the financials or mostly cash flow because that's where I get a lot of questions from investors. So free cash flow generation for the last couple of years has been good on account of low CapEx investments. How should we think about capital spending intensity going forward? Are we sort of at a point where you need to sort of start investing again in terms of higher CapEx? How should we think about the go forward?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. One of the questions I did receive from investors over e-mail even before coming to the conference was, clearly, your Display business is the one that's poised to do very well through this year. What does that mean for capital investment through the year? Where is Display in terms of utilization of your own facilities? Do we need to sort of see a leg of CapEx just to sort of keep up with the growth that you're probably expecting on the rebound?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Free cash flow conversion in relation to net income, that's largely, if I remember numbers right, on average, being around sort of 60%, 70%. Most companies we cover are higher than that, and that's obviously a function of your capital intensity. But as you sort of look at this model longer term, do you see areas where you can sort of tweak things to improve that conversion over time?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : On that front, the ROIC hurdle rate that you have of 20%, is that now largely being followed across all segments? Or does -- do certain segments like Display sort of get a pass because they've already been sort of grandfathered in?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Last one, just you've refrained from doing open market repurchases for a while now. So I think we understand the buyback that you need to do from Samsung, but how should we think about maybe starting some open market repurchases? What could the timing for that look like?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I'll wrap it up there. We're close to end of time. Thank you. Thanks for coming to the conference. Thank you, everyone.