Citi: Corning’s optical communications business drives earnings beat as solar capacity ramp slows growth

What drove the third-quarter beat?

Corning’s third-quarter revenue was $5.081 billion, up 19% year over year and above the company’s guidance of $4.9 billion to $5 billion and the FactSet consensus of $5.03 billion. Non-GAAP earnings per share were $0.91, up 36% year over year and above both the top of guidance at $0.89 and the market estimate of $0.88.
Optical communications was the main driver: revenue was $2.379 billion, up 44% year over year and above the market estimate of $2.24 billion; segment net income was $532 million, up 80% year over year, with a net margin of 22.4%.
Overall gross margin was 40.5% and adjusted operating margin was 22.7%, above market estimates of 40.2% and 22.2%, respectively.

Enterprise optical communications revenue rose 84% year over year, including growth of more than 100% in generative AI-related sales, driven mainly by deployments of AI scale-out networks.
Higher utilization of existing capacity, a greater share of high-value new products launched since 2024, and price increases tied to technology value and long-term supply agreements together drove optical communications margin expansion. Management believes margins can continue to improve even as new capacity comes online.
Optical communications capacity remains somewhat tight, and the company is expanding fiber and connectivity product capacity. Long-term agreements have begun contributing to results; management expects AI scale-up demand to emerge in 2027 and grow more noticeably in 2028.

Solar revenue was $436 million in the third quarter, up 37% year over year but below the market estimate of $495.3 million, and the segment posted a net loss of $7 million. Management said the ramp-up of wafer and module capacity was slower than internally expected and forecast improved financial performance in 2027 as the ramp matures.
Glass Innovations revenue was $1.506 billion, down 3% year over year and below the market estimate of $1.55 billion; net income fell 10%. Management attributed the decline in profitability mainly to higher corporate-level variable compensation expenses and expects this effect to fade next year.
Demand for phones, IT equipment and televisions remains soft. The company said display glass price increases will begin contributing to revenue in the fourth quarter and plans to use price increases and foreign exchange hedges to address pressure from a weaker yen and inflation costs; the yen’s impact is concentrated mainly in 2027.

The company expects fourth-quarter revenue of $5.2 billion to $5.3 billion, with the midpoint above the FactSet consensus of $5.2 billion; its earnings per share guidance of $0.96 to $1.00 is above the market estimate of $0.93.
Management reiterated the Springboard plan: annualized revenue will reach $20 billion, $30 billion and $40 billion at the end of 2026, 2028 and 2030, respectively, with earnings expected to grow faster than revenue. Annualized revenue here refers to the run rate at each year-end.
Adjusted free cash flow was $661 million in the third quarter. Management expects both operating cash flow and capital expenditure to rise in 2027, while free cash flow will still grow; customer prepayments associated with long-term agreements help fund capacity expansion.
Citi maintained its Buy rating and expects earnings per share to grow at a compound annual rate of more than 40% through 2028. The bank lowered its price target from $220 to $200, citing lower valuation multiples for peers and the market; the new target uses approximately 28 to 29 times expected 2028 earnings, down from 32 times.