The company forecasts second-quarter core sales above estimates on the back of steady telco and hyperscaler spending
While most eyes are focused on the global chip manufacturers’ recent return to the black, one of the big three fibre makers, Corning, said it was seeing “encouraging signs of improving market conditions,” according to Corning chairman and CEO Wendell Weeks. Corning had already said in January it expects its carrier customers to deplete their excess inventory and resume normal purchasing patterns.
Now, Corning said it expects second-quarter core sales of around $3.4 billion, which is above analysts’ expectations on average. Q1 revenue for the company’s optical communications segment, its largest by sales, was at $930 million, versus estimates of $866.7 million.
“We continue to expect that the first quarter will be the low quarter for the year,” he said on the company’s Q1 results call. “We are executing our plans to add more than $3 billion in annualized sales within the next three years and we already have the required capacity and capabilities in place.”
“In Optical Communications, carrier inventory drawdowns have been the primary source of our below trend sales,” he said. “Once carrier inventory starts returning to more normal levels and our customers resume purchasing to support their deployment rates, we would expect to see our order book grow. And that’s exactly what is happening.”
“Our order book grew nicely from fourth quarter levels. This and our regular conversations with large carrier customers indicate that the gap between our sales and customer deployments is moderating,” he added. “As a result, we expect carrier sales to increase from first quarter levels.”
“As I’ve covered in the last two calls, fibre shipments are more than 30% below trend. We fully expect that gap to close adding more than 40% to our overall Optical Communication sales,” he said. “In conversations with our large carrier customers during the quarter, they reinforced their commitment to increasing fibre deployments in 2024 and beyond.”
AI demand impacts fibre deployments
Wendell said Corning’s recent wins for AI datacentres will translate into orders and sales during the year – part of its Enterprise portion of Optical. Gen AI creates significant demand for passive optical connectivity solutions. All datacentres consists of a front-end network connecting racks of CPUs. To meet the computational demands of AI, customers are now building a new fibre-rich, second network to connect GPUs, which increases Corning’s market opportunity.
“Now we will see this in our financials as customers begin to build large GPU clusters and adopt our latest high-density innovations,” he said. “Customers want fast deployment. Our pre-connectorized structured cabling solutions offer big installation time advantages. And the GPU clusters, which pack a very large amount of computing power per rack requires smaller denser cables making connector size and cable diameter important requirements.”
To meet these high-density requirements, Corning introduced its RocketRibbon cable with Flow Ribbon technology that it said could reduce cable diameter by 60% with fibres per cable approaching 7,000. The company also has its Contour Optical Fiber, which has a 40% smaller cross-sectional area than legacy fibres.
Revenue per GPU
“In our recent customer wins, our revenue is low-single-digit hundreds of dollars per GPU. We believe the customer density needs, combined with our technology’s superior performance will sustain these attractive sales attach rates long term,” he said.
Wendell explained how this impacts spend at a rack level where a typical front-end rack of filled with CPUs has about 32 fibres and 16 ports, two fibres per port. “Assuming one of these back-end network GPU racks will tend to have on the order of a couple of [Nvidia] H100 servers to service those, you need more like 256 fibres on that same rack,” he said. “So, you’ve got about an eight times increase in the amount of fibres per rack.”
Nvidia’s B100 will create even higher density racks and is bandwidth increases latency also becomes critical meaning the processing power is limited by distance and the servers must be closer together. Wendell said pushing the photons closer and closer to “the beachfront” of those GPUs is “opening up an entire new set of categories for us for our flat glass, for our ability to cut the light into various formats…leading to a whole new family of innovations upon which we are working diligently.”