Corning’s dedication to enabling products that allow service providers to take advantage of the generative AI trend is paying off. The optical fiber vendor inked a significant fiber cable deal with Lumen.
During its second-quarter earnings call, Wendell Weeks, CEO of Corning, told investors that while AI creates opportunities inside the data center, the Lumen deal reflects how Gen AI increases bandwidth requirements between data centers.
The agreement, Lumen’s largest cable purchase, will equip Lumen to meet the network infrastructure needs of major data center operators for years to come, including Microsoft, which announced last week that it’s investing with Lumen to support the rising demand for its data centers.
This is a significant deal for Corning as it will serve Lumen’s U.S. intercity network, which includes diverse routes to more than 50 major cities nationwide.
“We've reached an agreement with Lumen Technologies that reserves 10% of our global fiber capacity for each of the next two years to facilitate Lumen's build of a new network to interconnect AI-enabled data centers,” he said. This will be the first outside plant deployment of Corning's new Gen AI fiber and cable system, which will enable Lumen to fit anywhere from 2x to 4x the amount of fiber into their existing conduit.”
The AI opportunity significantly contributed to Corning’s second-quarter optical communications segment.
“Strong adoption of these Gen AI products primarily drove our outperformance in the second quarter,” Weeks said. “It drove record sales in the enterprise portion of our optical business. which grew more than 40% year-over-year.”
Weeks added that Generative AI is “just one of the many growth opportunities we've included in the plan we call SpringBoard, which adds more than $3 billion in annualized sales with strong incremental profit and cash flow within the next three years.”
New Gen AI opportunities
Corning sees Generative AI opportunities within and in between data centers.
While traditional data centers contain a network of interconnected switches and CPUs, the advent of Gen AI requires a second network within data centers to connect every GPU to every other GPU in the cluster, creating a neural network.
Weeks noted that since GPUs have more processing capacity than CPUs, they need higher-bandwidth links to connect them, resulting in about ten times the number of fiber connections in this new network compared to a traditional data center.
Corning has continued to release new fibers, cables, connectors, and custom integrated solutions that it claims can reduce installation time and on-site labor, save space, and lower embodied carbon.
“This not only provides volume, which is great, but also the opportunity to innovate with the major players in this space,” he said.
Weeks emphasized that the Lumen deal is it shows that the advent of a new GPU-based back-end network for Gen AI within data centers will drive “a dramatic increase in the need for fiber to connect these Gen AI-enabled data centers and the network.”
Enterprise drives optical growth
In the second quarter, we marked a return for growth in various segments within the optical communications unit.
Corning reported that optical communications sales were $1.1 billion, up 20 percent from the first quarter, marking a return to growth.
Year over year, optical communications sales rose by 4%, reflecting what the company said was record sales in the Enterprise portion of the business, which was up 42%, driven by AI-related connectivity solutions.
The second-quarter net income was $143 million, up 43% sequentially, driven by incremental solid profit on the higher volume.
Corning is already seeing momentum for the third quarter. The company expects sales to grow to approximately $3.7 billion. This growth will be mainly driven by its optical communications business, including the continued adoption of our new optical connectivity solutions for Gen AI products, which it expects will more than offset the expected slowdown in the U.S. Class 8 truck market.
Edward Schlesinger, EVP and CFO of Corning said that the Gen AI opportunity “adds significant growth.”
“We expect our enterprise business to grow at a 25% compound annual rate from 2023 to 2027, driven by the adoption of our connectivity solutions for generative AI,” he said. And this is already underway. We delivered record enterprise sales in the second quarter, which grew more than 40% year over year.”
Carrier signs of life
While the enterprise business took the starring role in Corning’s second-quarter optical networking earnings, the company noted that the inventory digestion phase is showing signs of movement.
Schlesinger noted that in its carrier business, while customers are reaching the end of their inventory drawdowns and beginning to order closer to their current deployment levels, the situation varies by customer.
“Customer by customer, the inventory situations are different,” he said. “We're not quite there yet on people being completely at their -- buying at their deployment rates.”
He added that Corning expects momentum in the third quarter and as service providers start to leverage Broadband Equity, Access, and Deployment (BEAD) funding next year.
“Government efforts bring high-speed Internet to rural communities through the broadband equity access and deployment program will contribute to growth beginning in 2025 and add significant sales over the next several years,” Schlesinger said.
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