Corning, Inc. (NYSE: GLW) Third Quarter 2022 Results Conference Call October 25, 2022 8:30 AMm. ET
Participating companies
Ann Nicholson – Vice President, IR
Wendell Weeks – Executive Director
Edward Schlesinger, Executive Vice President and Chief Financial Officer
Conference Call Participants
Mehdi Hosseini – Susquehanna
Steven Fox – Fox Advisors
Martin Yang – Oppenheimer
Wamsi Mohan – Bank of America Merrill Lynch
Tim Long – Barclays Bank
Joshua Spector – UBS
Shannon Cross – Credit Suisse
Samik Chatterjee – JPMorgan Chase
Matthieu Niknam – Deutsche Bank
Meta Marshall – Morgan Stanley
Operator
Welcome to Corning Inc. ‘s Third Quarter 2022 Results Call. [Operator Instructions].
I’m introducing Ann Nicholson, Vice President of Investor Relations.
Ana Nicholson
Thank you and good morning. Welcome to Corning’s third quarter 2022 earnings call. With me are Wendell Weeks, President and CEO; Ed Schlesinger, executive vice president and chief financial officer; and Jeff Evenson, executive vice president and chief strategy officer.
I wish to remind you that today’s comments involve forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks, uncertainties and other points that may cause actual effects to differ materially. These points are detailed in the Company’s monetary reports. You should also note that we will be discussing our core functionality measures of consolidated effects, unless in particular we disclose our comments similar to GAAP data. Our key functionality measures are non-GAAP measures used through control to analyze the business.
For the third quarter, the main difference between GAAP and principal EPS was primarily due to non-cash expenses related to capacity optimization and non-cash market value changes related to the Company’s foreign exchange hedging contracts.
This largest major source of revenue in the third quarter was $234 million. To be clear, those fees and market-adjusted accounting didn’t affect our cash flow. in the Investor Relations segment of our online page in corning. com. You can also access Corning effects on our downloadable monetary knowledge online page from the Interactive Analysis Center. Support slides are broadcast live. They are also available on our online page for download.
And now I’m passing it on to Wendell.
Wendell Weeks
Thank you, Ann, and good morning everyone. Today, we report strong third-quarter effects demonstrating strong execution. We also continue to operate each of our businesses and our focus on leadership and unique roles allows us to capitalize on vital secular trends and drive our More Corning approach. Sales were $3. 7 billion, slightly higher than a solid third quarter last year, and EPS was $0. 51. We were able to offset the decline in sales in demonstration technologies with the expansion in optical and solar communications. While billboard manufacturers’ production bottomed out in September, we would like to see more positive evidence before guiding a significant recovery in glass demand.
Overall, we perform well despite the economic context. Before going into details, I sought to put into context what we face in our markets. On our last call, we told them that the end markets of several corporations were down. In the current quarter, smartphone sales fell 8% year-on-year, with panel manufacturers’ use in June 2022 at its lowest point since 2009. And every year, car production declines by 10 to 15 million cars than before. COVID-19.
Several of those dynamics continued or even intensified in the third quarter. Sales of smartphone sets fell 14% year-over-year in the quarter, as demand for tablets and laptops declined 17%. Panel manufacturers’ use has declined since June level, with September being the lowest month of the quarter and annual auto production still below 10 to 15 million cars due to continued component shortages.
However, we had effects within the diversity of our forecasts and expectations. We continue to take advantage of investments in broadband and blank energy infrastructure, two long-standing trends for which we are strategically positioned. We saw 16% year-over-year expansion in optical communications and captured continued demand in the solar market, contributing to a 33% year-over-year expansion in Hemlock and Emerging Growth Businesses.
So let’s take a deeper look. What we’re seeing in some of our key markets, how we’re responding to it. And why we are confident that our strategy continues to position us to drive successful multi-year growth. I’ll start with the screen. In the third quarter, the glass market and our volume decreased by approximately 25% sequentially, which particularly reduced our sales and profitability. In September, the use of panel brands reached its lowest point since the fourth quarter of 2008.
More than a year ago, we announced that we expected a correction in the demonstration industry in 2022. In the current quarter, panel brands began to decline production levels with accelerated cuts in June. In the third quarter, panel production reached a uniform decline. level. And we believe that the production of the panel brands bottomed out in September.
So now the question is, when will the glass market recover?Now, our answer is that we would like to see more positive evidence before guiding a physically powerful recovery in glass demand. We have maintained solid costs and positioned the market in this correction. As a result, we expect our volume and profitability to increase considerably as the use of panel brands recovers and we plan to emerge from the correction with strengthened relationships with visitors and, more importantly, a renewed production fleet. As always, we’ll keep you posted as we go.
Overall, we felt great in our demo run. In mobile consumer electronics, visitor product launches and the strength of semiconductors drove the sequential expansion of Specialty Materials. As I noted, retail sales of smartphones and computers declined especially in the quarter. We expect smartphones to decline by 12% over the year. And we expect a 15% drop in demand for laptops and tablets. We expect the year-over-year decline in smartphones, laptops and tablets to be greater in the moment part than in the first part. This will restrict the expansion we usually see in our sales in the moment part compared to the first part.
That said, we continue to outperform the market thanks to our product leadership, our more Corning focus, and our ongoing collaboration with industry leaders.
In the long term, our content strategy in mobile customer electronics will grow. As we continue to expand and launch premium lenses and optical treatments, for new and existing form factors.
In addition, we are running our most Corning technique in the semiconductor industry. In July, Senator Chuck Schumer and New York Governor Kathy Hochul joined us in announcing a government investment to help expand our optical facilities by manufacturing important devices and fabrics for semiconductor production. Of course, semiconductors are staples for virtually every generation we interact with today. We’ve been helping move the industry forward for over 50 years, and our expansion will keep us well placed to help with almost every step. of the chip production procedure and meet the new needs of visitors, adding products for the generation of EUV.
Let’s move on to the car. In Environmental Technologies, we achieved sales and profit expansion despite vehicle production limitations, and outperformed the market during the year. We continue to adjust our operations to manage automotive production variability well and are in a position to meet demand for when industry production increases at overall rates.
We are also generating significant profits in our automotive glass solutions business. The charm is in our technical inventions in glass and optics.
During the quarter, CarUX, a leading automotive demonstration company owned by Innolux, announced the use of our patented bloodless molding technology to contribute to the long duration of automotive internal demonstrations. The industry offers more complex and designed cabs and improved motive force assist functions.
Let’s move on to optical communications, which was the main contributor to third-quarter sales. The industry continues to revel in a significant multi-year expansion wave for passive optical networks, and we continue to increase our capacity for this expansion.
In August, U. S. Secretary of Commerce Gina Raimondo joined AT’s executive director.
In September, we opened a new fiber optic production plant in Poland to meet demand. And we are innovating in each and every phase of broadband deployment, as network access is increasingly perceived as a basic human right.
During the quarter, we announced additions to our Evolv connectivity portfolio that operators streamline authorizations, drive enclosure installation, and streamline network testing. strong growth. However, we expect a sequential decline in fourth quarter sales due to the timing of visitor projects.
Let’s move on to the sun. The renewable energy industry is evolving rapidly and our continued expansion indicates that market habit is more strongly tied to a global imperative than to existing economic trends. The company acquires long-term agreements for solar-grade polysilicon. Third quarter sales increased particularly year-over-year and we will benefit from the State of Michigan Infrastructure Investment Program, which will help us expand our business to meet the growing global demand for polysilicon. Corning’s broader technical and production capabilities, No. 3 and 4, will prove highly applicable and help advance the renewable energy industry, and we see a wonderful prospect of expansion in the sun.
As I conclude my remarks, this is what I would like to leave you with today. We remain well placed to deliver a successful multi-year expansion and will continue to execute with discipline. We will invest where we see strength and maintain the speed to meet demand. Our cohesive and targeted portfolio provides strategic resilience that works well in today’s environment. We have established great relevance to secular trends, as well as the ability to generate more content in our markets over time. We have been leaders in life sciences and automotive. markets for a hundred years, in demonstration for 80 years, in telecommunications for 50 years and in electronics of cellular customers since the creation of smart devices.
The foundation of our continued good fortune is our unique set of features and long experience of life-changing and even life-saving inventions.
In the past, it allowed us to navigate moments like the current while maintaining a long-term expansion trajectory.
Let me now pass the floor to Ed, who will share more main points about our results, monetary priorities, and outlook.
Eduardo Schlesinger
Thank you, Wendel. Hello everyone. Let me start by emphasizing that we are performing well in a challenging environment. Our third-quarter functionality demonstrates the inherent balance of our consistent portfolio and that our More Corning technique is working. We are designed to be resilient even in times of recession. .
Now let’s take a look at our monetary effects for the third quarter. Sales were $3700 million, up 1% from the third quarter of 2021. Optical communications, environmental technologies, life sciences, and the emerging and developing activities of hemlock all grew year-over-year. .
In September, Display Technologies experienced the lowest usage grades of panel brands since 2008, resulting in a 28% year-over-year decline in third-quarter sales. In specialty materials, we outperformed the smartphone market, which experienced a double-year-on-year double-digit decline.
Let’s move on to profitability. Gross margin 36. 1% and operating margin 16. 9%, a sequential low of 140 and 190 basis points, respectively, due to minimal volumes in demonstration technologies.
Free cash flow in the third quarter was $255 million and, so far this year, $866 million, keeping us on track for another year of healthy money generation. And despite the challenging environment of the quarter, we were able to offset the significant decline in the volume of technologies demonstrated and overall, outpacing our underlying markets.
Now let’s move on to the segment results. In optical communications, sales increased 16% year-over-year to $1300 million. Our year-over-year expansion was driven by network operators’ investments in 5G, broadband and cloud. Net revenue source was $183 million, an increase of 32% year-over-year. year after year, thanks to the leverage of a strong additional volume. Passive optical networks continue to revel in a significant multi-year wave of expansion. without ties and bringing broadband to a much larger percentage of the population. We continue to secure our consumers’ commitments and invest to adapt production appropriately to meet the additional demands of our current and new consumers. And we’re also taking other higher-percentage pricing measures with our consumers recent increases in energy and safe raw curtain costs.
As we have discussed in the past, this activity can be spotty quarter over quarter, and you will see it unfold in the fourth quarter, as we expect a sequential decline in optical sales based on the timing of visitors’ projects.
Now let’s move on to the demonstration. As we informed you in September, panel brands have decreased their production levels below our expectations, which were already low. The volume reduction resulted in a 28% year-over-year decrease and a 22% sequential decrease in demo sales, and we saw a 46% year-over-year decline. Over the year and 41% less sequential in the net revenue source due to the nature of the higher constant costs of glass manufacturing. In the third quarter, the value of glass was again sequentially consistent. And we, the glass value environment will remain favorable and that the factors that continue to drive those favorable values come from the balance between glass source and demand, as panel brands reduce production, Corning and other glass brands have pulled off more tanks for maintenance after a long era of glass sealing.
And we are also taking this opportunity to upgrade part of our fleet with our newest generation that allows us to quote and extend the life of new tanks. As we continue to work on those updates, we actively manage reboots to align our source with order.
Another thing is the profitability of glaziers. It is difficult for glaziers with consistently high costs to maintain periods of low-volume profitability and the existing inflationary environment amplifies this challenge. We expect glass costs in the fourth quarter to be consistent with those in the third quarter and glass costs to be robust or emerging in the coming quarters.
So, overall, we continue to operate from a strong position in the demo market. And as Wendell noted, although panel manufacturers’ use bottomed out in September, we’d like to see more evidence before we get a significant recovery in glass demand. But when the demand for glass construction increases, we expect our volume to increase and our profitability to improve.
At Specialty Materials, the smartphone market fell 14% and the pill and paperback market 17%. We outperformed the market with sales down just 7% year-over-year, driven by strong demand for high-end eyeglasses and the strength of semiconductor fabrics. Third quarter sales increased 7% sequentially, driven by demand for our premium roofing fabrics for visitor product launches.
And in addition to our resilience in the segment, Advanced Optics generated record sales for the time being in a consecutive quarter, and we are adding more online capacity to our services in Fairport and Guangzhou, New York. The segment’s net revenue source was $96 million, down 10% year-over-year due to declining volumes and steady price progression similar to next-generation products. Weakness in the smartphone, pill and computer markets intensified the quarter, and we expect fourth-quarter sales and profitability to decline sequentially and year-over-year throughout the year. In the long term, we plan to outperform the market by proceeding to expand and launch new lenses and high-end optical treatments.
Turn to environmental technologies. In the third quarter, sales were $425 million, up 10% year-over-year and up 19% sequentially. Auto production advanced from a very low-point quarter as the Chinese recovered from the current quarter’s COVID lockdowns. However, vehicle production remains due to the continuing shortage of components.
In addition to our sales growth, we increased our profitability with a net profit source that increased by 45% year-over-year. Our content-based strategy is working, gas component filters remain a critical component of that strategy, generating profits even in a weakened market. Our new generation filters are now shipped to consumers as emission criteria are successful at grades close to 0 and require improved filtration performance.
In life sciences, sales were $312 million, on a steady sequential basis and up 2% year-over-year. Lower demand for COVID-related products offset by expansion in research products. Net source of income $43 million. We continue to commercialize innovations, adding the new platform for the production of mobile and gene therapies. And for the future, we expect continued expansion in biological studies and processes.
Finally, in the Hemlock and Emerging Growth businesses, sales were $407 million, up 33% year-over-year and down 3% sequentially. And we continue to build solar capacity and recruit new consumers with long-term enterprise acquisition agreements.
In September, Corning Pharmaceutical Technologies announced that it had secured an additional $104 million investment from BARDA to help our planned capacity expansion for advanced, high-quality pharmaceutical glass tubes and vials. These expansions are designed to help the fitness industry develop production to meet existing, long-term public fitness challenges.
Now I need to take a minute to talk about exchange rates. As you know, the dollar has strengthened over the past year. As a reminder, we have actively covered our exposure to foreign currencies over the past decade. It is an effective tool to decrease profit volatility, protect our cash flow, our ability to invest and generate shareholder returns. Our biggest exposure is the yen, and we’ve got next year’s high covered. We expect our base rate to remain the same in 2023.
We are very pleased with our policy program and the financial certainty it provides. We’ve made more than $2 billion in money from our hedging contracts since their inception.
Now let’s move on to the outlook for the fourth quarter. We will be expecting increasing sales in diversity from $3. 45 billion to $3. 65 billion and EPS in diversity from $0. 41 billion to $0. 47. Now, our fourth-quarter guidance reflects several factors. In optical communications, the speed of visitor projects will have an impact on sales in the quarter. In specialized materials, we expect a sequential decline due to declining demand in the smartphone, computer and tablet markets. And, of course, the most important detail of our recommendation is the screen. As I noted, we still don’t have enough positive evidence to direct a significant improvement in glass demand from September levels. We expect loose cash flow to be strong in the fourth quarter. And for the full year, whether it’s waiting for a loose cash flow in diversity from $1. 3 billion to $1. 5 billion.
Now, I would like to conclude with a few key points. As I indicated at the beginning of my remarks, we are doing well. And because of the inherent balance of our consistent portfolio and our More Corning approach, we are designed to be resilient even in the face of a recession, as evidenced by functionality. of Special Materials and Environmental Technologies this quarter. Our long-term expansion drivers remain intact and we are well placed to continue capturing expansion similar to key secular trends such as optical communications and solar.
In the meantime, we will continue our strong balance sheet and employ a highly disciplined capital allocation technique. Given the external environment, we are taking steps towards profitability, strictly managing capital expenditures and prioritizing cash flow.
With that, I’ll return to Ann for questions and answers.
Ana Nicholson
Thank you, Ed. Crystal, we are in a position for the first question.
Q&A session
Operator
[Operator Instructions]. And the first will come from the hand of Mehdi Hosseini of Susquehanna.
Mehdi Hosseini
Two things I need to dig into. Is there a minimum OpEx you can offer us?I perceive that there are many moving parts, especially with macro headwinds.
And the same with CapEx, there is no visibility into when the demo will demonstrate a bounce. So, do we assume that the CapEx trend for next year will show a year-over-year decline?
Eduardo Schlesinger
Mehdi, what I would say about OpEx, we are indeed taking steps to suspend spending in this existing environment. As I mentioned, our purpose will be profitability and our cash flow. I don’t think, since we’re satisfied with our long-term expansion drivers, we’re going to take significant steps at least at this point.
And on the capital side, we’re definitely postponing spending here as we enter the fourth quarter, and you’ll see the speed of our spending slow down a bit.
Ana Nicholson
Our question?
Operator
[Operator Instructions]. Our next one comes from Steven Fox of Fox Advisors.
Steven Renard
Two questions on optics, if I may. First of all, as for some of the breaks or pumps of the task that you see, which gives you the assurance that this is something worse and that you see more delays, especially like the technique of the winter months and with some of the upheavals in Europe?
And then, secondly, can you give us a concept of how the acceleration of plants, the new plants for Optical, has helped?I guess it helped margins in the quarter and how it’s helping next year and what’s the backlog with construction for Arizona.
Wendell Weeks
So Steve, first of all in terms of macro, and you’re following all of this pretty closely. Macro demand for Opto is incredibly strong. But as you know, what we’re doing is making sure that we’re supporting consumers who are going to be major players in the long term and the nature of telecommunications is that there’s a pretty concentrated industry. So all that has to happen is when some of our biggest clients finish converting their completion term or converting their schedule, that’s what leads to the mass of our revenue. Here at Opto. And as you know, I tend to be pessimistic about Opto, but only the kind of overwhelming evidence that demand is very high.
Now, how long can these time adjustments take place?I think he’s right about what can happen in winter or what tends to be a little slower for us in terms of seasonality. And it’s legit, whether it’s in the last 3 months or a little over 3 months, it’s hard to say. What is simple to say is that the demand for Opto is very high.
Steven Zorro
And then about the effect of the new plant?
Wendell Weeks
And Steve, I was going on to say, I think the factories that we opened recently are working well. It seems to me that we have added capacity. We’ll be able to use it as we go along, but it takes a little while for all the price drag to go away and we deserve to see that kind of total increase and monetary effect in 2023.
Operator
And the next one comes from Martin Yang of Oppenheimer.
Martin Yang
First of all, can you share with us 1 or 2 most commonly monitored as a reliable leading indicator for the demo segment where it will be more comfortable to call for a recovery after seeing adjustments in those indicators?
Wendell Weeks
So, our analyses are smart to be able to say, for example, last year we said there would be a correction in 2022. And then they’re very smart to do things like call a back because we can know where our panel manufacturers operate. , and what exactly is going on with your inventory, etc. They are not so smart at tracking the precise moment of a turn.
So, for example, our analyses would have indicated that the panel production industry deserves to have started. It’s a much more physically powerful correction in the fourth quarter of last year in the second quarter, but it only started in the second quarter and then accelerated in the third quarter.
So while we’re literally comfortable with our analyses, we’re at an all-time low. The call at the time when this recovery is waning now literally analyzes the mental habit of shoppers in this industry. A trend to try to do so, it’s a bit softer, but we’re looking for the inflection issues of panel pricing. That’s where the absolute point is, but when they change and it’s a buy signal for buyers. , is fine, and provides a signal to panel manufacturers.
How are the feedback from stores and scenario creators, why do we talk to them constantly?How do they feel about what they see because it will influence their behavior?
So, looking at all those things, what we would say is that we can’t yet say in which precise month we’re seeing the strong recovery, right?We will want to see more of this accumulation. But we can’t say with enough confidence that September was a minimum. And now it’s just a matter of when we’re going to show up.
Operator
Our next one will come from Wamsi Mohan of Bank of America.
Wamsi Mohan
Wendell to adhere to that beyond doubt, would you say that you have revealed in recent weeks degrees of stock in the chain of signaling sources?I was wondering if I could perhaps characterize not in absolute terms, but at least in relative terms terms in which we are compared to cycles beyond in terms of weeks of existence?And Ed, if I may, I appreciate the fact that you’re heavily hedged for 2023, but the yen has notoriously moved to Array. Your base rate is Array Maybe you can give investors a longer-term view of the yen’s hedging strategy and maybe a calibration on the forward-looking effect beyond 2023. How do investors deserve to think about it?
Wendell Weeks
Thanks Wamsi. The stock of the price chain, we would say that lately is in healthy diversity and is starting to technique a kind of a little tight for health. It’s like one of the analyses where we can say, “Okay, okay, the correction did what it was intended to do. So, that’s what we think about the overall stock of the price chain. Does that answer your query about that?
Wamsi Mohan
Yes, that’s right, Wfinishell. Je just wondering if there were any, as I think you discussed in the last 10 to 15 weeks, delving into the other times of the other cycles. And are we at the declining end of that or the upper end of that?And does that give you greater confidence that we’re at the bottom of the usage rate scale?
Wendell Weeks
So, the pandemic has replaced what is healthy and what is not and all the demanding situations in the chain of origin. But what we do is we’ll probably update it if it’s a query you have about how we look at it in general. And Ed will stay with you and share our minds on how we analyze the industry.
Eduardo Schlesinger
And Wamsi, on the yen or on the currency in general, I will make some comments. So I think you know we’re remarkably long on the yen. We are short on other currencies. Most currencies are weak, or weakening against the dollar. So, we’re seizing an opportunity during this era in some of the currencies we’re short on. And they’re weakening against the dollar to save additional coverage, right?It seems to be opportunistic despite the fact that the yen is weak and this has an obvious effect on our overall base rates because we see them as a basket of exposures.
And then, when it comes to the yen, we keep looking for tactics to protect ourselves beyond 2023. We have hedges in position beyond 2023 and the more you spend, the spot rate or the forward rate, sorry, the forward rate is below the existing spot exchange rate, which gives us the opportunity to do additional things. We will keep investors informed. We understand how other people think about it, and we will be opportunistic and try to protect ourselves at that existing base rate level.
Operator
And our nextArray please. The next one comes from Tim Long of Barclays.
Tim Largo
First of all, could you tell us a little bit about the time agreements that take place in this industry?Perhaps looking at the next few quarters, do you see this a little more in the telecommunications aspect or in the middle aspect of knowledge?Maybe if only you could analyze what those two divisions look like in the pipeline.
And then, on the telecom operator side, we hear more and more around the world about macro and energy load pressures and anything that doesn’t have potential effects on fiber constructions, which have obviously been very strong in recent years. Are you starting to hear more caution from consumers who would possibly be looking a bit into the telecommunications aspect because of the macro?Or do you think there are enough government projects and they’re just pushing for broadband to make it a spending priority for the telecom vertical?
Wendell Weeks
So I’d say it’s for our numbers like our post because when you have a macro environment it’s strong. And then all that happens is the customer’s time. Then, it ends up allowing us to respond from our order book, which is what happens. And in our order book, it would essentially be some key telecom operators, which affects the timing of our allocation more than anything else, right?
So those are long-term projects. And then they launch one, they conclude one, they start another. And those can be lumpy.
As for macro, I don’t know if we’re the right ones to ask because there’s so much demand, and we’re still short, especially in fiber and cable, that we’re going to have a tendency to get more signals than they need more. and more, and they show how competitive their plans are. So, we probably get a lot more than we are the macro type, they are cautious.
The combination of primary government systems around the world that don’t actually start starting to start starting for almost another year, as well as catching up with all the call that has happened during the pandemic and how much of their core capacity, their protective capacity has been fueled through demand, as well as 5G, the cloud, all the broadband initiatives, all those things are kind of a positive bullish signal for us. That doesn’t mean you’re not right that they can revel in anything in macro. We just don’t hear it.
Tim Largo
Yes, it is. Very, very useful.
Operator
Next is from Josh Spector of UBS.
Joshua Spector
Just two quick questions, if I may. I’m just curious to know your point of confidence in the valuable comments that are displayed. A little surprised to communicate about a worthwhile hike there next year. It’s a bit early on this point. So I’m curious if it’s based on expanding usage rates or it’s something you see potentially betting on one of those scenarios.
And then just a follow-up to the quarter’s restructuring fees. Can you comment on what has been restructured within emerging expansion companies?
Wendell Weeks
Therefore, our confidence in the value was driven by our performance in this correction and by the fact that our values have remained strong at each and every level, adding here in this last quarter.
So, you’ve heard from Ed a kind of dynamic that has led to this a little bit, but we feel smart where we are, and we expect costs to continue to be solid as we leave the correction because they’ve held steady. process. in the correction and on the back of the correction.
Eduardo Schlesinger
And Josh, I’ll comment on price restructuring. So what you saw this quarter is more commonly similar to some kind of startup, moving more toward marketing. We often have Gen 1. Et assets as we move into a high-volume production state, we advance our technology. Our prices are particularly going down and we’re making those Gen 1 assets obsolete, and that’s the main driving force of what happened in the third quarter.
Operator
Our next one will come from Credit Suisse’s Shannon Cross.
Shannon Cross
I searched to make a query about solar energy. Can you tell us what you think the ERI contribution and order backlog is or how we think about orders and then the prospect of increased capacity over time?Because I think this can be a wonderful opportunity for Hemlock, especially if he starts bringing more capacity to the United States.
Eduardo Schlesinger
Shannon, first of all, would say that we feel good about our solar activity. This was a big component of our ability to offset the decline in demo volume in the third quarter. And our orders are strong and we continue to recruit consumers and sell the capability we’ve put online. And we see this as a trend of secular expansion in the future. I think, as we’ve shared, we have more capacity than we can put online and we’re in the process of comparing that and precisely when all this will happen. And indeed, we take a look at all the recently passed legislation and its effect on us. I think everyone can. . . You can see this as a positive thing for us, and we’re going to go back in time and communicate it in a little more detail.
Wendell Weeks
Shannon, you’re right to look at him and say, “So, I think he’s probably very smart for Corning. “And we’ll keep you posted early in the year on what we think it will mean.
Operator
And we’re going to take our next consultation from Matt Niknam of Deutsche Bank.
Matthew Niknam
Only two, if I could. First, more on macroeconomics and a call for context. But more in your end markets, do you find that tighter monetary situations are affecting your clients’ propensity to invest for next year?
And then secondly, about pricing, I know you talked a little bit about value increases, it turns out there’s a little bit more that can happen in Optical. I wonder if you’ve noticed any kind of withdrawal or hesitation to digest those increases in light of some of the tighter monetary conditions.
Wendell Weeks
So, we see that economic situations are playing into our end markets. So, as I shared in my introduction, whether it’s smartphones, laptops, panel manufacturer use, automotive, we find markets that are strongly tied to customer electronics or strongly linked to intake has already declined significantly. For now, this has led our customers to keep pace. We haven’t noticed them getting out of their long-term concepts about what to invest in.
Just like us, it takes our consumers a long time to develop production capacity and expand new technologies. So far, we haven’t noticed a relief in your long-term appetite. Most other people see that economic considerations are already coming to them. The real question is when it will come to light and then prepare for it. So I would say it’s kind of animal spirit that we’ve known so far.
In terms of value, yes, we say that in Opto we have experienced more inflation, and we are going to, let’s technify our consumers to increase the percentage during the next quarter. Throughout the year, we really did a pretty smart task. Power percentage of the inflation we have experienced with our consumers with value increases literally across our entire business base. So far, we’ve been able to do it effectively and I get that query next quarter, and tell you how that last circular went.
Operator
And the next one will come from JPMorgan’s Samik Chatterjee.
Samik Chatterjee
I guess I had a similar macro query for you, Wfinishell, which is, I mean, for a long time, you’ve outperformed the underlying markets you’re concerned about, and the engine, there’s been more Corning content in each and every end market. I think as we move into next year and the macro becomes more challenging, have you noticed in cycles beyond the bears, any change in the willingness of consumers to keep expanding Corning content, especially in some kind of trick?macro. And any kind of pullback you’re also seeing in costs right now, given that inflation is obviously something that has to go through. But at the same time, the macro is starting to get a little worse than expected. Are you starting to see consumer hesitation in those negotiations as well?
Wendell Weeks
Excellent question. Most of our More Corning games have a tendency to reduce our visitors’ prices or their ability to provide an important service to visitors as they see it. So, in macro, I would say no, we’re not seeing a relief in their capacity. Let me give you a clever example about cloud-based drives. Therefore, our new set of inventions necessarily gives us the possibility to supply connectivity systems that are fully designed so that we save 40% of the structures for them, we can say, months and installation time. .
We have taken a step forward in the quality of everything. And so that, in total, you give us many more prizes, many more sources of income, and yet it saves you money over time. It’s like a typical angle for us at More Corning, and we continue to see smart adoption of those. Your question. What’s appealing is that when you get into cellular customer electronics, you see other strategies. There are only a few transparent winners who have passed through there and continue to invest heavily in the attributes of the products they offer to their customers. And some of our other cellular customer electronics players, namely in China, have lost in this premium war and are doing a little less of our key innovations. But in total, the winners invest more with us. So, and [indistinguishable] he still thinks More Corning’s basic strategy is going well, a very strong heartbeat. So, it’s still up for grabs. But I get the question. That’s an attractive question. It’s unique.
Operator
And the next one will come from Morgan Stanley’s Meta Marshall.
Marshall Goal
Perhaps the first query about Optical. Je I know this has been asked several times, but just to happen, are those some service providers founded in the Americas?Or is it more global in what we see? I know you said it’s more common within telecom operators, but I just looked for an idea, is it largely concentrated in the US?Or internationally?
And then maybe a momentary question for me. Inventories have been a pretty big use of money this year. I just sought to get a sense of the key drivers of this and whether that’s part of what you hope to return to in the fourth quarter to help meet loose money-making goals.
Wendell Weeks
The first question, founded in North America, is true and relatively limited in terms of the number of other people involved. So, the telecommunications company founded in North America, right at the moment. And I think if you just communicate with the industry more broadly, you’ll see that abstaining from almost all of our consumers is that we can’t get enough. And that’s the backdrop, it’s the heartbeat and it’s just the moment and a few key consumers.
Eduardo Schlesinger
And Meta, in stock, you’re right. You can see it in our cash flow. In fact, we have accumulated a lot of stocks until September and we definitely want to turn back. That’s what we think, it will start taking place in the fourth quarter and closer to 2023. I That is, I think there are some points that make it overlook. And that’s one of the reasons why we haven’t been able to stop it and oppose it before. First of all, overall, the source chain has been challenging, and we want to make sure that we can serve our customers, so we have a little more stock than we would otherwise. Catch up and digest some of the stock we have and have produced.
And finally, just the inventory charge, right? So when inflation hits us, it manifests itself in inventories, and then we recover it when we increase the value when we sell it. So there’s a bit of a delay. It’s the dots that make it happen. And yes, our purpose is to bring it down from here in the last quarter.
Operator
And the last one will come from the hand of Mehdi Hosseini of Susquehanna.
Mehdi Hosseini
Just a quick follow-up. If you were to go back to the end of 2019, 2020, the last time your proven profit declined, the average net profit source of 20%. At that time, you can still make a net margin of nearly 20%. Is it just a mirror image of the finishes that have been disconnected?Or is it something else that’s helping with a higher margin given the decreasing volume of profits?terrific.
Wendell Weeks
Awesome question. So, first, I would say he’s right. And this is one of the reasons why we are satisfied with our execution during this correction. So what you’re seeing coming to fruition is all this super productivity improvement that our new generation brings and the exceptional charging functionality we’ve been able to do with that. So, with a long era of increasing solid loads. And that’s what we’ve tried to do on Display. This has been our strategy at Display as we build our strengths in this era. Very strong charges, a very strong market position, and then we used our wonderful technological leverage to continue to boost our cargo functionality and increase our profitability. And that’s one of the things that excites us when See Them: the correction is over and the market is starting to pass and the demand for glass is passing because the increases will be difficult and a beautiful thing to look at.
Ana Nicholson
Thank you, Mehdi and thank you, Wendell. Thank you all for joining us this morning. Before concluding, I wanted to inform you that we will be attending Credit Suisse’s 26th Annual Technology Conference on November 29 and the Barclays Global Technology, Media and Telecommunications Conference on December 8.
In addition, we will organize control visits to investors’ offices in the cities that are decided. Finally, starting this morning, a replay of today’s call will be available on our online page.
Again, thank you all for joining us. Operator, this concludes our call. Disconnect all lines.
Operator
Thank you. This concludes the convening of today’s convention. Thank you for your participation. You can now log out. Everyone, have a glorious day.