Corning Inc (GLW) — Q2 2025 Earnings Call Transcript

Thank you, and good morning, everybody. Welcome to Corning's Second Quarter 2025 Earnings Call. With me today are Wendell Weeks, Chairman and Chief Executive Officer; and Ed Schlesinger, Executive Vice President and Chief Financial Officer. I'd like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the company's financial reports. You should also note that we'll be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. For the second quarter, the difference between GAAP and core EPS primarily reflected noncash mark-to-market activity associated with the company's translated earnings contracts, foreign denominated debt and constant currency adjustments. As a reminder, mark-to-market accounting has no impact on our cash flow. A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at corning.com. You may also access core results on our website with downloadable financials in the Interactive Analyst Center. Supporting slides are being shown live on our webcast. We encourage you to follow along. They're also available on our website for downloading. And now I'll turn the call over to Wendell.

Thank you, Ann. Good morning, everyone. We delivered outstanding second quarter results. Our record sales and EPS both exceeded guidance. Year-over-year, sales grew 12% to $4 billion. Earnings per share grew more than double the rate of sales to $0.60. Operating margin expanded 160 basis points to 19%. Return on invested capital grew 210 basis points to 13.1%, and free cash flow grew 28% to $451 million. Overall, key secular trends and our More Corning content strategy drove demand for our capabilities, and we continue to capture the powerful, profitable growth outlined in our recently upgraded Springboard plan. As we look ahead, we expect our strong Springboard performance to continue. We're seeing a remarkable customer response to both our new Gen AI and U.S.-based solar products and we're driving more Corning content into our mobile consumer electronics, display, automotive and optical communications platforms. We also expect an additional growth driver to emerge in the coming months as new and existing customers seek to leverage our large U.S. advanced manufacturing footprint. Overall, we are well positioned to deliver durable growth through 2026 and beyond. But before we talk about the future, I'd like to take a moment to put our second quarter results in the context of our Springboard plan. We launched Springboard in quarter 4 of 2023, explaining our plan to dramatically improve our sales and enhance our return profile and to increase our operating margin by 400 basis points to 20% by the end of 2026. We're now at the halfway point of our original Springboard plan. When we compare our second quarter 2025 results to our launch point, we grew sales 24%, adding more than $3 billion to our annualized run rate. We expanded operating margin by 270 basis points to 19% showing strong progress towards our target of 20%. We grew EPS 54% more than twice the rate of sales. We expanded return on invested capital by 430 basis points, and we generated strong free cash flow. Clearly, this progress is impressive. And we expect our strong performance to continue. So let's look at our journey so far. Our original internal Springboard plan, which was the output of the strategic planning process we run with each of our market access platforms, was to add $5 billion in incremental annualized sales by the end of 2026. These were our actual business plans. We set our objectives and our compensation based upon those plans. When our businesses submit plans to corporate, they factor in a variety of probabilistic outcomes, they try to account for the known unknowns. The business plans aim for a 70% confidence interval. Which means that based on their analysis, there is a 70% chance that they will deliver sales greater than or equal to that number. We then provided a higher confidence plan for our investors. At the corporate level, we probabilistically adjusted for factors, including potential macroeconomic slowdowns, changes in government policy and timing of multiple secular trends and our related innovations. Our risk adjustment was $2 billion. This is how we got to our original $3 billion high confidence plan. Remember, we purposely do this as a wedge. We weren't trying to guide every quarter for the next 12 quarters. It wouldn't be a straight line. That being said, our quarterly performance through 2024 demonstrates our powerful momentum. This chart illustrates that we are hitting or exceeding our critical milestones as sales tracked well above both our internal and high confidence plans through the first year. Our strategies are effective, and our customers appreciate our innovations. Due to our progress in March of this year, we enhanced our internal and high confidence plan by $1 billion, totaling $6 billion and $4 billion respectively. Now, let's review our most recent quarter. We have achieved an additional $3.1 billion in annualized sales since the launch of Springboard. Looking ahead, we anticipate adding another $600 million to our annualized sales run rate in the third quarter. At the midpoint of Springboard, we are on track and expect strong momentum moving forward. Let me provide a few examples of what is fueling our growth. Gen AI is undoubtedly beneficial for us. First, in our enterprise business, where we report sales within data centers, we recorded $2 billion in sales last year. In the second quarter, we grew enterprise sales by 81% year-over-year. The main technical driver for this growth is what the industry refers to as the scaling out of the network. Essentially, this means that hyperscale customers are expanding their GPU clusters, connecting more AI nodes in server racks, or simply put, creating larger neural networks. Each AI node is interconnected with others in the cluster via fiber, resulting in increased volume for Corning. We also have another significant upside opportunity inside the data center, driven by what the industry calls the scale up of the network. Hyperscalers are creating more capable nodes that move from less than 100 GPUs per node today to hundreds of GPUs per node in the future. Historically, an AI node has been within a single server rack. As hyperscalers scale up, AI nodes are shifting to stretch across multiple server racks. This causes the distance to link these GPUs within the node to get longer. This will eventually cause the links to reach about 100 gigabit per second meter, which we call the electrical to optical frontier line, which roughly marks the point where fiber connections become more techno-economical than copper, creating a large potential opportunity for us. To help understand the size of this opportunity, a single Blackwell-like node has more than 70 GPUs with more than 1,200 links using more than 2 miles of copper. As that node scales up, those 2 miles will eventually be replaced by fiber connections. And those miles will grow over time as more and more GPUs are included in the AI node. I'm sure you've seen announcements regarding co-packaged optics for CPO. That is one of the technologies that help activate the scale-up opportunity for us. If we succeed technically, the scale-up opportunity is 2 to 3 times the size of our existing $2 billion enterprise business. And we're working with key customers and partners as we speak, on making that future a reality. Another opportunity for our growth tied to Gen AI is playing out in our carrier business. Now we've been studying this space for some time, and we've been seeing that most long-haul routes were approaching their maximum data rate capacity, creating a need for many new high-bandwidth low-latency lengths between cities and data center campuses. And this essentially requires a rebuild of the long-haul networks. Our customers consider the long-haul rebuilds as they think about that technically and economically, they see great potential economic benefit from fitting more fibers into a given conduit. This means they prefer denser fiber optic cables. To create a high-density solution, we applied our core innovations from inside the data center to this outside plan challenge. We introduced this new technology package to connect data center campuses. In the industry, this is referred to as DCI or Data Center Interconnect. We shared last year that we reached an agreement with Lumen Technologies to provide our new Gen AI fiber and cable system that enables Lumen to fit anywhere from 2 to 4 times the amount of fiber into their existing conduit and the agreement reserved 10% of our global fiber capacity for 2025 and 2026. We've now fully commercialized this product set and we have 3 industry-leading customers adopting the technology. That being said, we are just in the very beginning of this new market. We expect this business to scale rapidly, reaching a $1 billion opportunity for us by the end of the decade. Now I'll turn to our growth opportunity in solar. At our March IR event, we shared our low-risk, high-return strategy to re-enter the solar market. We generated over $1 billion in cash from 2020 to 2024 in this platform. We funded the expansion of our manufacturing assets with the growing cash flow generated from the assets we acquired for less than $0.10 on the dollar, customer funding and government support, all while generating positive cash flow every year. As a result, we have now built a strong foundation for rapidly accelerating growth. We made advancements to serve higher-end chip segment in semiconductors, and we are on track to double our semiconductor business by the end of the decade. We activated idle assets to serve the need for domestic solar polysilicon. And we added the capability to transform our polysilicon into higher-value domestically made solar wafers, all integrated together on our campus in Michigan. We now have committed customers for 100% of our polysilicon and wafer capacity available in 2025 and 80% of our capacity for the next 5 years. Because we built this platform so quietly while growing our cash flow, our new solar map hasn't garnered much attention from investors relative to the significance of the opportunity. We expect to triple our sales run rate by 2027, adding $1.6 billion of new annualized revenue to Corning's earnings power. Finally, we also expect an additional growth driver to emerge in the coming months, as new and existing customers seek to leverage our large U.S. advanced manufacturing footprint. It is still early days but this could become a major trend depending how trade policy turns out. Watch this space, and we'll keep you posted. With that, I'll leave you with this. We delivered outstanding second quarter results that exceeded expectations. We've made great progress to date on our Springboard plan, halfway through the plan. We grew sales 24%, adding more than $3 billion to our annualized run rate. We expanded operating margin by 270 basis points to 19%, showing strong progress on our target of 20%. We grew EPS 54% more than twice the rate of sales. We expanded return on invested capital by 430 basis points, and we generated strong free cash flow. And we're experiencing strong growth drivers that increase our confidence in maintaining our momentum to 2026 and beyond. Now I'll turn it over to Ed for more detail on our results and outlook.

Thank you, Wendell. Good morning, everyone. We delivered excellent second quarter results that exceeded the expectations we set in April. Year-over-year in Q2, sales were up 12%, while EPS grew 28%. Operating margin expanded 160 basis points to 19%. ROIC grew 210 basis points to 13.1% and free cash flow grew 28% to $451 million. Looking ahead, we expect Q3 to be another strong quarter. We expect double-digit year-over-year sales and earnings growth, with sales of $4.2 billion and profit again growing faster than sales with EPS in the range of $0.63 to $0.67. We expect to continue expanding our operating margin as we march toward our Springboard target of 20%. We also anticipate continued strong growth in our enterprise business, driven by our new products for Gen AI, and we're advancing significant growth opportunities across the company, as Wendell just described. Two other points I want to note related to our third quarter guidance. First, in Q3, our guidance again factors in about $0.01 to $0.02 for the impact of currently enacted tariffs, about the same level we saw in Q2. Our long-standing philosophy to locate our manufacturing operations close to our customers serves as a natural hedge against tariffs and mitigates the financial impact. Second, we shared with you last quarter that we are accelerating our production ramp for new products given high customer demand for our new Gen AI products for inside and outside the data center and for our new solar offerings. Our third quarter guidance includes temporarily higher costs associated with these ramps of $0.02 to $0.03 in the quarter. We expect the impact of these costs to dissipate as our production and sales increase. Overall, we feel great about our Springboard performance to date. As you can see by our guidance, we expect our momentum to continue and we're energized by the tremendous opportunity for value creation we've built for our shareholders. With that, let me share some more detail on what we're seeing in our businesses. In Optical Communications, second quarter sales grew 41% year-over-year to $1.6 billion. Growth was led by strong adoption of our AI products in the enterprise space, which was up 81% year-over-year. We also saw strong growth in our carrier business, which was up 16% year-over-year. This was driven by 2 factors. First, as a reminder, we categorize our Gen AI products that interconnect data centers in our carrier business. We began shipping these products in the first quarter. We doubled sales from first quarter levels in the second quarter. We're still in the very beginning of this opportunity. And as you heard from Wendell, this could be a $1 billion business for us by the end of the decade. Additionally, carriers have completed drawing down inventory they built during the pandemic, and they are now purchasing at their rate of deployment. This also contributed to year-over-year sales growth in our carrier business. And as noted in recent public statements, carriers are planning to expand their fiber networks going forward. So this sets the stage for additional growth. Net income for the second quarter was $247 million, up 73% year-over-year with strong incremental profit on the additional volumes. Moving to Display. In the second quarter, sales were $898 million, and net income was $243 million, both consistent with the first quarter. For the full year, our expectations for the retail market remain unchanged. We expect TV unit sales to be consistent with 2024 and TV screen size growth of about an inch. As a reminder, we successfully implemented double-digit price increases in the second half of 2024 to ensure that we can maintain stable U.S. dollar net income in a weaker yen environment. We hedged our yen exposure for 2025 and 2026 with hedges in place beyond 2026. In 2025, we reset our yen core rate to JPY 120 to the dollar, consistent with our hedge rate. We are not recasting our 2024 financials because we expect to maintain the same profitability in display at the new core rate. We guided full year net income of $900 million to $950 million in 2025 and net income margin of 25%, consistent with the last 5 years. Clearly, we are tracking ahead of that guidance in the first half of 2025. We expect our profitability levels to continue in the second half and now expect to be at the high end of the $900 million to $950 million net income range and for margin to be at least 25%. Looking ahead, we expect the Q3 glass market and our volume to be similar to Q2 and for our pricing to be consistent sequentially. In Display overall, we are maintaining our market technology and cost leadership while benefiting from market growth and a glass supply/demand environment that is balanced to tight. Turning to Specialty Materials. Sales were up 9% year-over-year, primarily driven by continued adoption of our premium glass innovations in Gorilla Glass. Additionally, some OEM customers purchased in advance of anticipated tariffs. We expect OEMs to adjust their purchases in the second half of 2025 and have factored that into our Q3 guidance. Net income was up 29% year-over-year to $81 million, primarily driven by strong demand for our premium glass innovations. Turning to Automotive. As a reminder, in Q1, we graduated our auto glass business and together with our Environmental Technologies business, created this segment. We ended 2023 with a triple-digit automotive glass business, and we expect it to triple by the end of 2026. In the second quarter, Automotive sales were $460 million, down 4% year-over-year, primarily driven by weaker light and heavy-duty markets in Europe and North America. Net income was $79 million, up 11% year-over-year, driven by strong manufacturing performance offsetting lower sales. We're focused on executing our More Corning growth strategy in automotive as additional content is required in upcoming vehicle emissions regulations and as technical glass and optics gain further adoption in vehicles. In Life Sciences, sales were consistent with the prior year and net income grew 6%. And finally, in Hemlock and Emerging Growth Businesses, sales were up 31% year-over-year driven by increased solar and semiconductor polysilicon volume. Our new Solar business currently sits in this segment. We plan to build it into a $2.5 billion revenue stream by 2028. We're commercializing our new Made in America ingot and wafer products. We expect our new wafer facility to come online in Q3 and we expect to begin shipping later this year. We have committed customers for 100% of our polysilicon and wafer capacity available in 2025 and 80% of our capacity for the next 5 years. As we guided, our Q2 net income reflected the temporarily higher production ramp costs for our new solar offerings. With that, I'll shift from segment results to free cash flow. We continue making strong progress in 2025. In the second quarter, free cash flow grew 28% year-over-year to $451 million. We continue to expect to generate a significant amount of free cash flow this year, and we expect to invest approximately $1.3 billion on capital. Moving to capital allocation. As we previously shared with you, our upgraded Springboard plan includes higher sales and higher profit. We expect to convert that higher profit into more cash flow. And as I just noted, we're making nice progress. So how do we choose to invest the expected higher cash flow? Companies do capital allocation in different ways. We prioritize investing in organic growth opportunities that drive significant returns and we grow primarily through innovation. We believe this creates the most value for our shareholders over the long term. Our investors have confirmed this. As we see high return opportunities in the future, we will invest in those opportunities. We also seek to maintain a strong and efficient balance sheet. We're in great shape. We have one of the longest debt tenures in the S&P 500. Our current average debt maturity is about 21 years with only about $1.5 billion in debt coming due over the next 5 years. and we have no significant debt coming due in any given year. Finally, we expect to continue our strong track record of returning excess cash to shareholders. We already have a strong dividend. Therefore, as we go forward, our primary vehicle for returning cash to shareholders will be share buybacks. And we have an excellent track record. Over about the last decade, we repurchased 800 million shares, close to a 50% reduction in our outstanding shares, which at today's share price has created $26 billion in value for our shareholders. Because of our growing confidence in Springboard, we started to buyback shares in the second quarter of 2024, and we've continued to do so since then. In the first quarter of 2025, we invested another $100 million in share repurchases. In the second quarter, we continue to buyback shares, and we will expect to continue buying back shares in the third quarter. So I'll quickly wrap up today. We delivered outstanding second quarter results, exceeding guidance with record sales and EPS. We expect Q3 to be another strong quarter with double-digit sales and earnings growth. Since the start of Springboard, we've significantly grown sales. We've grown EPS more than twice the rate of sales, and we are generating strong free cash flow. We've substantially improved our return profile. So overall, we feel great about our progress. With that, I'll turn it back to Ann.

Thanks, Ed. Okay. Operator, we're ready for our first question.

Wendell, some of your customers are experiencing more disruption related to tariffs than you are. Can you discuss where you've observed pull-forward activity within that customer base, particularly in the second quarter and whether you anticipate this trend to continue into the third quarter as well? It's evident that something occurred in Specialty, but could you provide more details on that and mention other markets where this might also be happening?

Wamsi, this is Ed. I'll take that one. So I think the 2 places in particular, where we did see some customers buying ahead of expected tariffs were in Gorilla, as we shared on the call and in display. We are expecting that to adjust in the second half. And in both of those spaces, we're not changing our view of the markets for the full year, the retail markets or the end markets. So we expect that to normalize. Now our guidance for Q3 and the way we're thinking about going forward factors that in.

Does that makes sense to you, Wamsi? So basically, we do our calculation and our estimates of what we think that is, right? And then we try to take it out of our next quarter guide. It may happen that way. It may not happen that way, but we try to conservatively portray what we see as supply chain movement.

Right. No, that makes sense. I guess just to clarify, you're saying that in Q2, you did see an uptick in Specialty. So that impacts Q3, Q4 versus first half. But more specifically, are you seeing any impact in Q3 in your guide from a pull-forward perspective as well, understanding that your full year didn't change? Does that mean that sequential trends in Q4 should be worse than normal?

No. What we did is we'll see what actually happens. But what Ed is saying is that since we did this in Q1, we had the same question, which was whether we see any effects from our customers trying to build supply chain ahead of tariffs. We said yes, we see some. We made an estimate of that and included it in our Q2 guidance, indicating that the supply chain would be reduced. In other words, it affected our revenue and earnings guidance for Q2. We're applying the same approach for Q3, looking at the first half and assessing what we think our customers have done regarding any pull-ahead. We've reduced our Q3 guidance by that amount. To be precise, we've already accounted for that in our Q3 guidance. Does that make sense, Wamsi?

Absolutely, that makes a lot of sense, Wendell. Could you provide some insights on your strong optimism regarding the solar opportunity? With recent legislation that has reduced incentives for renewables, how should we view Corning's position and progress in that market?

Yes. If you look at the reconciliation bill, right? There's a lot of changes, but one thing didn't change, is that the U.S. government is continuing to incentivize U.S. manufacturing of solar products and its preference for domestic content. This plays out in a number of different ways in the actual test of the legislation. But the core piece is that the elements we needed around the advanced manufacturing tax credits remained in place. And there were additions to various pieces of that that encourage more domestic content, more U.S.-based manufacturing. And that was our long-term belief on what the vector would be, is that there would be a requirement for U.S. manufacturing of energy, and that continues to be in place.

I'm looking at Slide 38, that's at the solar and semiconductor profitability. You've got start-ups coming in the third quarter as well. So is the recovery in earnings fourth quarter? Or is it out into 2026? Can you give us a sense of how long we'll be under these pressures from the startup expenses?

Yes, a couple of thoughts, John. Thanks for the question. So we shared, we started up our wafer factory here in the second quarter. So we expected to have ramp costs for that. We're seeing that continue in the third quarter. We expect to commercialize our new wafer products in the third quarter and for those sales to start to ramp as we go into the fourth quarter. I think over time, the ramp costs will get better for 2 reasons. We'll be actually running the factory at full utilization rates, and that will improve our output, but also we'll be selling product. So I don't know that it necessarily all is done by the end of the year, but I would expect it to continue to improve as we go through the year and into 2026.

Wendell, I have a broader question regarding the Springboard plan. Looking at your wedges in relation to the Q3 guidance, it appears that you are aligning more closely with the internal plan than with the high-confidence plan. Is there anything from the internal plan that you had envisioned but has not materialized as you assess the current status? Additionally, can you elaborate on the forward opportunities you've mentioned regarding customers wanting to utilize Corning's manufacturing in the U.S.? Would this potentially represent an upside, and which verticals do you believe would be most impacted?

Let's start with the second point and then return to your main question on the first. Regarding the second point, I can't disclose too much at this stage, as these are confidential negotiations. We currently operate 34 factories in the U.S. and are in discussions with several major customers about a significant commitment to manufacturing in the U.S. This effort will help us optimize the use of our factories moving forward. Some customers are existing partners, while others are new to us. We are just beginning these negotiations, which should conclude in the near future. So stay tuned; in the coming months, we should have more clarity on the first topic.

Yes. I'll wait and watch on that one.

Okay. That's an interesting question. What we've experienced is a combination of a strong positive response to many of our new products, which has more than compensated for some areas where the long-term trends didn't develop as significantly as we expected. For instance, our new line of bendable devices was initially planned to see a greater increase in popularity and market presence, but that has faced some delays. This is just one example. In the various markets, we see a mix of areas where growth has come more quickly than anticipated and others where it's been a bit slower. There are very few areas where we don't have confidence in the underlying long-term trends we believed in. Additionally, there's always the aspect of timing in terms of cyclical returns. I would say carriers took slightly longer to reduce their inventory buildup than we expected, around a quarter or so, but they are now returning to purchasing at normal levels. This provides a solid foundation for future growth. These are just a few examples. Are these the areas you were inquiring about, Samik?

Yes. If you look at everything collectively, are there any significant gaps in your internal plan that would give you high confidence today? Are there any major aspects that you identified as missing from the initial internal plan?

It depends on your perspective. In our high confidence plan, the answer is definitely not, because we have built in risk adjustments for significant macroeconomic cycles and various unforeseen events that wouldn’t typically impact our business cycles. In our internal plan, we are noticing a pattern where we are meeting or surpassing nearly all of our critical milestones. What we are experiencing is a buildup of momentum. We need to evaluate how the next phases of growth related to Springboard unfold. If they proceed as planned, we will need to consider whether we should upgrade our plan again, which would be a favorable situation to have. For now, we should monitor our performance in the upcoming quarters.

Can you hear me okay?

Yes.

Great. I guess, first of all, Wendell, I was wondering if you can give us your fiber market share by region at a couple of decimal points.

Too soon.

I have a question about fiber that I think you can address. You've mentioned some long-term options regarding scale-out and DCI, among other things. You're seeing indications of those trends, but you're discussing them in a long-term context. I'm curious about what internal and external inflection points we should be monitoring that would lead to the next wave of demand beginning to emerge.

I appreciate the humor from my CNBC appearance this morning. Thank you. That's a great question. We are currently engaged with several innovation partners and customers, and what we are looking for is whether our technology secures a winning position on their platforms. Once we achieve that, these platforms will establish the successful architecture for specific chipsets in their server deployments. The most observable indicators will be announcements from our customers naming us as their partners. Recently, you might have noticed a couple of such announcements from Broadcom and NVIDIA, highlighting us as partners for their significant CPO platforms. This is a positive sign that things are progressing and that we are well positioned. The next step will be determining when that architecture will be integrated. This is more complex due to the competition among major players regarding whether to transition to a photon-based architecture in server racks for AI nodes or how much we can rely on electron-based and copper-based solutions. This challenge will persist. However, the goal is to be prepared for long-term innovative changes when they happen. Did that answer your question, Steve?

Yes, very much. So I was just wondering on the DCI stuff, if there's anything else you would add there.

DCI, great question. Yes, you will see additional announcements in DCI. You'll see customers will want to talk about it because it's so important to them and they're trying to be able to position their offerings to their customers as being advantaged with the latest optical technology. So you will definitely see customers coming out on that front as well.

Hopefully, you can hear me. Great results here. Regarding the Optical Communications market, have you been facing any supply constraints? How should we understand pricing power in the Optical segment? Is there an opportunity for Corning to strengthen its competitive advantage given the technology advancements you have? Is this reflected in the current pricing?

Both are great questions. Currently, we're facing tight conditions, particularly with our new product lineup, and we anticipate that situation will persist. With the launch of our new products, we implemented pricing strategies aimed at improving our margins. However, much of that has been offset by the strong ramp-up of our productivity startups. As Ed has indicated, the benefits to earnings per share from these startups may not yet be evident in our financials. To address your suggestion, I believe it's a valuable point for us to keep assessing. The environment is changing rapidly, and our goal is to deliver enough value to our customers so that utilizing our technology is economically beneficial for them. When that happens, we typically find a way to share in that value creation. Ultimately, our focus is more on innovation than on the short-term fluctuations in supply and demand. Does that answer your question?

That's great. Just on the productivity ramps that you mentioned, could you clarify when we can expect to see the strong margin performance you discussed actually materializing? What milestones should we be aware of? Is this an environment that will remain tight due to your ongoing ramp-up, or do you have a clearer outlook on when these ramps will stabilize and lead to significant margin improvements?

Yes, Asiya, I would add to what Wendell said. So our Optical Communications business net income grew significantly faster than sales, both year-over-year and sequentially in the quarter. So despite us absorbing some of those ramp costs or productivity costs that Wendell talked about, we've made nice progress. I believe our net income margin went up by about 1 point sequentially, and we'll continue to march up. I think it's a combination of us selling more for sure and us being able to make at the right level as we ramp for our new products. So I think there's room to run in optical, and we can actually continue to improve, but we've made some nice progress, and we expect to do that even in the third quarter, as we've guided these costs remaining.

I guess back on the same line of questioning. Look, I know you guys made a lot of investments in Optical kind of coming off the supply chain crunch, unfortunately going into the excess inventory situation. But there were facilities in Gilbert, I think a couple of facilities in Hickory, some Poland facilities you guys added. Can you give us a sense for where you are in terms of capacity in those places? Is there still a lot of excess utilization that you can kind of grow into? Or is most of that filled up at this point?

It depends on the components, right. I think the best way to think about this is we still have the opportunity to increase our utilization and therefore, help drive incrementals that you just heard from Ed. Right now, our strongest tightness is on our newest products. And there, much as you would expect since they're new, right, those tend to be quite tight. We still believe we're in really good shape overall for our available capacity in our fiber assets and our cable assets is when you get more specific to some of these new high-density opportunities that we're feeling that strong tightness.

Got it. And then just as a quick follow-up...

More productive to meet all that demand. But if demand continues to increase, we'll sit down with our customers and we'll figure out what to do about that at the right time.

Could you give us a sense on lead times on some of those next-gen products? I'm thinking about some of the fiber connectivity pieces in the data center and then also some of the high-density fibers you're putting in long-haul optical networks. Is there a sense you could give us on lead times?

Yes. So the connectivity piece when we build those bespoke systems for each of the actual buildings that we're going into. That lead time is fast. We're built to be flexible and go at our customers' speed because that's what they need to be able to get their installations in place. When you come to core componentry fiber, cable and the connectors themselves, these new high-density offerings, that's a brand-new fiber, brand-new cable, brand-new connector, those we've actually been working on for years to be ready for this moment. And all you're seeing when you hear from Ed about, we'd like to see that productivity increase is just ramping those faster and faster and then taking over pieces of equipment that we're making the older generation tech. And so it's less about lead time, and it's more just about the rate of growth and how quickly we can turn over our equipment and make those strong modifications to that equipment to be able to manufacture our newest products. But we design them to be able to work on our fundamental manufacturing platforms.

Wendell, I want to go back to overall the strategy with Hemlock. I see in the disclosure that now you're involved in manufacturing poly solar wafer and module. And in that context, can you elaborate how the mix is today, the mix of revenue between polysilicon wafer and module? And what is the strategy here? Do you want to ramp the manufacturing of poly or do you want it to be equally distributed or exposed to various parts of the solar? And as a follow-up to that, how should we think about the capital intensity required for scaling that business unit compared to capital intensity for other business units?

Great question and good job building the modules. Our core approach to the low-risk, high-return strategy was to take advantage of the trend opportunity that we saw, that we believe strongly that by nature of policy there would be strong encouragement of American-made renewable energy as well as carbon-based energy and to put those advanced manufacturing plants here in America. So we took a look at which of those areas or skills would fit both in the near term but also the long term. For instance, in modules, we have some significant innovations we'd like to try out in glass, in thermal design, in optical coatings that we believe that can significantly increase the conversion efficiency of solar to be able to innovate that effectively, we needed a module position. Of course, in that module position in and of itself, we believe that will be strongly profitable for us, and modules are not capital intense and we could just bring our fundamental manufacturing expertise to bear. Our primary product that you see reflected in poly, that is what we bought from semicon. We're now applying it to solar. That is the bulk of the revenues that you see today. That was our business. We've been activating idle assets to do that and upgrading some assets to be able to do that. Then we have wafers on our latest hunk of activated poly, we're transforming that into higher-value wafers. And that's what we're doing on that same base. So today, almost all that revenue you see in that segment is coming from poly, our basic entry point. You'll start to see a hunk of the modules come in these coming quarters. And as you heard from Ed, you'll start to see our wafer facility ramp and turn into revenue starting in quarter 4. And we don't have an overall balanced approach to say like we expect this much out of modules, this much out of wafers, this much out of poly. But in terms of volume, most of the volume will be in poly. There'll be a lesser amount in wafers because we want to serve both the total market and then make sure there's a U.S. source of wafers. And then of that, only a portion of our wafers will end up in our modules. So it's a little like if you've studied our Optical Communications approach, it's like that. We always believe in each of our component levels, each has to be competitive. So we will sell to our competitors on that next layer up. So our base hunk is fiber. We sell that to cablers all over the world. But then we also make our own cable for a significant amount of our fiber output, and we sell those cables to people who build connectorized systems all over the world. But then we do an even less amount than we then do in our full connectorized system. So we're the only one who's fully integrated end-to-end, but we enable people along the way. The same approach in solar. Is that responsive to your question?

Yes, absolutely. And just, if I may, the capital intensity differences between solar and the rest of the business units?

It's a little like fiber optics, again, to keep that analogy. That final product modules is not capital intense at all, right? The most capital intense would be the poly that we already have and wafer is in between kind of like cable. I think that's a good way to think about it.

We've got time for one last question.

I wanted to follow up on some of the margin commentary earlier. I guess if I look at your 3Q guidance, it looks like it's around a 50% pretax EBIT margin incremental. You've been running closer to 25% to 30%. So can you comment on the driver there? I would normally think seasonality in 3Q would probably be a higher incremental, but we talked about some pull forwards. So is this mix cost savings? Anything else you called out specifically?

Josh, thanks for the comments. So maybe backing up, we've started Springboard about 1.5 years ago, about halfway through our plan. And we've been kind of marching up on gross margin and on operating margin, we set that 20% operating margin target. We did 19% in the second quarter. And I think first of all, we have a lot of the capacity and the technical capabilities and the cost in place. So as we grow our sales, we would expect to get really nice incrementals on those sales. In certain places, where we've had accelerated demand on some of our products and maybe we've added capability and added a little bit of cost, that's actually dragged the margin in those places, and we talked a little bit about that in Optical and in solar. And we continue to manage our operating expenses quite nicely. So as we think about going forward, in general, I think our Q3 guide reflects this. Our view is that we'll continue to expand our margins sort of step-by-step as we get to that 20% and then to the extent we get there, we'll provide an update on how we think about it going forward. So our third quarter guide really reflects higher sales and our managing of our cost structure as we continue to grow.

It's core to Springboard that we expect to see strong incremental gains due to our existing technical capabilities and manufacturing capacity. This expectation is what contributes to the significant improvement in our return profile for Springboard. We're making faster progress than initially planned. As you examine the numbers while developing your models, you're observing enhanced profitability, and it's important to ensure your calculations are accurate.

Thanks, Josh. Thanks, Wendell. Okay. I'll wrap it up today. I want to thank everybody for joining us. Before we close, I'll let you know that we're planning to attend Citi's 2025 Global TMT Conference on September 4, and we'll be scheduling management visits to investor offices in select cities. Finally, a web replay of today's call will be available on our site starting later this morning. Once again, thank you for joining us. That concludes our call. Please disconnect all lines.