Corning announced its second quarter results on July 28, reporting a 5.6% decline in sales as a result of foreign currency headwinds. However, its core sales – which exclude the impact of foreign exchange fluctuations and other charges – were flat, as sales across all segments but Optical Communications declined. The Optical Communications segment has been growing at a rapid pace due to the growth in demand for fiber optics by data centers and fiber-to-the-home networks. We expect to see the same trends continue into the next quarter as well.

Corning GLW -1.17% reported core sales of $2.52 billion, missing market estimates by $20 million. However, the company managed to exceed earnings per share estimates by $0.01, reaching $0.38, thanks to its share buyback. In the third quarter, Corning bought back $616 million of common stock. The company has now announced a new $2 billion share repurchase program.

See our complete analysis of Corning here.

The growing video content on websites and increased usage of cloud-based services has been driving internet traffic. The proliferation of smartphones and tablets has also added to the internet traffic by enabling easy access. In order to cater to the increased traffic, service providers have been forced to upgrade their networks from copper wire to optical fiber-based networks. Consumers are also moving to fiber networks due to the higher speeds. This helped drive Optical Communications’ second quarter core sales, which grew 16.6% to reach $800 million.

Demand from hyperscale data centers also helped drive growth at the segment. Hyperscale data centers have been growing rapidly due to their ability to serve high computing demands without having to increase resources. Since fiber optics are an essential part of their infrastructure, growth in hyperscale data centers is also driving Corning’s Optical Communications sales.

Sales of fiber optic cable will likely see strong demand in the future as internet traffic continues to rise. Cisco forecasts that the global network traffic will grow at an average rate of 23% every year through 2018. We also expect to see growth in Corning’s Optical Communications segment in the second half of the year, driven by the consolidation of TR Manufacturing and Samsung Electronics fiber optics business. Corning acquired TR Manufacturing in January. TR Manufacturing is a provider of fiber-optic and copper cable interconnects and electro-mechanical assemblies to original equipment manufacturers. Corning acquired Samsung Electronics’ fiber optics business on March 31. The acquisition led to the integration of Samsung’s fiber optic manufacturing facilities in South Korea and China into Corning’s Optical Communications division.

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