Operator: And our next question will come from Shannon Cross from Credit Suisse.
Shannon Cross: I wanted to talk about Hemlock, which was an outperformer this quarter. Wendell, can you talk a bit about the long-term opportunity that you see for polysilicon and sort of the trajectory, especially with the IRA? And then Ed, maybe could you talk about the margin potential for this segment? Because I would assume there’s a fair amount of scale leverage that’s there as you’re able to utilize some of the excess manufacturing capacity that you have?
Wendell Weeks: So our goal, Shannon, we’d like to build about $1 billion solar business for us here at the company, and it could take a variety of different product forms. It’s too early right now for us to make any specific announcements. But given the IRA, we see many opportunities to both grow and enhance the profitability of this business.
Ed Schlesinger: Again, Shannon, I would add 2 things. One, sort of Hemlock’s overall gross margin is similar to our corporate average in the same zone sort of in normal circumstances, half the business or more is semiconductor and you’ve got solar, right? So you’ve got those both product sets in there. That’s all within our Hemlock and emerging growth segment. And then the second thing I would add is that we have added solar capacity which was, as we described, very inexpensive capacity because it was previously mothballed. We were able to turn it back on. As we think about the next phases of growth, there may be some costs to do that and there may be just some impacts to gross margin as we go along that journey. But in the current state it’s in, think of it as around the average for Corning.
Operator: And our next question will come from Steven Fox from Fox Advisors.
Steven Fox: I was just wondering if you can maybe explain the productivity ratio improvements or the adjustments that you talked about in terms of what kind of costs were involved and what exactly you were doing there from both a near-term standpoint and what it implies for your ability to maybe control your own destiny on the cost side should end markets remain tough this year?
Ed Schlesinger: Yes. Thanks, Steve. Maybe the way to think about it is as we talk about what our priorities were through the pandemic, one of them was serving our customers. And we disproportionately erred on the side of being able to do that, right? In the beginning, when inflation was coming in, we made sure that we got our customers what they needed over time, we were able to raise price and offset that. And similarly, in the production space, we did whatever we needed to do to ensure that we have the products available to ship to our customers, in a very difficult supply chain environment in a very difficult pandemic environment where being able to staff your factories, have all the materials you need and be able to make the products you need was very difficult over this sort of long sweep of time starting in ’21 and running through the end.
So we’ve been able to improve the way we operate, improve our yields, improve our staffing levels and in some cases, take some adjustments and realign our capacity allow us to get back to what we would consider to be our benchmark or our historical productivity metrics. So making sure we have the right output at the right cost at every level in all of our factories. That’s our objective. We’re not completely there yet, but we’ve taken a lot more action in the fourth quarter, and we’ve made a significant amount of progress that will improve our cost and therefore, improve our gross margin.
Steven Fox: And just longer-term implications for all that?
Ed Schlesinger: Well, I think longer term, it almost if you think about it, it gets us back to being able to operate like we did pre-pandemic, right? Pre all of the supply chain disruption, we are humble, at least I will be humble here that we have been surprised by a lot of things, including this recent change in the way China has operated during the pandemic, which clearly impacts us and our customers and our suppliers. But putting that aside, I feel like we now are able to run more like we did pre-pandemic levels, which then allows us to grow as our demand comes back and our margin should get back closer to our historical levels.
Operator: Our next question will come from Josh Spector from UBS.
Josh Spector: I was just curious in specialty. Is there a way to think about the pace of new content wins over this next year? So you shared you grew almost 10 percentage points greater than the market in ’22. How would that metric look in ’23 based on what you know now?
Wendell Weeks: We have a number of significant new content, new value-added products that will begin to be introduced for upcoming model launches. So we would expect to have sort of a more Corning dynamic happen again. Now the actual degree of overperformance will really depend upon the success and pace of adoption of those new innovations. So I’d like to see both how our product does add sort of our customers’ unique products using this technology does before I would characterize a specific numeric level of outperformance.
Josh Spector: Okay. And if I could just follow up on the cost side of things. So you talked about your productivity. Is there anything we should be considering energy or otherwise flowing through differently for you guys given your hedging strategies over the past couple of years?
Ed Schlesinger: Yes, Josh, I think with respect to inflation, as we’ve shared sort of throughout the year, we continue to be surprised primarily to the negative on all the things that we consider sort of input costs to run our business. Things have normalized a little bit as we come to the back half, and I think our price increases are allowing us to get to close to sort of neutrality as we go into 2023. Energy is certainly a cost that remains elevated relative to pre-pandemic levels, as do many other costs, by the way. I mean I think even though the rate of inflation has slowed and, in some cases, retracted, we’re not back to pre-pandemic levels of costs for inputs. So I think it’s — energy is certainly one to watch, but nothing specific that I’d call out as we go into 2023.
Wendell Weeks: I think, Josh, that we’re — we’ve been able to — with the actions we took in the fourth quarter, which is pretty significant. We’ve been able to catch up to the inflation that we have experienced, like looking in the rearview mirror. And that’s one of the reasons that we’re able to have the step up in our profitability in quarter 1 or sequentially from quarter 4. I think where we still have work to do is really in the area of what you’re asking about, which is how accurately we see what’s coming at us from an inflation standpoint and sort of getting ahead of the game. We’re still working through that. Got a great team on supply chain who’s trying to help us do it, but I think we need to improve there some more, Josh.
Operator: Our next question will come from Tim Long from Barclays.
Tim Long: Yes, I’d like to ask kind of a 2-parter on the optical coms business. First, kind of on the revenue side. It felt like last quarter or through the quarter, it was mostly like one large carrier that was part of the weakness. Now it seems like it’s a little more distributed. It looked like enterprise was kind of weak in the quarter, and a lot of folks are worried about cloud spending into next year. So can you just talk a little bit about kind of the maybe enterprise telco mix there or how you see the dynamics differently in those 2 markets? And then secondly, obviously, profitability was weak in the quarter. Could you talk about that? Is that just component cost or is there something else going on? There’s a pretty big dip in profitability there.
Wendell Weeks: So I think that perhaps it was any other industry players who would have just said this was one player. But I’ve always said it is — in the carrier space, we had a number of carriers who were pacing their projects and also relative to what they’ve been doing to manage their supply chains one way or the other. Yes, clouds had a ton of activity as well. But by and large, we still think this is a carrier story. And we’re — we expect to work through that as we go through quarter 1 and then get the benefit of elevated demand levels as we go through the rest of the year.
Ed Schlesinger: Yes. And I’ll take the cost one or the margin one, profitability one. I think Opto is a good example of sort of all of the things we’ve talked about, inflation impacting the segment significantly, productivity levels impacting the segment significantly. Those things are depressing margins in optical. And the fourth quarter volumes also came down, and we also took inventory down in the fourth quarter in optical. And all of those things impacted our margins. So it’s sort of a good example of all the things we’ve talked about. However, on the positive side, the actions we’ve talked about significantly impact optical as well. So as we go into 2023, that’s a place where we would expect to see profitability improvement.
Operator: Our next question will come from Matt Niknam from Deutsche Bank.
Matt Niknam: Just 2 if I could. One, maybe bigger picture. As we think about maybe a slower start to the year, EPS, I think, is implied to be about $0.38 at the midpoint in 1Q. Is there any framework to use when thinking about the trajectory for EPS in 2Q onwards? And really what I’m getting at is any visibility you have towards when you get back to maybe a $2 a share sort of annualized EPS run rate? And then maybe just a follow-on to the last question. On Optical, have you seen any inflections or resumption of activity in 1Q? And then maybe when you would anticipate a more meaningful bounce back this year?
Wendell Weeks: So to the first question, what we’ve tried to do with our profitability actions is that to have that sort of run rate in EPS that you’re talking about, that’s a $2 run rate to be when we hit revenues that are like quarter 4, sort of 3,6, 3, 7 level. That’s when with our actions on productivity and pricing that if they are effective, which we believe they are. Then, at that revenue level, that’s when you should expect that type of EPS level. That’s the way we’re thinking about it, and that’s the way we’re modeling it. Did that answer your question, sir?
Matt Niknam: That does. That does. And then just on Optical, have you seen any sort of resumption or bounce back yet in 1Q?
