康寧 (GLW) 2007 Q4 法說會逐字稿

At this time all participants are in a listen only mode.

After the presentation we will conduct a question and answer session.

(OPERATOR INSTRUCTIONS) Today's conference is being recorded.

If you have any objections you may disconnect at this time.

Now I will turn your meeting over to Mr.

Ken Sofio, Division Vice President, Investor Relations.

Thank you, good morning.

Welcome to Corning's fourth quarter conference call.

This call is also being audiocast on our website.

Jim Flaws, Vice Chairman, Chief Financial Officer will lead the discussion; Wendell Weeks, Chairman and Chief Executive Officer will join for the Q&A.

Now, before I turn it over to Jim, you should note today's remarks do contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995.

These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially.

These risks are detailed in the Company's (inaudible) reports.

Jim?

Thanks, Ken.

Good morning, everyone.

This morning we released our results for the fourth quarter which can be found on our investor relations website.

In addition for those of you with web access, we posted several slides that will summarize the important data from this morning's prepared remarks.

These slides will be available on our website after our call as well.

Overall, our fourth quarter results were excellent.

Let me share with you the key data points and then we can get into details.

We hit all-time records in the fourth quarter in net income excluding specials and in EPS excluding specials.

Gross margin percentage matched the record set in quarter three.

We finished the year with operating cash flow and free cash flow that were all-time records.

Demand for glass was strong throughout quarter four and both our wholly owned business and SCP ran at full capacity.

Panel inventory levels appear healthy heading into 2008.

Anecdotal evidence suggests retail sales of LCD televisions in the U.S.

were very strong last quarter.

Although we're not recession-proof, we currently see no evidence of an economic downturn impacting our Display business.

So now let's go to the details starting with our income statement.

Our fourth quarter sales were $1.58 billion and exceeded the top end of our guidance range.

More importantly fourth quarter sales were 16% higher than a year ago.

EPS excluding special items was $0.40 and at the top end of our revised guidance range.

This represents a 29% increase over fourth quarter EPS ex specials of $0.31 a year ago.

Net income excluding special items was $643 million, an increase of 32% over last year's net income, again excluding special items.

You should note that EPS and net income excluding special items are non-GAAP measures.

The reconciliation to GAAP can be found on our website.

Our fourth quarter sales benefited from the strengthening of the yen to U.S.

dollar exchange rate by $31 million and another $11 million due to the strengthening of the euro in comparison to quarter three.

The yen to U.S.

dollar averaged $1.18 in quarter three and 1.13 in quarter four.

EPS benefited by about $0.02 per share as expected in our revised guidance.

Versus last year, our fourth quarter sales benefited by $51 million from movements in the yen and euro and EPS benefited by about $0.015.

Now, continuing down the income statement gross margin in the fourth quarter was 47.8% and consistent with the third quarter.

SG&a was $257 million and 16% of sales as expected.

RD&E in the fourth quarter was $153 million and 10% of sales also as expected.

Equity earnings were $267 million in the fourth quarter compared to $239 million in the third quarter.

The increase is primarily due to volume growth and a positive foreign exchange impact at Samsung Corning Precision.

Fourth quarter equity earnings included net special charges at Samsung Corning CRT of 14 million.

There were also similar special charges totaling $18 million in the third quarter.

Our tax rate in the fourth quarter was 10% and slightly lower than our guidance of 12%.

In wrapping up, our income statement our share count for the fourth quarter was 1.6 billion shares.

We had three special items in quarter four.

The first was an after-tax gain of $103 million to reflect the release of valuation allowance on certain deferred tax assets in Germany.

We had expected this item.

The second was a pre-tax and after-tax net charge of $15 million related to the Pittsburgh Corning litigation.

The charge included a gain of $17 million reflecting the decrease in the market value of Corning common stock to be contributed.

Corning share price decreased during the quarter from $24.65 to $23.99.

This gain was more than offset by a $32 million charge related to the increase in the fair value of Pittsburgh Corning Europe, which is on asset expected to be contributed to the settlement.

The value of Pittsburgh Corning Europe increased during the quarter due in part to the strengthening of the euro.

The third was the net special charge at Samsung Corning CRT that I mentioned a moment ago.

Including these special items our fourth quarter EPS was $0.45 per share.

Now, before I move on to the segment results for the quarter I'd like to recap our financial results for the full year of 2007.

2007 represented our fifth consecutive year of significant growth, especially on the bottom line.

Let me start with sales.

In 2007 our sales reached $5.86 billion an increase of $686 million or 13% over 2006.

This represented the third highest annual sales year in our history.

Gross margin for the year was 46.9%, a significant increase over last year's 44.1% and our highest percentage in our history.

SG&A was 15.6% of sales and lowers the percentage of sales than 2006 when it was 16.6.

We are delivering on our committment to gain operating leverage and keep our SG&A spending growth at less than half the rate of sales growth.

Net profit after tax excluding special items was $2.26 billion, an increase of 27% over last year and, again, an all-time record.

Earnings per share excluding special items were $1.41 in 2007, for an increase of $0.29 over last year, 26% up.

As investors I hope you were as pleased with our financial results in 2007 as we were.

Now, I'll turn to our segment results for the fourth quarter.

I'll start with the display segment which had an outstanding quarter.

Fourth quarter sales were $774 million and 10% higher than Q3.

Volume was up 7% sequentially and higher than our guidance range.

Given the continued strong demand throughout the quarter, our operations ran at full capacity and we sold glass out of our inventory again.

Price declines were moderate and in line with our strategy.

Segment sales also benefit significantly from the strengthening yen during the quarter.

As a reminder all of our glass is sold in yen.

The pricing guidance we provide is on a yen per square foot basis.

As a result changes in the yen to dollar exchange rate don't impact our pricing discussion.

Gross margin for the display segment remained consistent with the previous quarter.

Equity earnings from SCP were $177 million in the fourth quarter, an increase of 11% versus the $160 million in quarter three.

SCP sequential volume increased 6% in the fourth quarter which was also higher than we anticipated.

As expected, price declines at SCP in the fourth quarter were in line with our wholly owned business.

SCPs results also benefited from the strengthening of the yen during the quarter.

For your modeling purposes, SCP's fourth quarter sales were $708 million compared to $635 million in the third quarter.

SCP's gross margin increased slightly on strong manufacturing performance and moderate price declines.

Net income in the total Display segment which includes equity earnings is 580 million in the fourth quarter, increase of 7% compared to the third quarter.

Now in comparison to the fourth quarter of last year, sales in our Display segment increased 25% led by volume gains of 31%.

Price declines were just 7% and the movement in the yen to U.S.

dollar exchange rate was favorable.

SCP's equity earnings were up 20% over quarter four 2006.

The segment net income grew 26% versus last year.

Looking back at 2007, our Display had an absolutely outstanding year.

Sales were $2.6 billion, an increase of 23% over last year.

Volume in our wholly owned business grew 38% and price declines were only 11%.

We're very pleased with how successful our pricing approach worked this year.

The impact of foreign exchange was slightly unfavorable for the year.

SCP also had an outstanding year.

Sales were $2.4 billion compared to $2.1 billion last year.

SCP's volume grew 39% for the year and price declines were 15%.

Segment net income for the year was $2 billion, an increase of 23% over 20006.

I'd like to spend a few minutes discussing the Supply Chain starting with LCD panels.

In general, panelmakers ran at peak utilization rates through the end of quarter four.

Although panel shipments were sequentially lower in both November and December, panel shipments were up 11% in quarter three to quarter four on an area basis.

We believe their continuing strong run rates reflect an attempt to build some panel inventory.

In fact we believe the panel inventories measured in weeks of supply are lower heading into 2008 than they were heading into 2007.

Our conversations with panelmakers indicate they continue to run at very high utilization rates.

We are anticipating that at some point in February these rates could fall slightly as some panelmakers scale back to the Chinese New Year.

However, some panelmakers have recently stated publicly they expect to run at high utilization rates throughout quarter one.

On the retail side, we have only limited data at this time.

As usual, our insight into what happened in the U.S.

market fourth quarter is more robust than our insight into the worldwide market.

Our preliminary data suggests the end market demand remains strong.

In fact our fourth quarter research indicates end market demand for IT and television was stronger than our previous forecast.

As alway I'd like to stress that our fourth quarter market information is only preliminary at this time.

This data represents our view and is based on a variety of sources.

To be clear the data I'm going to reference here relates to shipments from PC manufacturers and television and monitor setmakers to retailers.

Starting with notebooks about 31 million were shipped in the fourth quarter, higher than our expectations and a 6% increase versus the third quarter.

For LCD monitors about 43 million were shipped in the fourth quarter consistent with our expectations and the third quarter.

Moving to LCD television about 27 million units were shipped compared to 20 million in the third quarter.

Penetration of LCD television into the worldwide TV market moved from 39% in the third quarter to 44% in the fourth quarter.

Although a final worldwide retail data will not be available for a few more weeks we saw some very positive data points in LCD television sales in the week leading up to Christmas in the United States.

NPD, an outside industry group reported that LCD television sales for that week increased 45% on a unit basis and 51% on a revenue basis compared to the same week a year ago.

The take away here is the mix of LCD television were weighted towards larger and thus more expensive sizes.

Conversely during that same week, plasma sales were down 12% on a unit basis and down 20% on a revenue basis.

This data supports our belief that LCD televisions did very well in the 40 to 50 inch market in the week leading up to Christmas here in the United States.

As a result of our preliminary estimates for quarter four we believe approximately 77 million LCD televisions were shipped worldwide in 2007.

This is an increase from our estimates of 75 million televisions just a few months ago and up substantially from our original estimate of 7 million sets heading into 2007.

Regarding U.S.

consumers, we continue to see no evidence that economic concerns are decreasing their appetite for LCD televisions.

Now, moving to an update on our total family glass mix, the mix of Gen 5 and higher in the fourth quarter was 90% and higher than the third quarter.

The mix of Gen 5.5, 6, 7, and 8 glass was 60% in the fourth quarter and much higher than the third quarter.

I'll wrap up Display by commenting on EAGLE XG glass.

As you may recall we entered 2007 with only 30% of our production converted.

We're extremely pleased to have reached our goal of 100% by the end of the year.

At SCP, 50% of their production was converted to EAGLE XG at year-end.

They're on track to be 100% converted this year.

Peter Volanakis, President and Chief Operating Officer, will provide additional detail about the Display business at our annual investor meeting on February 8.

Now, moving to the Environmental segment, sales in the fourth quarter were $189 million, slight decrease from the third quarter sales of $198 million.

Auto product sales were $131 million in the fourth quarter and slightly higher than the third quarter.

We were pleasantly surprised by the strength of auto in Q4 which is typically the seasonally worst quarter.

Sales were driven by strong demand in Asia.

$131 million in auto sales were also an all-time record for quarter four.

Diesel product sales were $58 million in the fourth quarter and lower than the third quarter sales of $72 million.

The decline is a reflection of the continued sluggishness in the U.S.

trucking industry.

Segment net income was $23 million in the fourth quarter compared to $14 million in the third quarter.

In comparison to a year ago, Environmental segment sales increased 22% driven by higher auto and diesel volume.

Auto sales were up 25% year-over-year, while diesel was up 16%.

We were extremely delighted with the results from both auto and diesel in the full year of 2007.

Auto sales were $508 million, an all-time record and an increase of 13% over 2006.

Diesel sales were $249 million, an increase of 52% over 2006.

Segment net income was $60 million in 2007, a significant improvement over 2006 net income of only $7 million.

Tom Hinman, Senior Vice President and General Manager of Diesel will provide more information about diesel in the annual investor meeting.

In the Life Sciences segment, sales in the fourth quarter were $75 million and slightly lower in the third quarter as expected.

Segment incurred a loss in the fourth quarter of $5 million, primarily due to higher operating expenses related to Epic.

For the full year, sales were $307 million, an increase of 7% over last year and an all time record.

Profitability in this segment also improved.

In Telecommunications, sales for the fourth quarter were $430 million but 9% lower sequentially as expected.

Compared to the fourth quarter of last year, Telecom sales were up 6%.

They were up 16% if you exclude the impact of the divestitures.

Sales of hardware and equipment products were $217 million in the fourth quarter a decrease of 7% sequentially.

Sales in our fiber and cable products in the fourth quarter were $213 million, a decrease of 10% sequentially.

Fiber-to-the-premise sales which are primarily hardware and equipment related were $70 million in the fourth quarter compared to $83 million in the third quarter.

Fourth quarter fiber-to-the-premise sales reflected seasonally lower sales in North America, offset by increased demand from Europe.

Compared to the fourth quarter a year ago, fiber-to-the-premise sales were up 37%.

Net income in Telecom segment was $12 million in the fourth quarter compared to $27 million in the third quarter.

For the year, Telecommunications segment sales were up 3%; however excluding the divestiture of our non-strategic cabling business in Q2 of '07, and the transfer of our Japanese business to an equity venture in 2006, Telecom sales were up 10% for the year.

Positive movements in exchange rates, prominent a euro did impact sales by $37 million for the year.

Segment net income for the year was $108 million compared to $7 million in 2006.

As a reminder 2006 net income was impacted by $44 million restructuring charges in 2007 benefited from a $19 million one-time gain.

Excluding these one-time items, Telecoms 2007 net income increased by 75%.

We're extremely pleased with the overall performance of our Telecom segment this year.

Now, let me take a moment to update you on Clear Curve.

Pilot production of Clear Curve fiber in Wilmington has begun.

In December we completed our first commercial shipments of Clear Curve.

In addition, the initial test trials by Verizon and multiple dwelling units or MDU's, in New York City have been completed.

Feedback from these trials was very positive.

We expect another round of trials in New York City to begin shortly.

We continue to receive very strong interest in Clear Curve from other players in the Telecom industry.

Larry Aiello, CEO of Corning Cable Systems will provide additional information on the market opportunity for Clear Curve at our annual investor meeting.

Lastly, you should note that we have completed the partial reopening of Concord and our manufacturing product area.

We have been very pleased with the manufacturing performance of the plant so far.

In our Other segment, sales in the fourth quarter were $114 million, a decrease of 14% sequentially.

Turning to Dow Corning, equity earnings were $84 million, slightly higher than the third quarter.

As a reminder third quarter results included a one-time tax charge of $4 million related to revalued UK deferred tax assets.

Dow Corning did see significantly higher raw material costs in quarter four.

I'll talk more about this in our outlook section.

We were very pleased with Dow Corning's 2007 performance.

Sales topped $4.9 billion, an increase of 13% over 2006.

Net profit excluding specials was 14% of sales.

Both sales and earnings were records for Dow Corning.

Equity earnings from Dow Corning totaled $345 million, an increase of 15% over 2006 excluding special items.

Investors should note that equity earnings from Dow Corning represented 16% or $0.22 per share of our earnings this year.

Cash dividends from Dow Corning total $130 million in 2007.

Now, moving to cash, we ended the fourth quarter with about $3.5 billion in cash and short-term investments, up from $3.3 billion at the end of the third quarter.

Free cash flow was $346 million in the fourth quarter, for the year, free cash flow was $806 million, much higher than our original estimates, another all-time record for Corning.

Operating cash flow was over $2 billion for the year, another record.

Regarding our stock repurchase program, during quarter four, we purchased approximately 5 million shares of stock for $125 million.

I'd like to wrap up by providing our guidance for the first quarter and some commentary about 2008.

We expect first quarter sales to be between 1.59 billion and $1.62 billion.

This would represent an increase between 23 and 26% increase over last year's Q1 sales of $1.3 billion.

Our first quarter EPS before special items is expected to be between $0.41 and $0.43 per share.

This would represent a 45 to 54 % increase over last year's Q1 EPS ex-specials of $0.28.

Moving down the income statement we believe gross margin has the potential to increase in quarter 1 to 49%.

SG&A is expected to be approximately 14 to 15% of sales and RD&E is expected to be around 10% of sales in the first quarter.

We anticipate equity earnings in the first quarter to be consistent with the fourth quarter excluding $14 million in net special charges at Samsung Corning.

Dow Corning equity earnings are expected to be 5 to 10% lower sequentially.

Because higher raw material prices are impacting their results.

They will be moving to raise prices to recover these costs.

Regarding our tax rate for the first quarter, it's expected to be between 12 and 15%.

Lastly for your modeling purposes you should again use 1.6 billion shares for the first quarter when calculating EPS before special items.

Moving to our Display outlook, we anticipate our wholly owned business in SCP will continue to run at full capacity in the first quarter.

First quarter in glass volume will likely be consistent, meaning plus or minus a point or two, with the fourth quarter for both.

This guidance is consistent with announcements made by several panelmakers who stated they will continue to run at high utilization rates throughout quarter one.

We believe panel inventories were low heading into January and there is a need to replenish or begin to build inventory in preparation for seasonal demand later in the year.

In addition, panelmakers may decide to keep their first quarter utilization slightly higher in anticipation of additional television demand from the Beijing Olympics.

Consistent glass volume quarter one would result in year-over-year growth of about 45%.

Regarding quarter one glass pricing, we expect price declines to be consistent with recent quarters.

It's very important for investors to note based on our quarter one volume guidance we do not expect quarterly growth rates to mirror 2007.

If you'll recall our volume declined 13% in quarter one last year.

Our forecasts indicate the glass demand will not increase or decrease significantly on a quarter to quarter basis given the relative tightness in the glass and panel markets.

Absent any impact of a weaker economy, which I'll comment on in a minute, we expect glass makers and panelmakers to be running full out and we would expect a demand this year.

We'll provide more detail about the 2008 glass markets growth drivers as well as our views on the cycle of the year at our annual investor meeting next week.

Moving on to Telecommunications, we anticipate first quarter sales to be up about 5% sequentially.

In comparison to Q1 of last year, we expect Telecom sales to grow about 10%, excluding the impact of divestitures.

We anticipate Environmental segment sales in quarter one to be up about 5% with growth in both auto and diesel.

Our Life Sciences segment we expect sales to increase slightly.

Other segment sales are expected to be down 15 to 20% due to normal seasonality.

One note on the impact of foreign exchange rates on our guidance.

Our first quarter guidance is based on the yen to U.S.

dollar rate of 1.09.

If the yen/dollar rate is to average 2 points higher in the first quarter the estimated overall sales in net income after-tax would be impacted by about $12 million.

This includes the projected impact to our currency hedging program.

Investors should also remember the yen averaged 1.13 in quarter four so if the yen does average 1.09 in quarter one our Display sales are benefiting by about 24 million.

Now, before we go to Q&A I'd like to spend a moment to discuss the U.S.

economy and how a potential slowdown might affect Corning, especially our Display business.

I want to be exceptionally clear on this topic.

We are not forecasting slowdown and we have not seen any signs of a slowdown in our businesses other than the previously acknowledged sluggishness in the heavy duty truck market.

However, we're not ignoring the possibility of a recession.

We have researched and are modeling the impact of past recessions on the IT market and on the overall television market.

We'll discuss this in more detail at our annual Investor Day on February 8.

We have over two-thirds of our total Company sales from outside the United States.

However, it is clear that a significant portion of LCD glass is driven by the U.S.

end market.

We estimate that 30% of the glass used for IT ends up in the U.S.

market and we know that 30% of LCD televisions sold last year were in the United States.

Given Display is currently the most significant growth driver of the Company, let me focus my commentary on potential impacts in the economy there.

Investors have focused their questions in two areas.

Will U.S.

Consumers slow their purchases of televisions and what would the impact be, and second, will U.S.

Corporations lower their IT spending, what the would the impact be?

We are not economists.

We don't employ one and we're not forecasting a slowdown, but we can help you model the impact of a slowdown on these segments.

You'll have to develop your own economic assumptions.

Let me cover LCD television first and start by telling you, we have not seen any slowdown in this market.

LCD televisions did very well in the holiday season.

Now, let me walk you through how much glass would be impacted if LCD TV's slowed -- in the United States.

I suggest you grab a pen and a piece of paper.

The average LCD television has about 11 square feet of glass.

So 1 million LCD televisions equates to roughly 11 million square feet of glass.

About 23 million LCD televisions were sold in the United States in 2007.

In 2008 we expect that number to be 29 million.

As an investor you'll need to make your own assumption as to how many LCD televisions you believe will be sold.

If you were to assume, for example, that the LCD television market will be flat in the U.S..

this lost market growth would equate to about 66 million square feet of glass.

As a reminder, the total worldwide market this year is expected to be 2.2 billion square feet, so a flat U.S.

television market in the United States is less than 3% of the world's demand for glass.

I'd like to stress this flat case does not represent our belief.

Only a theoretical model to demonstrate the impact to you.

It's possible the impact of technology substitution could help mute some of the effects of potential economic downturn.

Now, let's look at corporate IT and make the assumption that U.S.

Companies decide not to increase their IT spending.

To make my point, I'll walk through the market data again.

The entire glass market last year was 1.7 billion square feet.

45% or about 780 million square feet went to IT products, such as notebooks and monitors.

Of that amount, 30% was for IT products sold in the United States or about 230 million square feet.

Corporate spending represents 60% of IT purchases in the United States, so of the 230 million square feet, about 140 million related to Corporate purchases.

So with this data, investors can plug in their assumptions for Corporate IT spending this year.

If, for example, you believe spending will be flat this year instead of up 10%, that would equate to 14 million square feet of lost market demand or less than 1% of the world's demand for glass.

Again, not very material compared to the total worldwide market for glass.

As investors you need to determine your view of the relative likelihood of a slowdown in LCD television demand or Corporate IT spending in the United States.

Hopefully by providing you with the amount of glass in play, you'll be able to accurately model the impact of your own economic forecasts.

As I indicated, we'll provide more insight that potentially impacts the economy at our investor session and as I noted in the press release, we'll let investors know promptly of any significant changes that we experience.

Before I leave this topic I want to remind investors of one of our lessons learned that we discussed in the past.

We've been very careful about adding fixed costs and the relatively good times we've enjoyed over the last three years since giving us strong incrementals.

We will continue to be cautious on spending in this potentially difficult time.

Ken?

Thank you, Jim.

We're ready to take some questions now.

Thank you.

(OPERATOR INSTRUCTIONS) Our first question comes from Nikos Theodosopoulos from UBS.

Your line is open.

Great.

Can you hear me?

We can hear you, Nikos.

Okay, thank you.

I had a question on the gross margin within the LCD wholly owned business.

I think you said on the call it was flattish sequentially in the fourth quarter.

Trying to understand what happened there, given the volumes were up and the pricing was as it was in the prior quarters, why we didn't see an uptick there and what's your expectation on that business going into the first quarter of 2008 in terms of the gross margin on LCD?

Thank you.

Well, the gross margin for the year was up slightly.

We never -- the quarters are never perfectly smooth, we can have additional fixed cost that comes on in manufacturing, so we were delighted with the gross margin being the same as it was in quarter three.

For 2007, we obviously very dependent on our ability to continue to hold the moderate price declines and our level of cost reduction.

As we said many times, we're not looking for or predicting margin increases here.

We would be delighted, frankly, to hold this very high gross margin for a long period of time but it will be very dependent on a ratio between pricing and cost reduction.

We're not going to give full year guidance at this stage.

Okay, and just one other quick one.

Do you have a full year tax rate estimate for '08?

In the first quarter you said 12 to 15.

Should we assume that for the full year or is it hard to say at this point?

I think that's a reasonable assumption.

I will be discussing more taxes in quite a bit more detail on February 8, but if you had to plug a number in today that's probably a good range.

Thank you.

Brian White from Jefferies, your line is open.

Good morning.

Could you talk a little bit about pricing for 2008?

It sounds like in 2007, pricing was down 11% for the wholly owned and 15% for Samsung Corning Precision.

Could we expect better pricing in 2008?

Well, the pricing of 11% for the full year in our wholly owned business, if you look at the year basis, it includes some carryover effect of the steep declines in 2006.

I think the fourth quarter is more representative of what we were really trying to accomplish which was down 7% quarter-over-quarter.

Samsung Corning Precision's price declines were greater in 2007, 15% primarily because they had a big catch up in the beginning of 2007.

If you go back to 2006, they didn't decline as much as we did.

Clearly, what we're trying to accomplish is to continue this very moderate level of price declines in 2008.

Okay, and when we look at your CapEx in the Display business for 2008, you said about 800 million to $1 billion for Display and it looks like $400 million would be for 10 G fab in Japan.

Of the remaining 400 million to $600 million, what percent of that is going to be towards maintenance versus expansion?

Maintenance is a relatively small amount of our capital.

We do have to repair tanks.

They do have a limited lifetime but clearly, expansion dominates our capital spending.

We do expect to be adding capacity again in 2008 in Taiwan.

The other thing that's impacting our capital is unfortunately the price of platinum for precious metals which we don't consume but it's part of the -- how we make the glass and that's been up a little but maintenance is a relatively small amount of the 800 million to $1 billion.

Okay, thank you.

Steven Fox from Merrill Lynch, your line is open.

Hi, good morning.

Just going back to the outlook for Q1, at that type of pace, it looks like you would be sort of underserving your customers for the full year based on what you've talked about previously.

Can you talk about the decision timeline for maybe meeting customer demand relative to their expectations and where you sit on that currently?

Well, I wouldn't necessarily conclude that we don't think we'll be able to keep up with our customers.

It is indeed true that quarter one has started very very strong and that we have more demand for our glass than we have the ability to supply, and right now if the world continues to evolve the way we think that it will, that our increases quarter to quarter would be limited to our ability to increase our throughput, and we anticipate to be able to hold our share this year and be able to keep up with our customers.

Jim, would you like to add anything to that?

The only comment I would make is a reminder that when you look at area shipments from all panelmakers you have to keep in mind that the panelmakers are continuing to improve their own yields and improve their productivity from panelization, so we plan on that so when we say glass shipments are up X, they may be up Y a little bit more, it's because per unit of production going to the end market they need less glass and that's something that happens every year.

This past year in 2007, I think it was the first time investors had paid as much attention to it and we can talk more about that on February 8.

Great, and then just on the Beijing Olympics, is that a real big sensitivity number?

I know it gets a lot of press but if you talk about the 2.2 billion square meters of glass, how much is that going to really influence the full year?

In terms of the true end market, I think that our belief of sporting goods don't really change dramatically in the number of units sold; however it can influence how the supply chain operates.

You may recall for the World Cup, the supply chain built and ran a little earlier, so our reason for raising it is I think it may change the cycle a little bit.

We're not expecting it to be a dramatic change to the true full year number.

Great, thank you.

Curt Woodworth from JPMorgan, your line is open.

Jim, I just wanted you to clarify a comment that I think you made regarding comparison of quarterly growth rates in 2007 relative to 2008.

Did you say that you thought that volumes would be relatively flat per quarter in 2008?

No, I did not say they would be flat.

What I said is the ups and downs per quarter on a cycle during the course of the year would be more muted than what we had seen in this past year.

At a very minimum, starting off with quarter one, we were down 13% in quarter one (inaudible) look much higher, so we're obviously not going to experience that this year.

The other reason why I think it would be more muted will be the fact that we and the panelmakers appear to be operating very close to full capacity so the increases will primarily tend to be when panelmakers bring on additional capacity, but no, we're not saying it's going to be flat.

We're just going to say we're not ready to see the quarters be up and down as much as what you saw this past year.

Great, and can you talk about kind of the timing of some of your capacity expansions this year relative to the industry?

No, we're not prepared to go to that level of detail.

Okay, and just one last question on demand.

I mean your volume guidance for Display, I think you've exceeded your guidance for 11 out of the past 12 quarters and I'm just wondering relative to your model, can you comment on where the upside has been?

It seems like the penetration rates have been significantly higher than what you originally anticipated.

I think last year you said '08, your penetration forecast was 45%.

Right now we're already at 44.

So maybe if you can comment on that and perhaps what you see in '08 as the LCD TV penetration rate?

So we're going to be addressing our model for LCD demand next week at the investor session.

I think the characterization is right that our model has been consistently more conservative than what we actually end up experiencing.

We're going to go through some of the reasons we think that happens and also what we're considering about how to change it going forward.

I think you're on to one key topic which is penetration, and related to that is what's happening with the competing technologies.

Right.

That's one factor.

Size is another factor, and what we would like to actually do is run through those in a more systematic way with you next week.

We're feeling the same way you are, that perhaps it's time for us to consider a model that gets at some of these other factors that we're starting to see.

Great, and one last question if I may.

What is the capacity expansion at Hemlock going to be this year?

I know you have a lot of capacity coming on first quarter.

I think we're going up to 14.5 metric tons compared to 10,000 this past year and there really is not in the quarter one.

It starts coming after that.

Okay, thank you.

John Anthony from Cowen & Co.

your line is open.

A couple quick questions.

I apologize if you've covered any of this.

Looking at your operating margins and I'm sure you want to cover this in more detail at the analyst day but if you could give us a sense whether the leverage is going to come more from the top line or holding your expenses flat this year I'd greatly appreciate it.

I'm curious also if you'd be willing to comment on whether you think you can exceed 25% in any given quarter this year?

And then secondly, can you also give us a sense for when you think the truck sales might bottom and the outlook for the DPF business, do you think that's a first half phenomenon or do you not yet have a sense?

Do you want to take the truck market?

So let's start with trucks.

So if we were to take a look at let's go back to 2006, there were Class A 330,000 sold medium, heavy duty, and bus around 300 for a total of 2006 heavy duty, diesel around 630,000.

In 2007, the amount of trucks that were compliant with the new rules was 285,000.

So sales of our product overall were up a little over 50% year over year.

As we turn to next year, our current estimate would be total truck, total heavy duty diesel demand to be in the range of 375,000 to 475,000 compared to the 2007 number on the compliant that I just ran through around 285,000.

So that would say we would anticipate increasing sales of our products this year and we would expect due to a combination of the pre-buy not being here as well as at some point this year, the heavy duty diesel market picking up.

Just to comment on the leverage, I'm not going to forecast operating margin.

We actually don't use that as a metric for the Company.

It's really a combination of the mix of all of our businesses but clearly we, if the Display business behaves as we expect and if, as Wendell just indicated we do get the volume up a bit from diesel, we are hopeful of progressed margin to be up as we indicated for quarter one being up versus quarter four and we do expect to again hold our SG&A expense growth to be significantly less than our sales rate of growth.

We'll see R&D grows substantially during the course of the year.

Thank you.

Mark Sue from RBC Capital Markets.

Thank you.

Perhaps you can share with us the level of inventory granularity that's usually shared by the panelmakers and if the data has become more reliable or less reliable in recent quarters, just to kind of give us a sense of the thoughts on the March seasonality?

Well, we believe the panelmakers inventory data is quite reliable.

It's reported on monthly by the timely use and the Koreans do report fairly regularly, so the inventories at the panelmakers themselves as reported are quite reliable and we spend quite a bit of time with them going through their inventories.

The place that is less detailed remains past the panelmakers as you go out into the set assembly modules and then getting to retail where the data is clearly less good, but we think the panel making inventory data is quite reliable and we go through it in great detail by type of product, like to your television, by size of panels and we think it's quite reliable and we estimate the number of weeks inventory that people have and as I indicated in my opening remarks, we think the number of weeks inventory at panelmakers is actually substantially less than what it was this same period entering 2007.

Got it.

And then just separately on the Telecom business, maybe if you can give us your thoughts on just demand overall in terms of what the major carriers are planning for their deployments for fiber and also the reception thus far for Clear Curve that will be helpful?

In Telecom, overall, on the public side, we continue to see good strength in the access portion of that market with both fiber to the node and fiber-to-the-premise architectures, so public markets around the world seem very strong and the private network side we're anticipating good growth in the coming year in data centers as well.

So pretty good environment barring some impact from the economy.

Almost all of our comments here excluding anything that may happen to the economy.

As far as Clear Curve, we are getting very strong reception from the markets.

We hope to have a sale to one of the major PTT's here in the near future.

That's great, thank you and good luck, gentlemen.

C.J.

Muse from Lehman Brothers, your line is open.

Yes, good morning, guys.

A couple of questions on my end.

First off, can you remind me what your glass volume outlook is for 2008?

We'll be going over our glass volume in more detail next week, so the previous number we've given out is 25%, but you'll hear a new exciting number from people on (inaudible) in 10 days.

Okay, great, and Jim, on the cost side, last year, it looked like you were guiding every quarter, SG&A about 16%, here in 1Q you're guiding 14, 15 and I guess two part question here.

One, is that 14 to 15 sustainable throughout all of '08?

And then secondly given that that 16% actually came in at 15 and change, arguably is that 14 to 15 conservative in that we could be at the lower end of that range?

I won't give you full guidance.

The only thing I'll comment on when you start using a percent, remember our top line got a little bit of lift from the yen exchange rate where much of our operating expenses is in dollars so when the top line goes up from that, the dollar and the SG&A isn't going to move as much and is give us a little bit of help on the percent.

So I'll just comment that what we're trying to do is hold the SG&A to grow at less than half the rate of sales again this year.

Clearly, exchange rates if they were to stay where they are today for the yen for the whole year would obviously make that an easier goal to be accomplished.

Got you.

And then on the Display business, can you comment on what your outlook is for the tax rate there here in 2008?

The tax rate for Display I think will be slightly higher than it was this past year by a couple of percent within the Display business itself.

Okay, and then last question for me, on the Dow Corning front, I would have thought there was an uplift but I guess as you said not the much capacity coming online from Hemlock in Q1 and that's being offset by higher material costs and I guess my question is this.

Are you seeing a repricing of contracts that were signed years ago such that not only do you benefit from the uplift in capacity add but also some ASP uplift for that business as you look out through 08?

No.

There's no repricing of the Hemlock contracts.

We deliberately took a strategy when we did those pre-buys with them in getting the cash in.

We knew the price would be significantly below spot and we honor those contracts with our customers there.

The impact on Dow Corning that's the disappointment is not the Hemlock volume or pricing.

It really is that raw material costs spike dramatically in the fourth quarter and that is a problem for us in the silicone side of the business and we're working to try to recapture some of that, but Hemlock is behaving, quantity and pricing as we expect it.

Great.

Thank you.

Carter Shoop from Deutsche Bank your line is open.

Thanks and great quarter.

First on the Display outlook, I know we're going to get a lot more information here in 10 days but if we look at your panel customers, it seems like the consensus outlook right now is for roughly 30% in volume growth.

Is there any reason to believe that you wouldn't see a similar type of growth?

And if so, can you maybe walk through some of the variables?

You would expect to see that the panel area of shipment for the industry as a whole to be above our view of the glass market shipment, because you would expect our customer s to improve their own yields.

They lose product as they manufacture and try to get better and better every year.

Plus, particularly when demand is strong, they will run their operations to maximize the glass loss through the panelization which is the trim loss and effect, when demand is weaker, the industry sometimes forces them to sell something that's not quite as good for them.

So just as you saw in 2007, you should see total panel area shipments above total glass shipments, but we're not prepared to give a new number for each until 10 days from now.

Thanks, but for a second question, could we talk about Dow Corning's margins?

It seems like we'll see a little bit of a hit in the first quarter and then in the second half of the year, are we going to see roughly a similar type of positive impact from higher pricing for the silicone business being offset by the capacity additions in Hemlock?

Is that the way to think about the margin structure business going forward?

Well, for silicone, we've seen a slight margin erosion due to the mismatch between cost increases and price in the back half of '07, and our goal is to try and get pricing up to cover that.

We have some hopes that raw material cost will not stay at this peak level, but we obviously can't control that.

So hopefully, we're at our low point on the silicone side of the business in terms of margins if we get the price coming up.

Hemlock remains extraordinarily profitable and much more profitable than the silicone business and so if you want to look at the total of Dow Corning, it's obviously a question of the mix and how fast the capacity comes off of Hemlock.

Thanks, and for a last question, can you discuss your outlook for free cash flow in the first quarter?

Free cash flow in quarter one is slightly negative.

Free cash flow is always a slight negative to us in quarter one but it will be slightly negative.

But we intend to have significant positive free cash flow for the year.

All right, thanks.

John Harmon from Needham and Company.

Your line is open.

Hi, good morning.

I was wondering if you could elaborate a bit on what you were saying about your Clear Curve fiber?

You said that Verizon completed one section of testing.

What's involved in the second amount of testing they're doing and if things just go perfectly, when do you think you could see revenue from them?

So what Jim was talking about is whenever you get a product that is very new, what carriers will do is go through something called field testing in addition to all of the different laboratory based testing that they do and that is exactly what it sounds like which is they deploy it in real situations with live customers and see what happens, and but on a limited basis and then they carefully monitor.

Now, Clear Curve is not just one product.

It's a whole suite of products that will redo our whole fiber-to-the-premise offering for NDU's and as a result, different ones are getting tested in different ways and different field trials.

When Jim said that they went well, what he means specifically is that no issues were identified and that our value propositions look like they are upheld by real world experience.

What happens after this is a carrier would go through a decision, now a formal decision process on whether or not to bring this into their network and then go through all the process that it takes to actually buy a brand new product.

So that's where we stand.

It's all positive news.

As I said, we would hope to see, already we've done our first commercial shipments to some smaller companies and we would hope to see a major carrier do a purchase of Clear Curve in the not too distant future.

Thank you, and one more if I may.

I mean, I realize the ultimate cap on your glass shipments would be fab capacity but is there any way to characterize at which level capacity is tighter, on the panel level or on the glass level?

You said that glass supplies are tight.

Clearly you're able to add capacity.

Does that the mean that your competitors are not?

So it's our belief that the glass industry in total is adding capacity pretty much in line with what our expectations are for the end market.

There historically has always been a little bit more panel making capacity than end market, but the glass supply as best as we can tell from our own projections and our public announcements of competitors is by and large on track for keeping up with estimates for the end market.

So that would -- does that mean that you and your competitors are just adding capacity at roughly the same rate of the market growth?

In general, that's what we and our competitors have been doing the last couple of years.

In any given quarter the panelmakers can bring up a new fab and may be ahead of the end market and obviously in any given quarter glass makers may start up a new large tank and may have more supply in the quarter but on an annual basis that's what we think has happened the last couple years and will happen again this year.

Thank you.

John Roberts from Buckingham Research, your line is open.

Good morning, guys.

Good morning.

Some European countries have already made the switch to all digital broadcasting ahead of the U.S.

Has that been a non-event?

I think it's expected to be a relatively minor event when it occurs here in the U.S.

But sometimes consumers get confused between digital and high def and I don't know whether it caused any change in buying patterns in those countries that made that change in Europe.

So we haven't done an analysis of a particular country's demand versus when they made that cut over.

It's probably worthwhile for us to take a look at so give us a sec to do that.

Maybe we can talk next week about that with you.

In general, I think you lay out what our current point of view is, which is in the near term, we don't expect that to be a major impact; however over the long term, it will certainly help take that embedded base of analog TV's and make them obsolete at a faster rate, but in the near term, we would say that it's not a major event.

Do you have an estimate yet of what you think the average size LCD TV was in the fourth quarter or an average for all of '07 or do we have to wait for next week for that?

Got to wait until next week.

We got the to save something.

Okay, thank you.

Jeff Evenson from Sanford Bernstein, your line is open.

Thanks, a couple of questions on Telecom.

First, Wendell, you mentioned demand for both fiber-to-the-premises and fiber to the node.

Just in our looks at press reports of satisfaction surveys between Verizon and AT&T as well as the customer subscription rates, looks like Verizon is getting better results with the fiber-to-the-premises architecture than AT&T with fiber to the node.

What do you think it would take to convince companies that are doing fiber to the node now to do more fiber-to-the-premises?

So, fiber to the prem-type architectures are now in trial in are very significant percentage of carriers around the world.

So that interest level has increased strongly and we actually just added in the past year another major European based carrier for the architecture.

That being said, I think that it's important to note that both fiber to the node and fiber-to-the-premise remain very legitimate access choices.

There are good reasons to do either one, and a lot of it depends on how much a carrier believes, how much bandwidth they think will be required for a user in the future, what the they think a technology trajectories of the various components of systems as well as compression, and also what the topography is of their particular network, how much buried, how much aerial.

I think that it's far from clear yet what is the right choice from a carriers point of view.

I think that remains to be seen and until such time as that becomes very clear what the right choice is, I think you'll see carriers do both.

Last question from me is earlier today, Cisco introduced a new switch for the data center, and our research suggests that because of virtualization and other factors, you should see a significant shift to 10 gigabit per second connections in data centers versus one gigabit over copper today and when people go from one to 10, it's just often the best choice for a variety of reasons to use optics.

Do you guys see that as a significant growth driver for you and is there an opportunity for a multi-mode version of Clear Curve?

So two I think good questions in there.

Yes, we do see that move towards 10G as being a good positive driver for us and actually, Peter Volanakis has been leading a charge for us to introduce a whole new generation of data center based products that you'll hear more about in the coming year.

We do also believe that there is a significant value proposition for a bend resistant fiber in the datacom world and watch this space, more to come, Jeff.

Thanks.

We've got time for one more question.

Ajit Pai from Thomas Weisel Partners, your line is open.

Yes, good morning.

Good morning.

A couple of quick questions.

I think the first one is about SCP.

Could you just, I think you mentioned that the pricing declines in SCP were about 15%.

Could you walk us through how much of that has to do with the generational mix and how much of that it should do with currency or the factors of competitive and dynamics there?

And then on SCP as well what the tax rate was and remember the tax rate sort of rises over time.

Could you give us some color as to what it was a year ago, this year and then what you expect it to be a couple of years down the road?

Well, on the tax rate I don't have that handy.

I'll let Ken follow-up with you on that.

But there have been under tax holiday and it will gradually increase, but there aren't any sudden changes right now.

In terms of SCP's pricing, the generation impact has been muted.

I mean, we do come down on new generations relatively rapidly, but the businesses are so large today that you don't see the same impact of generational pricing.

hat really drove the 15% for SCP versus the 11% was in quarter one of '07, they kind of caught up with declines we had made in '06 in our wholly owned business, but if you look at their fourth quarter price declines of '07 compared to ours, they were very similar and very small.

Got it, and then just looking at Concord, I think you provided a brief commentary about things ramping there quite well.

Could you give us some color as to Concord?

Is it more geared towards fiber-to-the-prem kind of fiber?

And also the capacity utilization, profitability, et cetera, has it -- what kind of variable margins do we expect over there and where are things right now?

Well, the Concord will be making product aimed at our single mode business and the manufacturing came up terrific and you see the same high incrementals there as you see in our overall fiber business.

You may recall, we indicated that the total additional fixed costs that we were adding for Concord on an annual basis is only about $5 million so we're seeing great incrementals and very good performance there.

We're delighted by the plant and the people.

Thank you and congratulations on a very solid quarter.

Thank you.

Thank you.

Jim you have closing comments?

I do.

As I mentioned several times, our annual investor meeting will be held at the Mandarin Oriental Hotel in New York City on February 8.

Our key business leaders will be on hand to speak to investors, showcase their products and answer your questions.

Products will include our Epic Well Plates, Diesel Filters, and Display glass.

There will also be a live demonstration of Clear Curve fiber technology in action.

In addition several members of our research and development group will be there to showcase some exciting projects that are currently in our labs.

You'll hear formal presentations by Senior Executives and have the opportunity to ask questions.

It's expected to be an informative event.

Hope you'll be able to join us.

I encourage you who are interested to register on our website.

Seating is limited.

A few last comments on 2007, 2008.

Quarter four was strong and is giving us excellent momentum heading into quarter one.

2007 overall was a very strong year.

Our pricing approach and cost reduction allowed the continued growth in LCD to deliver terrific profits.

LCD is clearly winning the format wer, CRT's are disappearing, and LCD's have won the 40 inch television market versus plasma and we believe LCD's will do well in the 50 inch plus space.

Telecom has rewarded our patience and our investment with both excellent revenue growth and cash generation, and the long awaited diesel lift off has occurred with 50% sales growth.

We are very excited about our prospects for 2008 and look forward to seeing you next week to share our outlook.

Thank you for joining us this morning.

Ken?

Thank you, Jim.

Thank you, Wendell, and thank you all for joining us this morning.

A playback of the call will be available beginning at 10:30 a.m.

Eastern time today until 5:00 p.m.

Eastern time on Monday, February 11.

To listen dial 203-369-2019.

No password is required and the audiocast is also available on our website during that time.

That concludes our call.

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Thank you.