康寧 (GLW) 2008 Q3 法說會逐字稿

Welcome to Corning Incorporated third-quarter results conference call.

For the conference, all the participants are in a listen-only mode; however, there will be an opportunity for your questions.

(OPERATOR INSTRUCTIONS.) As a reminder, today's call is now being recorded.

It's my pleasure to introduce to you Mr.

Ken Sofio, Division Vice President of Investor Relations.

Please go ahead, sir.

Thank you, John.

Good morning and welcome to Corning's third-quarter conference call.

This call is being autocast on our webcast.

Jim Flaws, Vice Chairman, Chief Financial Officer, will lead the discussion.

Wendell Weeks, our Chairman and Chief Executive Officer, will join us for Q&A.

Before I turn it over to Jim, you should know today's remarks do contain forward-looking statements within the meaning of the Private Securities and 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 SEC reports.

Jim?

Thanks, Ken.

Good morning, everyone.

This morning, we released our results for the third quarter, which can be found on our Investor Relations website.

In addition, for those of you with web access, we've 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.

I would like to begin with a top-level update on the Display industry and our business.

First, inventory turns measured in weeks, improved panel maker and set assemblers in quarter three and are at healthier levels than they were before.

However, the Taiwanese panel makers continue to lower their utilization rates again in quarter four.

We believe they and the supply chain in general are preparing for potentially weaker retail season this fall, a seasonally lower first quarter, and potentially slower consumer command for LCD television and monitors in 2009.

Evidence of this can be found in our recent announcement from panel makers an television makers such as Sony as well as recent retail data.

USA retail data for September showed LCD television unit sales were up 23% year-over-year.

But over the course of a month, this growth rate slowed, and we have seen further step down in the first two weeks of October.

We now expect panel makers in Taiwan to run at lower than 70% utilization in the fourth quarter.

As a result, volume in our wholly owned business will be lower.

We now expect our volumes to be 20% to 30% lower sequentially in quarter four.

We are quickly moving to reduce our capacity this quarter in our wholly owned business by shutting down glass tanks to meet these lower market expectations.

This reduction in our capacity will significantly lower our gross margins in quarter four, but will allow us to better match our glass supply with demand going forward.

While the Korean panel makers continue to run at higher utilization rates than the Taiwanese, given Sony's recent announcement and the apparent slowdown in retail demand, we believe it is inevitable that softness will eventually show up at SCP.

As a result, we are lowering our quarter four volume expectations there as well.

Given the slowdown in retail and cuts in panel utilization rates, we have lowered our estimated growth rate for the entire glass market this year.

For 2008, we now expect glass market volume to grow between 21% to 23% versus our original expectation of 25% to 30% growth.

We feel that it is likely that the consumer slowdown will continue into 2009, but it is obviously very difficult to forecast next year at this point.

However, we think it is prudent for us to plan on a lower growth rate 2009 and plan our capacity accordingly.

As a result, we are now using a market growth range of 5% to 15% for next year versus our most recent estimate of 15% to 25% growth.

I want to caution you it is very possible we'll revise this range after we see the Q4 retail results and see the economic outlook for 2009.

Let me turn to the details, starting with our income statement.

Our third-quarter sales were $1.56 billion, 2% under the low end our guidance range.

Lower volume in our display and environmental segments led to the sales.

Compared to a year ago, sales were flat.

EPS, excluding special items was $0.46 and actually slightly higher than our revised expectations.

This represents a 21% increase over third-quarter EPS ex-specials $0.38 a year ago.

Net income excluding special items was $732 million, an increase of 18% over last year's third quarter net income excluding special items of $619 million.

You should note that EPS and net income excluding special items are non-GAAP measures and the reconciliation of GAAP can be found on our website.

Continuing down the income statement, gross margin in the third quarter was 47% as expected.

Decline from quarter two gross margin which was 50% was primarily due to the impact of lower volumes in our Display business.

SG&A was $220 million or 14% of sales as expected.

Our D&E in the third quarter was $160 million, about 10% of sales.

Equity earnings were $382 million in the third quarter compared to $360 million in the second quarter, a sequential increase of 6%.

The increase was due to stronger earnings of both SCP and Dow Corning.

Third-quarter equity earnings include $18 million special charge at Dow Corning.

And last year's equity earnings included a restructuring charge of $18 million at Samsung Corning CRT.

Compared to the third quarter of last year, total equity earnings increased 60%.

Our tax rate in the third quarter was 14%, and wrapping up our income statement on a share count decline to 1.58 billion shares.

Our third-quarter results included net special gains of $36 million or $0.03 per share.

We recognized a $43 million gain from the settlement of a long-standing tax dispute and also released an additional $70 million of US deferred tax asset evaluation allowances.

We will receive cash from the tax settlement in either quarter four or quarter one.

These items will offset by a charge of $6 million to the pending Pennsylvania Corning bankruptcy proceeding, $14 million loss in sale of a minor business and $39 million loss on cash and short-term investments.

Lastly, we also had an $18 million reduction of equity earnings from Dow Corning, related to losses on their cash and short-term investments.

Including the special items, our third-quarter EPS was $0.49 per share.

Let me turn to the Display segment.

Third-quarter sales were $696 million or 14% lower than quarter two.

Volume at our wholly-owned business was down 10% sequentially.

Price declines were in line with previous quarters as we maintained our pricing strategy.

Display segment sales were negatively impacted by the yen moving from 105 in Q2 to an average of 108 in Q3.

Equity earnings from SCP's LCD glass business were $259 million an increase of 6% versus $244 million in Q2.

The increase was driven by strong volume gains of 12%, offset by price declines and impact of the yen.

Price declines were consistent in SCP with previous quarters.

For your modeling purposes, SCP's third-quarter sales were $896 million, compared to $842 million in the second quarter and an increase of 6%.

Net income in Display segment which includes the equity earnings was $635 million in the third quarter and lower in than second quarter.

In comparison to the third quarter of last year, sales in our Display segment were fairly consistent.

Volume declined 2% and price declines were 8% year-over-year.

Sales actually benefited from the strength in the yen year-over-year.

Equity earnings from SCP LCD's glass business were up 62% over Q3 2007, led by volume gains of 38%.

Segment net income grew 16% versus last year.

I would like to turn -- spend a few minutes discussing the current supply chain and retail environment.

We believe panel inventories at the Taiwanese panel makers fell by one week in August and another week in September.

Panel inventories are now at an average of four weeks which is considered to be a healthy level.

Regarding utilization rates, the Taiwanese entered Q3 running in the mid 80% range, but dropped utilization rates throughout the month of August to a low to mid 70% range.

The average quarter was around 75%.

However, we believe the Taiwanese could lower utilization rates again.

In Korea, the panel makers maintain very high utilization rates throughout quarter three in the low 90s.

At the set assembly level, our data is not as robust, but we believe inventory levels fell to healthier levels at the end of the third quarter.

On the retail side, we now have LCD TV unit sales for the US, China and Japan through September.

Europe will be available in another two weeks.

As a reminder, we use industry sources such as NPD, GFK, BCM an CMM.

Let's start with the US September LCD TV unit sells which up 23% year-over-year.

This is lower than the expectations we had set for September at the beginning of the year, but not a surprise given the heightened economic worries and the significant decline in the stock market that took place during the month.

While the LCD TV unit sales in the first week were very strong, they were much weaker in the last week of September.

According to NPD, US LCD TV unit sales were up 27%.

Year-over-year, in the first week of September, up only 12% in the last week.

This intuitively makes sense given the credit crisis turmoil that began midmonth.

We believe this trend continued to decane in the first two weeks of October, although that data is now only preliminary.

The question for us now, is the slowdown in consumer purchases of LCD televisions a temporary reaction to all the bad news, both headlines and real impact to consumers, or will it be longer lasting and slope of LCD trends for 2009?

Clearly we will be looking at the second half of October retail data along with Friday results in late November to see if the trend continues.

In Japan, LCD TV retail sales in September were up only 15% year-over-year.

This was also lower than we expected and lower than previous months this year.

We do not have weekly data for Japan to see if there was a similar trend as in the United States.

In China, LCD TV retail sales in September were up 103% year-over-year.

This was higher than we expected and higher than the previous month.

October is usually a seasonally high month in China for television sales due to national day holidays.

This year the holidays ran from September 29 to October 5.

So the end of September likely gave Chinese sales a boost with two days of the holiday week falling in September.

I will have some more detail in the current supply chain retail results in my comments of the quarter four outlook.

Moving to the environmental segments, sales in the third quarter were $177 million, a 15% decrease versus the second-quarter sales of $209 million.

Auto product sales were $112 million and much lower than we had expected.

As we mentioned at a conference earlier this month, our sales were impacted by a slower auto production in the United States.

At the end of the quarter, we began seeing much weaker demand in Europe and the rest of the world.

Diesel product sales were $65 million in the third quarter versus $77 million in Q2.

Decline was due mainly to completion of heavy-duty retrofits for the Olympics in China.

The US truck engine industry also remained very weak.

Segment net income was $15 million in the third quarter, a decline versus second quarter net income of $28 million.

In comparison to a year ago, environmental segment sales decreased 11% driven primarily by lower auto product demand.

And net income was consistent with a year ago.

Moving to the Telecommunications segment, sales in the third quarter were $496 million, an increase of 4% over Q2.

The increase was driven by a higher private network demand.

Sales in our fiber and cable products in the third quarter were $258 million, an increase of 4% sequentially.

Sales of hardware equipment were $238 million in Q3 and also up 4% versus Q2.

Fiber-to--the-home sales, which are primarily hardware and equipment-related, were $96 million in the third quarter and consistent with the second quarter.

Compared to a year ago, fiber to the home sales increased 16%.

Net income in the telecom segment was $25 million in the third quarter, compared to $23 million in the second quarter.

Compared to last year, Q3 sales increased 5%, but net income was lower due to higher operating costs.

Sales in our Speciality Materials segment were $101 million in Q3 and down slightly versus Q2.

Compared to a year ago, sales were up 6%.

The segment posted a $1 million loss in Q3 versus $4 million of income in Q2.

The Life Sciences segment sales of third quarter were $83 million, down slightly from Q2, compared to a year ago sales were up 6%.

Segment net income was $11 million, slightly lower than Q2.

Turning to Dow Corning, equity earnings was $109 million, including the loss of investments of $18 million.

It's an increase of 16% over Q2 equity earnings of $94 million.

The higher earnings were driven by Hemlock's new capacity, although silicones were up sequentially also.

Hemlock's new capacity is running well.

We did begin to see weakness in demand for silicones late in the third quarter, and we expect the softness to continue into the fourth quarter.

For your modeling purposes, Dow Corning sales were $1.49 billion in Q3, compared to $1.38 billion in Q2.

On the balance sheet with cash, we ended the third quarter with about $3.2 billion in cash and short-term investment, down from $3.5 billion in the prior quarter.

Most significant cash outflows were $500 million in share repurchases and $311 million in capital expenditures.

As a reminder, in July our Board approved a $1 billion stock repurchase program which was in addition to the $125 million remaining from the previous program.

We will continue to monitor the overall financial markets along with our own outlook to help us determine the pace and timing of future stock repurchases under our program.

However, at this time, we are not buying back stock as we want to preserve cash until we know the extent of the current financial downturn.

Free cash flow in the third quarter was $472 million.

For the first three quarters, the free cash flow was $595 million.

Free cash flow was a non-GAAP measure.

I will turn to the outlook and give you some guidance for the fourth quarter.

We are having difficulty forecasting sales for the Company with the current economic environment.

Display customers are shifting their utilization rates with little advance notice as they react to changes in their demand.

Worldwide auto production has dropped significantly over the past month.

The pace of decline we have not seen in many years.

There is also tremendous volatility in exchange rates.

This uncertainty makes it more difficult for us to forecast demand for our products or to predict the impact of exchange rates.

As a result, our guidance ranges are wider than usual.

Let me start with some thoughts on our business outlook.

In Display, we are currently forecasting fourth-quarter glass volume at our wholly owned business and SCP combined to be down 10% to 20%.

Glass volume at our wholly owned business is expected to be down 20% to 30% sequentially.

For SCP, we are currently forecasting quarter four volume to be down 5% to 15% sequentially.

Our quarter four glass volume expectations are much lower than we expected even two weeks ago.

For wholly owned business, we previously expected the Taiwanese panel makers would continue to run their fabs in low to mid 70% range in the fourth quarter.

But last two weeks, we have seen sudden reduction in panel maker utilization rates as they adjust to changes in their demand.

We now expect the Taiwanese panel makers to run under 70% utilization in the fourth quarter.

Regarding SCP, while the Korean panel makers have continued to run higher utilization rates than the Taiwanese, given Sony's recent announcement and the slowdown in retail, we believe it is inevitable that some softness will eventually show up at SCP.

As a result, we are exercising some judgment and lowering our quarter volume expectations there as well.

We believe these panel utilization rate reductions in Taiwan and inevitably in Korea our reflection is [high chained], preparing for weaker holiday sales and potentially lower demand in 2009.

As LCD television becomes the largest driver for glass and panel production, the supply chain is influenced to a much greater degree by the seasonal ebb and flow of TV demand.

We believe that the supply chain is concerned about the typical season drop-off in retail demand in quarter one.

In addition, we believe the supply chain is reacting to continued negative economic news that has spread beyond the United States into Europe and Asia.

As a result, we are revising both our '08 and '09 market growth estimates for LCD glass.

Let me cover 2008 first.

We believe the market growth will be around 21% to 23%, and this is lower than our original 25% to 30% volume growth estimate from earlier this year.

Square footage terms, we now believe the total glass market will be between 2.11 and 2.15 billion square feet this year, an increase of about 360 to 400 million square feet over last year, but 100 to 150 million square feet lower than we previously expected.

We believe there are three factors influencing the supply chain in the overall glass market.

First, the sales of 40" and larger televisions of both panel and retail were on track with our expectations through the late summer.

It is now apparent that our expected increase in sales of these larger televisions is not going to happen at the rate we previously assumed.

As a result, we now forecast 3 million fewer 40" and larger televisions will be sold.

At approximately 17 square feet per TV, this would suggest 50 million less square feet of glass.

Second, we have seen a further deterioration in monitor sales over the past month.

Monitor sales have shown signs of weakening all year which was reflected in our forecast, but we have seen further weakness recently.

As a result we are lowering our monitor unit expectation by 8 million units which equates to 30 million less square feet of glass.

Finally, the LCD supply chain may be anticipating fewer LCD TVs sold in both '08 and '09.

Set makers and retailers are shooting for lower inventory targets at year-end, also because they have lower expectation for sell through in quarter one.

We expect our total glass volume for both wholly owned business and SCP to be up 20% to 22% this year in line with market growth.

However, there is a real disparity in growth rates between Taiwan and Korea.

This disparity by geographic region has become much more pronounced in the second half.

We believe this shift is a combination of a few related factors.

First, the Taiwanese panel makers don't have direct market access through strong television brands.

It is their panel orders that suffer during supply chain corrections.

Companies like Samsung, which currently have a leading share of the LCD television market will cut purchases of Taiwanese panels disproportionately over their own panel production.

We believe LG and Sharp do the same.

As a result in times of lighter demand, the Taiwanese panel makers suffer unequally.

Second, Korea television brands allow for better visibility into the retail market.

As a result, they generally keep fewer weeks of panel inventory.

Even heading into the supply chain correction, Korean panel makers have lower amounts of inventory that allowed them to maintain high utilization rates throughout the third quarter.

As I mentioned a moment ago, we are anticipating utilization adjustments there as well.

Nonetheless with almost ten months of demand behind us, the geographic variance in glass demand is evident in our expectations for volume growth this year at our wholly owned business versus SCP.

While we expect our combined volume growth to be 20% to 22%, volume growth at our wholly owned business for the year will only be around 6% to 7%.

At SCP, volume growth will be much higher around 33% to 35%.

Looking ahead to 2009, we believe the glass market growth could be lower as a result of weak economies around the world.

At our February investor meeting, our early estimate for '09 was growth between 20% and 25%.

Earlier this October, we lowered the bottom end and expanded the range to be 15% to 25%.

Given the continued economic uncertainty and very recent slowdown in LCD TV unit demand in the second half of September, we believe it is prudent to adjust this range at this time and more importantly, to adjust our capacity and cost structure to reflect the new range.

Our revised estimate for 2009 volume growth is 5% to 15%.

We will be updating this range as the fourth quarter retail results become known and as we understand general economic trends heading into the first quarter.

This will be a good time to discuss the capacity decisions we recently made.

We have decided to shut down several tanks until they are needed again.

In addition, we have delayed construction on the fourth phase of our Taichung facility.

Please note, we are not delaying construction on our new Gen 10 facility for Sharp.

We have made these decisions to proactively adjust our glass capacity in an effort to match demand.

These steps will reduce unnecessary costs and help us to improve display gross margin in future quarters.

However, investors should note in the fourth quarter, there will be one-time costs, primarily accelerated depreciation from these decisions and will not realize the benefit of these actions until subsequent quarters.

As a result, our display gross margins for quarter four will be about 20 to 30 percentage points lower than previous quarters.

Impact of our capacity reduction decisions this quarter was mainly from accelerated depreciation of about 5 percentage point.

The balance relates to lower utilization on remaining capacity.

When market conditions improve, we will have the flexibility to reinstate capacity as needed.

If SCP's sequential volume declines are at the top end of our range, their margins will likely be lower as well.

Regarding our glass pricing, we are sticking to the strategy we implemented in early 2007.

As a reminder, the fundamental principal of our pricing strategy is to maintain consistent rates and price declines over the long-term versus gaining marginal share with price in the short term.

As a result, we plan on lowering pricing in Q4 at the same pace we have been on over the past eight quarters.

SCP price declines will be consistent with previous quarters also.

Regarding exchange rates, our fourth-quarter guidance assumes a yen to US dollar exchange rate of 101, compared to Q3's average yen to dollar exchange rate of 108.

If the yen were to average 101 for Q4, display sales and earnings benefit by approximately $35 million.

Moving to our telecom segment, we anticipate fourth-quarter sales to be down about 20% sequentially versus our record third-quarter sales.

The lower telecom sales reflect normal seasonality plus the impact of stronger US dollar to Euro exchange rate.

In addition, we have experienced a slower order rate over the last few days, which could be economy driven.

Regarding our fiber to the premise program, we are not able to name the customer, but we are very pleased to announce we have a second major fiber to the home customer in Europe.

Given our Q4 telecom guidance, we expect telecom sales for the year to be up just 4% versus last year.

Higher fiber to the premise sales were mostly offset by lower than expected private network sales in North America and softer equipment sales in Europe.

We are also in the process reviewing our cost and capacity requirements within the telecom segment.

We anticipate environmental segment sales in Q4 to be down about 20% sequentially.

While we typically experience the seasonal decline in Q4 for auto gasoline products, we are also being impacted by a slowdown in auto production in the US, Europe and Asia.

In addition, the US trucking industry remains sluggish.

Looking forward to 2009, we anticipate worldwide auto volume could be down 5% to 8% and we are adjusting our capacity to prepare for these levels.

In diesel, we anticipate the heavy-duty US truck industry could remain very weak next year.

Our life sciences segment Q4 sales are expected to be down about 15% sequentially, reflecting normal seasonality.

Our telecom environmental life science sales guidance assumes a US-to-dollar Euro exchange rate of 1.27.

The impact of stronger dollar reduces fourth-quarter sales in these segments by about $35 million sequentially.

Quarter four sales in our Speciality Materials segment are expected to be consistent with Q3.

Sol results in quarter four sales are expected to be in the range of $1.2 billion to $1.3 billion.

Our fourth-quarter EPS before special items is expected to be between $0.20 and $0.28 per share.

The impact of our capacity reductions is $0.02 a share.

As a reminder, EPS before special items is a non-GAAP measure.

Going down the income statement, we believe gross margins will be between 31% and 36%.

As I mentioned earlier, gross margin will be impacted by lower volumes in display as well the impact of accelerated depreciation costs from our capacity decisions.

This will impact Corporate gross margin by 2.5 percentage points.

In addition, we expect to see lower gross margin in telecom during the lower expected (inaudible).

SG&A is expected to be about 18% of sales and RD&E expected to be around 14% of sales in the fourth quarter.

The percentages are higher than usual, but they are more a reflection of lower sales than a significant increase in expenses.

Interest income is expected to be $10 million lower Q4 as we sacrifice higher interest rates for safer investments.

The royalty income which is included in other income could also be less in Q4 as SCP's volume was in the low end of our guidance range.

We anticipate equity earnings in the third quarter to be 5% to 15% lower sequentially.

Dow Corning equity earnings are expected to be between $100 million and $107 million.

Dow Corning is seeing the impact of the slow economy on their silicone business.

Poly silicone at Hemlock is expected to remain strong.

Regarding tax rate in the fourth quarter is expected to be around 15% (see Company Presentation Slides).

Lastly, investors should use 1.56 million shares in Q4 for their models.

In summary, our fourth-quarter guidance and '09 expectations reflect an accelerating economic decline.

In response, we have initiated actions to reduce capital spending, scale back manufacturing operations, curb the rate of growth in R&D and reduce overhead demand to manage costs.

If business conditions deteriorate further, we will consider additional capacity and operational adjustments.

Specifically at capital spending, we are evaluating further reductions to our previously disclosed guidance for '09 of $1.6 billion to $1.7 billion.

Before I open up the call for questions, I would like to make remarks about our company; how we in senior management and the Board think about the Company's position.

It is clear that our end markets and customers are being affected by worsening economic conditions around the world.

The onset of these impacts have varied for us.

The US auto industry and heavy duty diesel markets have been tight all year.

European and Asian oil markets started weakening during the summer.

The LCD monitor retail market has been weak all year.

The television market remains strong until the last few weeks.

The LCD supply chain has been correcting since midsummer and may continue to need to do so into early Q1.

The Dow Corning silicone business began to weaken in August.

We are clearly not immune to the impact of a global recession or immune to the volatility of the US stock market.

Times like this, we have been here before and hard to differentiate our company from the thousands of others being battered by the stock market on a daily basis.

Let me leave with you a few thoughts about how we think about ourselves.

We have a strong balance sheet, one that we believe can withstand a prolonged downturn in the economy.

We currently have $3.2 billion in cash and short-term investments.

We have been very prudent in keeping significant amounts of cash over the past few years, despite the wishes of some investors.

Times like this, cash is obviously king, and like some companies, we don't need to participate in the commercial paper market.

As a reminder, we also continue to expect to have full access to our $1.1 billion resolving credit facility that does not expire until 2011.

Second, while it has always been important to have a lot of cash, finding a safe place to put it has not been as easy as it once was.

I can tell you the majority of our current cash and short-term investment are maintained in safe government-backed securities and bank deposits.

Third, regarding our debt level, we have $1.5 billion in debt which means we have $1.7 billion more cash than debt.

If all the debt was due today, we would be able to pay it off.

Again, there are companies that cannot make the same claim.

For us, there is no material debt due for the next two years.

Over the next four years, the total debt due is less than $250 million.

Again, we feel very good about out strong cash positions in these difficult times.

Fourth, even though our stock has fallen over the past few months, the strength of our competitive position has not changed during that time.

In almost all markets we participated in, whether it is display glass, optical fiber and substrates, we continue to be the market leader in terms of having the best products, best technology and lowest costs.

Because our stock price is lower, we haven't stopped innovating or stopped our cost reduction programs or stopped providing our customers with the best products in the world.

We continue to be the worldclass supplier in the markets we participate in.

This results are no change in the long-term macro changes in the industries we participate in.

We may be in lower demand cycle due to the economy, but the fundamental growth engines that drive our business over the long term have not changed.

Consumers may purchase less LCD TVs in the near term, but that does not mean consumers will go back to purchasing CRTs.

Of the 1.9 billion televisions in households worldwide at the end of '07, only 8% were LCDs and we believe at some point almost all will become LCDs.

The CRT market is collapsing and LCD is the product of choice.

There are noncomparable competing technologies on the horizon.

The long-term macro trend of consumers around the world are replacing old CRT with LCDs or putting LCDs in rooms in their home where there is no television today has not changed.

The (inaudible) display business and we think it is another 20-plus business for us.

The same can be said for our fiber and diesel businesses.

The increase in bandwidth driven by video content is only increasing over time.

Consumers and businesses continue to ask for faster connection speeds and bigger bandwidth.

Industry continues moves from copper to fiber, a trend that will continue for a long time.

In diesel, there are regulations in place in United States, Europe and Japan which will fuel the future growth of this business.

There are regulations in place requiring tighter emission requirements on heavy and light duty vehicles in these countries in '09, 2010, 2013 and 2014.

These tighter regulations will mean more advanced emission control systems which represent opportunity for us.

And there are regulations coming in the next decade on marine and locomotive engines.

We have been the market leader in gasoline emissions industry for the past 30 years in terms of product innovation and technology.

And we plan on being the leader in the new diesel market for the next 30 years.

Lastly, we are continuing to invest in the future.

This is more than just a tag line.

This is the lifeblood of our company and the investments we make today will help this company and shareholders in the next decade.

We will continue to invest in research and development, in good times and bad.

And if you don't believe us, just look back at what we did during the telecom and Internet bubble of 2001.

We could have easily gotten back to profitability if we stopped spending in R&D; we didn't.

We kept innovating and that decision has helped spawn a new round of innovations that we sell today.

So for those investors who have been scared and gotten out of Corning stock or the market in general, we understand.

Times are tough.

The markets are making even the most seasoned investors nervous.

Just know that we're not going anywhere.

When you're ready to invest again, we'll be here.

Ken?

Thank you, Jim.

John, we're ready to take some questions now.

(OPERATOR INSTRUCTIONS.) First on the line is C.J.

Muse with Barclays Capital.

Good morning.

Thank you for take my question.

The first question on display gross margins.

Looks like your COGS is going up by $85 million which is a little bit higher than the 5 points for accelerated depreciation.

First question, can you help me understand why that is going up so materially and secondly, how we should think of gross margins for Display going forward into 2009.

We have -- called out the one-time impact of accelerated depreciation.

What this really is relates to our tanks where we take them down and we have remaining life, and we have got to accelerate that depreciation because once we take them cold, that -- the value of that is worthless and we have to rebuild it.

That is about 5 points.

Where we are losing ground beyond that is we are unwinding a series of FX hedges.

We actually are growing our fixed cost because we have been programmed to have more capacity than what we had in the past quarter.

Obviously we have price declines of the 2% during this current quarter.

Clearly in a quarter we're making very strong changes in how we run, we are not really getting any of our normal cost reductions.

We regard that there is probably an impact of over 12 points of this dislocation here.

We are thinking very hard about how we -- what capacity we keep.

We obviously don't have a demand level for Q1 or Q2 next year at this point in time.

We clearly have more capacity than what we are cutting down to right now.

Because we think we will grow back into it.

But gross margins are obviously being penalized very heavily this quarter.

We will believe they will come back up next year as we finalize our -- what level of capacity we keep for which quarter.

I am not prepared at this time to give you an absolute number for next year, but clearly it is going to be higher than this very low range that we are putting out to you today.

Okay.

In terms of that 12 points of dislocation you talked about.

If I were to assume volumes were flat in Q1 versus Q4, would that mean we should see 12 points rise in your gross margin?

C.J., I am not going to offer you any more guidance than what I have right now.

Okay.

Second question regarding your glass volume guidance for '09.

Can you be specific to what you expect for your core business alone?

No, I can't.

We are not -- we don't yet know how -- if this turns out to be this level what the split will be between Korea and our base business.

I think our belief right now is that it is more likely to be Korea will be stronger, but it is very hard for us to judge the absolute split of that at this stage.

Okay.

Last question for me.

In terms of your pricing strategy, can you comment what you are seeing in terms of market share trends given the weakening environment.

Have you been seeing some share because of holding the line on price?

We don't think there has been any significant move on share at this point in time.

Thank you.

Our next question from the line of Nikos Theodosopuolos with UBS.

Please go ahead.

Yes, thank you.

Maybe I can just follow up a little bit on the last question.

Two parts.

On the comment about shutting down capacity -- shutting down some tanks.

Should we -- how should we look at these?

Are these permanent shutdowns?

Are they temporary?

I am trying to understand what you are doing there and can you comment on are these spread out across the entire -- in different regions or focused in one area.

And then also as part of that, the Cap Ex guidance you still have for this year would suggest a meaningful sequential uptick in Cap Ex which seem to be inconsistent with the comments you are making with lowering capacity.

Can you explain that a little bit?

Thank you.

That was six questions in one.

Let me do the Cap Ex first.

The biggest amount of Cap Ex in Q4 is really around Gen 10.

It is among the combination -- as we drive for completion there.

As well as Japan and we do capital projects, there is a lag when the cash flows out the door.

You are seeing really that picking up both in the pace of the construction that really started in the summer very strongly as well as the cash lag.

It is really driven mostly by Gen 10.

We are really stopping construction on Taiwan -- Taichung phase for construction.

Most of the unparticular is coming from Gen 10.

In terms of the tanks we are taking down -- by and large, the tanks we are taking down are being temporary.

By saying temporary means we are taking them cold, but we are not taking them out permanently.

There may be some tanks that we choose rebuild with some of our new technology.

But fundamentally, we are still assuming we will be running these tanks because the LCD business will resume or we'll grow into it.

One of the things we have always assumed about this business, if we got it wrong for a period of time and had a little too much capacity, we have to address the running rates but eventually we will need them again.

By and large the majority of the tanks we are taking down will be temporary, using your language.

However, we'll keep them cold as long as we need to keep them cold.

Okay.

Then -- if and when those tanks turn up again -- well, just a follow-up.

In the meantime, your depreciation is only going to be one quarter for those tanks.

And if and when those turn up again, they should be a positive impact on gross margin.

A fair way of looking at it?

Yes.

When they come back up as a positive on gross margins.

You have to understand on the appreciation.

What we are taking out of the depreciation and accelerating is the delivery system of the tank or factory.

The building, and rest of the equipment is sitting there and sill idle.

That depreciation continues on.

But once we restart these, you will see a big uptick.

Obviously -- our volume is down 10% versus where it was in Q2 and now we are talking about being down another 20% to 30%.

We have a huge volume downtick versus where we were and there's a lot of overhead in the factories that was being absorbed by that.

If we get volume coming back, you see a nice move up in gross margins.

Thank you.

The next question from the line of Brian White with Collins Stewart.

Please go ahead.

Just on the pricing environment for the December quarter, you are expecting a 2% sequential decline in pricing, that's correct?

That's correct.

I am just curious.

You have panel makers losing money.

You've talked about this meaningful deterioration in demand just recently.

How will you be able to keep your pricing disciplined?

You raise a good question.

The first thing I point to is let's start with what happened in quarter three.

That basic same question was leveled at us at quarter three.

We -- once again said it was good question, but what we plan to do is to continue with our pricing strategy.

As you saw from the announcement today and Jim's comments, we did just that with our price coming down exactly as we said it would.

We are planning on doing that again in quarter four.

There is always risks with a pricing strategy like this.

Let's do the positive and negatives on the balance.

On the positives for our ability to continue to execute our pricing strategy, you see the actions that we are taking to match our capacity with our view of the end market demand.

In many ways, that sets at the core of our pricing strategies that we build to maintain our capacities to our view of the end market demand.

That move should help do that, and our willingness to take the cost actions that are impacting our gross margin at this moment to put ourselves in a position to deal with a lower demand environment.

On the negative side, we have as you point out, our customers paying as high as well, and our premium -- a perceived premium we think versus our competition is growing.

That is some downside risk.

As we balance that upside and downside risk together with our strong positive reputation on reliable supply and the quality of our product and our positions with the customers that really matter, it makes us believe at this time that we can maintain our pricing strategy.

Okay.

And just on poly silicone.

What type of pricing trends are you seeing in poly silicone?

It is still really too small a business to reach any statistically significant trend statement.

You mean Hemlock poly silicone.

Yes.

I thought you meant poly silicone on LCD.

I apologize.

Jim, Hemlock.

Most of the business is under contract so for us we are seeing fixed pricing in contracts that we put in place.

Almost all the new capacity that we ramped up this year is under contract.

We can't tell much around significant changes in pricing.

We have -- we are aware that there may be some weakness in the semi conductor market, but that hasn't really shown up for us yet.

Sorry I didn't follow your jump ship from display to sol.

Thank you.

Next question from Mark Sue with RBC Capital Markets.

Please go ahead.

Thank you.

Jim, considering the deteriorating environment, can glass volumes potentially be down next year?

Or is that unrealistic?

And how low can panel utilization rates get near term?

And if you can just help us extrapolate what we should see for volumes as we start 2009.

I have to answer your first question by saying, it is possible, but I don't think probable that absolute volumes will go down for glass.

Utilization rates; I think that a lot will depend on the decision by some panel makers about how fast they ramp the new capacity.

It would be our judgment if the market demand is weak, why would you ramp a new Gen 8.5 or Gen 8 when there is overall demand weak.

I think that's where -- it is very important that -- as you think about calculating percent utilization.

We have seen this mistake made in the past that a lot depends on how people put in place a new fab, whether they count that when they say they are running at 70% or whether they don't.

We believe that some of the new capacity will not start up when it was originally supposed to nor will it ramp at pace.

The industry overall right now is operating at a much lower utilization rate.

I can't tell you exactly where it would be.

Obviously we have seen in the past for short periods of time, the industry go down to 50.

But it is hard for us to imagine that number for a sustained period of time.

Got it.

And, Jim, what about right sizing the business?

I understand R&D will stay near 10%.

But are there other things we can do to show earnings growth next year in terms of cost savings?

We haven't given out a number for R&D next year at this stage.

The question for us is what is the overall level of R&D for the Company, whether it shows any growth in dollars at all.

Originally we were planning for a significant growth, and we probably won't let that happen.

But we have frozen hiring across the entire Company for salaried people with less critical jobs, and basically we did that during the summer.

That will help keep our fixed costs down to a low level.

But we are committed to trying to get a cost structure in place for what we see for our overall sales, but I won't comment on earnings growth next year at this stage.

Lastly tax rates.

For any change for next year?

As of right now, we still think we will be going back to accruing US taxes.

If that changes, we will update you, but we still think it will be the same as we disclosed previously.

Okay.

Thank you, gentlemen.

And good luck.

Next in the line of Steven Fox with Merrill Lynch.

Good morning.

A couple of questions.

First of all going back to the market share question.

How comfortable are you that your two major competitors are taking similar steps to control capacity, right size their business at this point?

Do you have any insight into that?

I really can't comment on our competitors.

You need to talk to them directly.

We have seen several analyst reports that said that they -- people were adjusting their capacity, but I can't comment whether those are accurate or not.

I think you should call them directly, Steve.

Okay.

Getting back to the cost question, Jim.

Historically 10% has been a good percent R&D bogey.

For those of us trying to model for next year, what can you say about how quickly you would react to a what could be a tough first half in order to get the SG&A and R&D ratios into a reasonable range?

We don't think about it as a percent.

I think the real question is do we hold R&D spending where it is in terms of dollars and into next year, basically keeping the same amount of people.

We are evaluating whether any programs that -- maybe should be stopped at this stage.

We haven't made any decisions.

On SG&A, I think that we have basically frozen the dollars with the exception of what would be inflation for next year.

We are making decisions, but haven't made any yet about whether there should anybody reductions.

But we don't think of them as a percentage of sales on a short-term basis.

Obviously on a longer-term basis, we do.

Then my last question relating to the equity income.

If you look at your outlook for Q4 equity income, it doesn't seem to imply much of a margin degradation in the SCP business, but sounds like you are worried about that.

Is that something we should think of happening maybe on a quarter lag?

You would see a substantial decrease in SCP margins say in Q1, similar to what we are seeing this quarter in the wholly owned business?

I think it is very hard for us to judge.

Because we may end up with this imbalance continuing.

We clearly have outlined less weakness in Korea than what we are seeing elsewhere.

Therefore, they shouldn't have to have the same impact on their capacity reductions.

But we don't yet have a new operating plan, tank by tank, for Korea.

When we do, we will give you an update on what the impact might be for quarter one.

Clearly we are not going to let SCP end up having a lot more capacity in whatever their market is going forward.

Okay, thank you.

Next question is from the line of Carter Shoop with Deutsche Bank.

Please go ahead.

Good morning.

I wanted to talk a little bit about the capacity coming off line.

I was hoping you could quantify the amount of capacity you will take offline and how long it's going to take to the tanks off line; be it the middle of this quarter, end of the quarter, first quarter, et cetera.

We talked about that our volume was down 10% versus Q2.

We put a lot of that inventory in Q3.

We are talking about potentially the run rate being down -- sales rate being down 20% to 30%.

In total, if we are going to stay at this rate, we clearly could take down -- work off of that percent.

The tanks are starting to come down as we speak.

They are all individual timings, but we expect to have this happen over the remainder of this quarter.

When we look at Cap Ex for 2009, can we walk through where that Cap Ex is going in regards to how much is going to Display versus other business segments, and talk about how low that can come down depending on your current outlook for 2009.

I am not prepared to give you details, but Display remains the biggest part of it.

It will be the finish of the Gen 10.

We are not going to change that.

I think the remainder of the Display capital will be very dependent on what we see as the pace of repairs and then cost reduction capital for display; it is just too premature.

We do have to spend some money on diesel despite the relatively low market vibrancy right now.

We believe that we need capacity for 2010, and so there will be some diesel capital spending.

We are evaluating the capital spending in the rest of the Company and just haven't made any decisions yet.

Definitely only go one direction and that's down.

My understanding for the Gen 10 facility was that we will only see another $100 million to $200 million in 2009 versus 2008.

Is that still good figure to think about?

I don't think we have ever given out the details of Gen 10 at that level.

So --

Can you maybe comment on what maintenance Cap Ex would be for display on an ongoing basis, be it 2009 and beyond?

No I -- I prefer not to do that today.

Okay.

Last question.

Can you comment about foreign exchange in SCP?

How the Korean won versus Japanese yen is impacting margins in the fourth quarter and what you are expecting for the Korean won in the fourth quarter?

We are not looking for much change on the Korean won.

We are obviously not the world's best predictors of foreign exchange.

The won is giving some differential advantage to the Koreans at this stage in terms of the panel makers.

But beyond that, we sell in yen in Korea, then obviously translate the results back to the United States and the dollars.

Last question on days payable outstanding.

Looks like they have almost doubled year-over-year.

Can you walk through why this has increased and if that is sustainable going forward?

I don't -- I would have to double check that.

That would not be -- it may be something to do with the pace at which the businesses are bringing down their spending, because we often see that effect.

We basically are not doing anything significant in terms of stretching out our payables.

Okay.

Thank you.

Next question is from the line of Curt Woodworth with JP Morgan.

Please go ahead.

Hi, good morning.

Good morning.

Jim, is the majority of the capacity that you are taking out related mainly to Taiwan?

It's Taiwan and Japan.

Okay.

Looking at the fourth quarter, given the volume guidance down 20% to 30% and the wholly at 5% to 15% at SCP.

What do you think the aggregate end market is going to look like in the fourth quarter?

How much of an inventory reduction process is impacting that number?

The aggregate market we would say is down somewhere between 10% and 20%.

It shouldn't be materially different from what we are.

We don't really think there is a big share shift going on within the quarter.

In our numbers -- we have thought about that maybe there is 30 million square feet being impacted here on contraction, but it is really hard for us to judge exactly how much is coming at us.

Okay.

For the aggregate market to be down by that degree, and I think TV is about 50% of demand in the fourth quarter.

Wouldn't that have to mean that global TV demand would be down year-on-year in 4Q?

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Woodworth, please go ahead with your question.

Hi, can you hear me?

Yes.

Go ahead, Curt.

In terms growth rate for the industry on a year-over-year basis, that would compute to somewhere between 10% to 15% decline year-on-year in area growth.

Given the fact that LCD TVs are almost 50% of demand in the quarter or maybe a little higher, to get to that level, it would seem that would you have to have negative TV area growth in the quarter.

Is that fair?

Yes.

But that's occurring because -- remember the supply chain is -- all those televisions have already been built.

The industry is -- when you model the supply chain, what is going to happen is the inventory contracts dramatically in quarter four as all this stuff is sold at retail.

Actually the total supply chain -- the amount of square footage and inventory of it goes down 80 million square feet during this period of time.

What we are saying is that may be -- it may have been greater by 30 million than what we originally thought because of this contraction.

But supply chain ordinarily goes down and there is less less added glass production level of televisions at that time because they have already all been made.

Right.

Okay.

And then in terms of '09 capacity -- additions.

I know you are still going to ramp the Gen 10, but previously you were contemplating additional glass volume for the industry around 350 to 400 million square feet.

Now if you say 10%, that's 215 million square feet.

With the reductions you have announced, do you feel that you are more aligned with that 215 number right now?

Or do you -- would you have to take further steps in early '09 to readjust your capacity to that type of number.

No.

I don't think we need -- if we get the growth right overall, we -- I don't think we have to take substantially different.

I think the question will be the balance of Korea versus Taiwan.

If I can build on that, because we have had a number of questions that centered around our customers' utilization.

Where is that going to be at.

Where are we going to be at in Korea versus Taiwan versus Japan.

And what I just want to do in terms of perspective for you is -- there is going to be some dissidence between what you are going it hear from customers, what you are going to take a look at by different regional players, potentially by other glass players.

The reason is, is if you look at where we were in through the summer and in the last times that Jim Flaws and myself have talked to you, what we have said is, of course like everyone, we are concerned about what the state of the economy is and how all that will impact our business.

But we were very trapped by this relative strength of the retail data.

What Jim just shared with you now is that we track through the weekly trends.

We are seeing some weakness now in retail versus our expectations.

Now what we are doing is we are using our judgment to look beyond the current data and set our plans on where we think the level will be.

When we do that, it will mean that we are going to be -- at least for a time period, we are going to be a different place than some other players in terms of how they are thinking about it how they are explaining it.

It will take us some time to assure are we right or not right.

We would like to see what actually happens in the holiday selling cycle through retail.

Then it will take some period of time to adjust our cost and capacity, and bring those in line in the right regions to be able to set our sales correctly for this -- what we perceive will be much stronger economic headwinds than we have seen before.

Until that really settles down, you will hear a lot of different noise from a lot of different players in the industry mainly because we are using our judgment to get where we think it is going to be, even though everything is not lining up exactly that way right now.

Understood.

One last question.

Jim, the 12 points of the gross margin decline you are anticipating next quarter, you commented about FX hedges and just general dislocation.

I didn't catch all of that.

Can you just provide a little more clarity on what comprises that 12 points.

We have five points of accelerated depreciation to price down to.

And we have no ability to do anything on costs and we are shutting down such a huge amount of capacity so that price falls to the bottom line.

Normally we would hope to offset cost with price reductions.

On FX, we have a series of hedges that we have that we have put in place for higher volumes of transactions that we have to unwind -- that is one time in nature.

Lastly, we have some fixed costs that we were adding to the business that obviously we don't need because the business isn't growing.

That's what comprises the 12 points.

Great.

Thank you very much.

Next in the line of Jim Suva with Citi.

Thanks very much.

Considering the capacity reductions and turning off the tanks so they go cold and the depreciation and such, it seems like reasonably as we look at the linearity of Q4 versus Q1, that Q1 margins have to come down even more given the linearity.

Is that a reasonable statement?

No.

We wouldn't agree with that, because we intend to get a lot of the one-time nature of these costs behind us, assuming we are right on the fact that we have got the capacity at the right level which we may be wrong.

But if we are right, that we get through all this and got it matched up correctly, then that stuff disappears.

If we are wrong and markets even worse than what we thought, then would you have another round.

Okay.

Then a follow-up regarding inventory.

It looks like it went up about $25 million to $30 million this quarter.

Looking back through history, really the Q3 September quarter there haven't been an inventory Bill.

Given the economic indicators, can you walk us through how inventory builds, given what we know about the supply chain and inventory build up or if there is something unique in there that we should be aware of?

What you have is the primary inventory builder in Q3 was really in display where we commented that for four quarters in a row we have been reducing inventory below what we wanted.

When we first saw the weakness, we kept running -- we put that square footage of glass into inventory because we were running below where we wanted to.

Obviously, now with the downturn outlook, we don't want to do that anymore, but that's where it basically ended up.

Great.

Thank you very much.

Your next question is from John Harmon from Needham & Company.

Good morning.

There have been a lot of questions, so I'm down to just a couple ones.

Currently you really don't have the visibility, but it sound like you're expecting glass demand in Q1 to fall into what historical seasonal patterns are for consumer electronics.

Is that true?

Whereas -- part of your data is it's been a bit flattish in Q1which is --

What we need to be careful about is the over concluding on Q1 and relative seasonality for next year.

The regular march for us has been let us see -- as we move, as I just said, from what we had previously believed about the end markets and what we believe now about the end markets this year.

First, thing we need to do is to get to that correction in place and deal with that for quarter four or our view for 2009 which is still imaginary.

Okay?

We're going to know a lot more as we work our way through this selling season.

After we sort out where we think we're going to be overall in 2009 -- we've given some directional guidance today.

Then we'll start to back fill into what we think the seasonality looks like.

We're a little concerned if too much information about what we think about quarter one, mainly because we don't want to misdirect.

Let us figure out where we're going to be overall in '09 and then we'll be able to be a lot more forthcoming on how we expect to see the seasonality play out.

Understood.

Thank you.

I think you said before you were going to complete the transition to Eagle XG by the end of the year.

Does the fact than you're turning off some tanks -- are there any benefits in it?

Do they let you accelerate that or do it better in any way?

No.

We were already -- Eagle XG for Corning was basically done.

In SCP, we are continuing our march to finish that conversion.

You're quite right.

Even at times as markets slow down, is the time to continue to accelerate our cost improvement modes.

One last quick one.

What was the cash write-off you took?

Was it at Corning or Dow Corning?

And what was it?

We had both.

In Corning's cash, we had some money invested with mutual companies in their bonds so we took an impaired loss.

Then at Dow Corning in their cash, they had some Freddie and Fannie securities that they had to impair also.

We tried to not be concentrated in any particular investment, but we got it wrong in a couple financial institutions.

Okay.

Thank you.

Your next question is from Ajit Pai from Thomas Weisel Partners.

Just looking at your cash flows, this pretty good quarter -- was probably one of the strongest quarters I've seen for Corning in terms of cash flows.

Could you talk about what primarily has impacted that and even though you are guiding to reduced earnings on a go-forward basis, a large part of that (inaudible) due to non-cash elements as well as depreciation of funds, et cetera with declining demand.

While you've only exceeding the guidance you've given us, depending on that $500 million free cash flow.

Only about that rate right now.

What can we expect for 2009 as far as that's concerned?

Let me finish for 2008.

Free cash flow will be negative in quarter four because capital spending will be up and we will not have a strong operating cash four with the amount of operations that we're taking down.

It's premature for us to do a 2009 cash flow, depending on what the Company is going to do operationally.

The most difficult thing we'll have in determining cash flow will be the balance again, between equity companies and our wholly owned business in Display.

We expect capital spending next year to be lower than it was this year, but it's premature for me to forecast operating cash flow.

Got it.

The second question would be about three years ago when you had some dislocation in demand in terms of where you had capacity and where the demand was in terms of your wholly owned business and SCP, you had some planned shipment going on at that time.

Do you foresee an environment where that could begin again over the next year, year and one-half or do think that that's probably not likely to happen?

It will be one of the things that we go to explore as we get a feeling of how the market is settling.

Do we have capacity at SCP or in the wholly owned business that could benefit one another.

Clearly if it does, we'll do it.

Got it.

Thank you.

We'll go next to John Roberts with Buckingham Research.

TV demand is pretty price elastic.

Do you think the strong yen at some point is going to temper some of the recent price decline that we're seeing in both the US and Europe?

We actually don't believe that.

That's not something that we think will control -- that will depend on what the branded set makers decide to do as a result of that.

We would be very surprised if they took that into account.

Pricing is going to continue to be respective of what's going on with the yen, you're saying.

The yen has moved back substantially over the last few days anyway.

Plus, remember how much of the cost structure is in Korean won, too, so we also have to work through that.

You used 101 for the fourth quarter guidance.

You didn't use a round number like 100 -- you've had a liability -- is that like the one week plant average or how did you come up with 101, given the volatility of the yen?

There's no brilliance on how we came up with the 101.

I think 100 would have been more rounded.

Okay.

Thanks.

Operator, we're running a bit late.

We have time for one more call.

That will be from the line of Jeff Embersits with Sanford Bernstein.

Couple questions on telecom.

First, you gave guidance for sequentially revenue down 20%.

Can you give us some color on any differences you're seeing between public and private networks?

Second, you mentioned your operating costs were running a bit higher in telecom.

If you could give us some comments on the sources of that.

First, Jeff, on the sales down for quarter four compared to quarter three.

Normal seasonality usually eats up about 10 points.

Hard to call because normal seasonality -- because every year is a little bit different, but roughly we take about 10 points down.

The year past it was stronger US dollar versus the Euros about another 4.

What we're seeing is just in the very recent days -- in the last week, we've seen a lower order rate for fiber.

It's on the emerging markets as well as some inventory adjustments in some of our key cablers.

We believe that that could be economic driven.

Also we're expecting some lower private network quarters in quarter four versus quarter three.

Once again, somewhat related to the economy, we believe.

It's not outsized in private versus public so I don't think we're going to see a significant mix deterioration per say.

Because we also see part of the trend down about 15% in quarter four versus quarter three even though it's up about 14% year-over-year.

That's the rough mix we're seeing.

Once again, we're using a little judgement about where we think quarter-to-quarter is going to be, based on relatively few days of activity -- relatively recent.

Yes, and the operating expense?

On OpEx, the beginning of this year, we had some fixed costs in some selective areas based primarily on growing much more rapidly in the private networks space.

We've gotten some of that growth, but about half as much as what we thought we should have.

What we would seek to do is make a correction in that fixed cost structure going forward.

It's higher than we think it should be.

We also had some conversion costs to SAP that has lifted our OpEx higher than what we would have liked.

And fiber to the [pram] in Europe, even though we've recently announced our second major customer, we expected to announce that a little earlier, have a little more revenue.

We had some fixed costs in place there for them in another plant.

Overall as you take a look at where we are on the fixed costs and telecom, you should expect us to take some actions to lower that fixed cost structure to match bette to where we think the revenues are going to be.

Thanks.

Jim?

Just a couple of quick closing comments.

The people in the office will be presenting at the UBS Technology Conference in New York on November 18.

I'll be presenting at Barclays Capital Global Technology Conference in San Francisco on December 10.

Obviously, we hope to see you at one of these events.

In closing, the current situation has changed -- the fundamentals that drive our current businesses.

The world is still yearning for a cleaner environment.

It continues to be in need for huge amounts of data as fast as possible and a superior display to view it on.

But even with these overall drivers, we think now is the time to be more cautious about how spending commitments, and caution is showing up about our decision to control our fixed costs, reduce capital spending and also, be cautious on the level of R&D spending without changing our overall commitment to R&D.

Ken?

Thank you, Jim.

Thank you, Wendell.

Thank you all for joining us this morning.

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