康寧 (GLW) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Corning Incorporated fourth quarter 2010 results conference.

(Operator Instructions)As a reminder, this conference is being recorded.

It is my pleasure to turn the call over to Mr.

Ken Sofio, Vice President of Investor Relations.

Please go ahead sir.

Good morning, welcome to Corning's fourth quarter conference call.

This morning we have Jim Flaws, Vice Chairman and Chief Financial Officer who will read prepared remarks before the Q&A.

Those remarks do contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Those statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, and these risks are detailed in the company's SEC reports.Jim?

Thanks Ken.

Good morning, everyone.

Hopefully you had a chance to read the press release we issued this morning of our fourth-quarter results.

If you haven't, a copy can be found on our IR website.

This morning I will cover our fourth quarter results and first quarter outlook, but I would be remiss if I did not start the call with some thoughts on the past year.

I think I speak for most of us when I say we often don't spend enough time reflecting on the past and what we have accomplished.

We often turn quickly the page, to focus on the challenges that lay ahead of us.

But after completing such a tremendous year, in terms of both financial performance and product development, I think it is worth taking a moment to reflect.

We told you last February that our goal was to emerge from the recession as a stronger, more profitable company.

I believe this is clear from our financial results, cash position, and emergence of a new business.

2010 represented one of the most successful periods in the Company's 159 year history.

Our sales grew 23%, with each segment posting solid year-over-year improvement.

Display was up 24%, Environmental 38%, Life Sciences 39%, and Specialty Materials led by Gorilla Glass, up 75%.

In Telecom, which we had been forecasting be down, was up 2%.

In fact, 4 of our 5 segments reached record sales in 2010.

Our gross margin dollars increased with the 23% increase in sales.

Our gross margin, in percentage terms, expanded significantly from 39% in 2009 to 46% in 2010.

Every segment, with the exception of one, saw year-over-year increase in gross margin dollars and gross margin percent.

Display gross margins rebounded to their historical average.

Telecom increased 5 points, Environmental 5 points, Specialty Materials 7 points and the one exception, which was Life Sciences, where gross margin was flat.

Our operating income, excluding special items, was $1.4 billion, an all-time record.

Equity earnings grew 36%, and reached nearly $2 billion, again an all-time record.

Earnings per share, excluding special items, were $2.70, up 53% versus last year, and another all-time record.

Free cash flow was an astonishing $2.8 billion, another all-time record.

We ended the year with $6.3 billion in cash, which provides us with the financial flexibility to not only continue to fund our R&D and capital expansion needs, but also supplement our organic growth through selective M&A.

And beyond the financials we strengthened our market position with new products and global expansions.

This was an extremely fruitful year for the Company in terms of new products and the advancement of our existing product lines.

I won't spend time this morning walking through our new product offering, we are going to do that next week at our annual investor meeting.

But out of all of our technical advances, I believe 2010 will best be remembered as the year one of our newest breakthrough products, Gorilla Glass, emerged as the cover glass of choice for the hand-held and IT industry, and was identified by investors as a significant contributor to future growth of the Company.

All in all 2010 was an incredible year for Corning, and I hope you'll all agree.

Now, let me take a few moments to discuss the fourth quarter results and update you on our businesses.

Fourth quarter sales for the Company were $1.77 billion, an increase of 10% sequentially and 15% over last year.

Each segment grew sequentially and year-over-year with the exception of Telecom, which is down slightly sequentially as expected.

Our fourth quarter sales benefited by about $38 million sequentially due to changes in exchange rates.

Gross margin was 43.5%, slightly lower than quarter three, but in line with our expectations.

Gross margin included $16 million in Gorilla related project costs related to TV cover, and another $8 million in charges from the discontinuation of our green laser program.

Neither of these was counted as a special item.

For modeling purposes we expect Gorilla related project costs in Q1 to be minimal.

SG&A was $284 million or 16% of sales, in line with our expectations.

As a reminder, SG&A dollars are typically highest in our fourth quarter.

Typically about 28% of our SG&A spending falls in the fourth quarter and this year was no exception.

R&D was $166 million or 9% of sales, also in line with our expectations.

You should note that R&D included $7 million charge related to the discontinuation of certain R&D programs.

In the fourth quarter, we also recorded a $326 million credit, related primarily to the settlement of business interruption and property claims stemming from the earthquake and power disruption suffered by our Display business in 2009.

The credit was recorded in our Display segment and can be seen on our corporate P&L in restructuring impairment and other line.

Insurance items were treated as a special item, the amount net of taxes, was $206 million.

Moving down the income statement, other income increased from $2 million in third quarter to $54 million in quarter four.

As a reminder, Q3 included a $30 million loss on retirement of debt and about $24 million in pre-tax foreign exchange hedging losses.

Equity earnings were $511 million in the fourth quarter and consistent with the third quarter.

However, Q4 included several one-time gains that were treated as special items.

Excluding the special items, equity earnings would have been down $408 million, down 19%.

SCP recorded a tax credit in quarter four which our share was $61 million.

Equity earnings from Dow Corning included about $42 million in one-time gains, including the release of deferred tax allowances and tax credit on cash repatriated.

Some additional comments on both equity and companies in a moment.

Our Q4 tax rate was only 2%, lower than the expected 5%.

This was the result of $28 million withholding tax credit on the SCP dividend.

Net income, excluding special items, was $733 million in Q4, compared to $808 million in Q3.Net income benefited by about $40 million from the translation from foreign currencies to US dollars.

EPS excluding special items was $0.46.

Please note that both net income and EPS excluding special items, are non-GAAP measures.

A reconciliation from these measures to GAAP can be found attached to our press release this morning, and also on our website.

Including these special items, net income was $1 billion and EPS $0.66.

Our share count for the fourth quarter was 1.58 billion shares and consistent with the third quarter.

Now, I will turn to our segment results and I'll start with Display.

Our Display segment results in Q4 were influenced by a change in regional customer utilization rates between Korea to Taiwan.

This change resulted in stronger demand growth at our wholly owned business and weaker demand at SCP.

I'll start with our consolidated results.

Fourth quarter sales were $750 million, an increase of 16% over Q3 and 5% up over last year.

Volume at our wholly owned business was up almost 20%, which is higher than our revised guidance in early December.

Glass pricing was down to mid single digits sequentially, in line with our expectations.

Sales benefited from a change in the Yen to US dollar exchange rate, which averaged 86 in Q3 and 83 in Q4.

Display gross margins were down just slightly, quarter to quarter, as the price declines were largely offset by the benefit of stronger demand and another excellent quarter of cost reductions.

The higher than expected glass demand at our wholly owned business was the direct result of Taiwanese panel makers increasing their utilization rates in November and December.

We believe this was in response to strong demand for TV panels from China, dissipation of Chinese New Year, which starts in early February.

As a reminder, the Taiwanese have strong strategic alliance with the Chinese television brands, which is likely why we did not see a similar trend in Korean panel makers.

Regarding TV inventory levels in China, it is apparent the supply chain is gearing up for a robust holiday season there.

If that occurs, then the current inventory levels are appropriate.

The stronger glass demand at our wholly owned business prohibited us from building much, if any, additional inventory in Q4.

As a result, we ended the year with healthy glass inventory levels at our own wholly owned business.

SCP was a different story in Q4.

The Korean panel makers lowered their utilization rates from the mid 90s in September, to around 80% in November and lower in December.

We believe this was done to control inventory.

In the past, we have seen Korean panel makers lower panel prices, versus lowering panel production, to spur demand and maintain healthy inventory levels.

This time, they made the decision to keep panel pricing stable and lower their production instead.

SCP volume were down almost 15% sequentially, SCP did continue to run their operations at full capacity and as a result, built some glass inventory in the quarter.

Regarding pricing, glass price declines at SCP were similar to our wholly owned business.

For your modeling purposes, SCP's fourth quarter LCD sales were $1 billion, a decrease of 15% from the third quarter.

As a reminder, this represents SCPs LCD sales only.

Our public filings report SCP total sales which include CRT glass and other product sales.

Equity earnings from SCP LCD glass business were $369 million in the fourth quarter, a decrease from 4% in the third quarter.

However, as I mentioned earlier, equity earnings included a tax credit of $61 million.

Excluding this special item, equity earnings at SCP were down -- were $308 million, down 16%.

I'd like to spend a few minutes discussing the current supply chain starting with retail.

Retail demand in Q4 came in as expected or slightly better across all major product lines for which we have data, notebooks, monitors and televisions.

I will start with the television retail data.

Worldwide LCD TV unit sales in retail were up 38% in October, and 59% in November, year-over-year.

We do not have complete data to provide worldwide growth figure for December.

But the first 2 months of Q4 were much higher than anticipated due primarily to Japan.

Japan had unprecedented year-over-year growth rates to start the fourth quarter.

In October, the Japanese government announced the eco-point program subsidies associated with LCD TV purchases would be cut in half by December 1.

The result, consumers purchased LCD televisions in droves in October and November.

October unit sales were up 221% year-over-year.

In November it was up 435%.

So, in December unit sales were down 31% .

For the year, Japan was up 102%, far ahead of our expectations from the beginning of the year, and looking ahead into 2011, we do expect unit sales in Japan to be down versus 2010.

In the United States, LCD TV unit sales rebounded in November and December.

Each month was up 6% versus last year, so, for the year, the US market ended flat.

As a reminder our source for this data is primarily MPD, which does not include certain discount retailers such as Wal-Mart or Costco.

There is some belief that these discount retailers may have experienced higher demand for TVs in Q4.

In China, LCD TV unit sales were up 18% in October and 25% in November.

We do not have December data yet, so for the first 11 months of the year, China was up 37%, which was slightly higher than our forecast.

In Europe, LCD TV unit sales were up 5% in October, and 10% in November.

Again, we don't have final data for December, but our preliminary estimate indicates it was up about 11%.

For the year, then, Europe would be up 15% which was in line with our forecast.

In the developing regions, emerging Asia sales were up 55% in October and 96% in November.

South America, sales were up 89% in October and 83% in November.

Again, we don't have December data for these regions yet.

In summary, we believe total LCD TV sales shipped in 2010 will be close to 190 million, slightly higher than our expectation of 185 million.

This would be an increase of 31% over 2009.

Turning to monitors, sales continued to track with our forecast.

Our data here is based on shipment, top nine monitor brands which make up about 70% of the worldwide monitor market.

Year-to-date through November, sales were up 6%.

For the notebook segment, which includes traditional notebooks, netbooks, slates and tablets, our data is based on the 5 top ODMs which make up about 75% of the worldwide notebook market.

Year-to-date through November, shipments were up 21%, and slightly higher than our forecast.

So, in summary, based on the data we have today, it appears that retail is in line with our expectations for Q4.

Now, regarding the supply chain in total, we believe there are about 16 weeks of inventory exiting the fourth quarter, which is right in line with our expectations, and considered a healthy level heading into Q1.

I'd like to close out my remarks on Display with some summary comments.

We could not have been more pleased with our performance over our Display business and how it met the needs of a much larger end market than we anticipated.

If you recall back at our investor meeting, we forecasted the LCD glass market to be about 2.8 billion to 3 billion.

Based on our December estimates we believe the total LCD glass market was roughly 3.15 billion square feet, an increase of 28% over 2009.

Our Display business delivered both in terms of financial performance and product development.

Our wholly owned business grew at the same rate as the overall glass market, our 2010 Display sales were over $3 billion, a 24% increase over 2009, and an all-time record.

Gross margins increased with a higher volume, and ongoing cost reduction efforts.

At SCP, Display sales were almost $4.5 billion, an increase of 17% over 2009, led by significant volume growth.

The total Display segment net income, including SCP, was up 50%.

On the product development front, we introduced EAGLE XG Slim, the first commercially available thin glass substrate.

Today most panel makers start with thicker substrates for portable devices and then use chemicals to reduce the thickness of the glass.

EAGLE XG Slim is ready to use right out of the box.

The benefit to our customers are substantial.

EAGLE XG Slim is currently available at .4 millimeters, then in sizes GEN5 and smaller to address the portable device market.

Our larger GEN size is geared towards television and large monitor market, like GEN7 and GEN8.

It's available in .5 millimeters.

Until now, those GEN sizes have traditionally been .7 millimeters thick, so, a move to .5 millimeters will provide a tangible benefit in the efforts to reduce the thickness and weight of televisions.

The market reception has been very good to date, EAGLE XG Slim continues to ramp and we expect it to become a considerable portion of our volume this year.

We are currently in the process of developing an even thinner glass, down to .3 millimeters.

And, we will be demonstrating our award winning glass at our investor meeting next week.

So now, I will turn to the Environmental segment, where sales in the fourth quarter were $232 million, an increase of 12% sequentially, slightly higher than our expectations.

Sales of light duty and heavy duty diesel filters drove our Q4 results.

As a reminder, the light duty filter market is driven by the Euro 5 filter forcing regulation.

In 2010, this regulation required emission control systems on all new model platforms.

As more new models come to market, they generate additional demand for light duty filters.

This year, 2011, Euro 5 tightens even further, requiring emission control systems on all new auto production, not just new models.

In heavy duty, Q4 sales were also up nicely, driven primarily by class VIII engine production.

In total, the quarter four diesel sales were $115 million, up 29% over the third quarter.

We are also pleased with the improved manufacturing performance of our diesel business during the quarter.

We continue to be encouraged by the recovery in the truck engine industry.

Industry reports indicate monthly truck order rate at a four year high in November.

While we haven't seen the final December data yet, we believe heavy duty truck engines will end the year up 16%, and medium heavy duty and bus engines will end the year up 18%.

Now, while this is nice growth, it's still far below the number of engines produced prior to the 2007 [pre-rye].

We believe there is more growth to come in 2011, 2012, and that gives us confidence that our business will continue to improve.

In automobile, quarter four sales were $117 million and consistent with the third quarter.

The fourth quarter caps off an excellent year for our Environmental segment, both in terms of sales and manufacturing performance.

Environmental segment sales were $816 million in 2010, an increase of 38%, an all-time record.

Our auto ceramic substrate sales were $462 million, up 28%.

Diesel sales surpassed $350 million and were up 54%.

We believe diesel is well on its way to hitting $500 million in sales in the next two years.

In terms of manufacturing performance, the segment made significant progress in 2010, improving gross margin by 5 percentage points.

In summary, a very good year for the segment, and one where we will see additional sales and gross margin expansion this year.

I will move to Telecom, which had a strong year and started off 2011 with a bang.

First, fourth quarter numbers, sales were $443 million, down just 5% sequentially, which was better than our expectations.

Normal seasonal declines were less than we anticipated, as we experienced stronger than expected demand across all our product lines in North America and Europe.

Compared to last year, fourth quarter sales were up 9%, driven by the excellent demand for our Pretium EDGE products for enterprise networks, as well as demand for fiber to the home products.

For the year, Telecom sales were up 2% for 2009, which is better than we expected when entering 2010.

We saw higher than expected demand across all product lines in North America and Europe, and that helped offset the slowdown in China's 3G buildout.

Excluding divestitures, Telecom sales were up 4%.

Our bottom-line performance was even more impressive.

Telecom net income was $97 million this year, up significantly from last year's $19 million.

This was the highest level net income in the Telecom segment since 2000.

Segment's bottom-line performance was the direct result of cost reductions implemented two years ago, as well as a significant increase in the mix of higher margin product sales, including our Pretium EDGE suite of products.

I can tell you that the market acceptance of Pretium has been nothing but short of spectacular; we set out to establish ourselves as the technology leader of choice in the enterprise network space, and I believe we have succeeded.

Enterprise networks are one of the fastest growing segments in the Telecom space, and we are there to lead it.

We are very excited about this growth opportunity.

We are also very excited about the fiber to the home market.

We believe this market has the potential to be a significant driver in future sales and profits.

Hopefully, you all saw the announcement last week from Australia's National Broadband Network, better known as NBN.

NBN awarded $1.6 billion equipment contracts to 3 companies, including Corning.

Our initial award was for $1.2 billion over a 5 year period, with the initial purchase commitment of $400 million.

NBN plans to connect up to 8 million to 10 million homes, which is over 90% of the country, with a network designed to provide download speeds of 100 Megabits per second.

We will be supplying much of NBNs fiber to home product needs, such as aerial cable and pre-connecterised outside plant hardware, including flex snap.

Flex snap is our state of the art fiber optic cabling system.

We are absolutely thrilled to play a significant role in this historical project.

In addition to NBN, we are a leading supplier to several other large scale fiber-to-home projects, including two in Canada and another in Europe.

Looking ahead to 2011, we believe we can significantly grow our fiber to the home sales.

Going forward, we expect fiber-to-home market to look very different than in years past.

Over the last several years, large-scale projects by American carriers have dominated this industry.

What we began to see in 2010, and what we will continue to see 2011 and beyond, is the emergence of a significant fiber-to-home projects outside the United States.

In fact, we believe fiber-to-home market this year has the potential to be the largest in history, which is meaningful when you think back how significant Verizon buildout was at its peak.

In summary, our Telecom segment performed very well.

We remain very excited about the future growth opportunities in this industry.

Now, I will turn to Specialty Materials segment, one of our fastest growing segments.

Fourth-quarter sales were $197 million, an increase of $38 million or 24% sequentially.

The increase is primarily due to the tremendous demand for Gorilla Glass for hand-held and IT products.

I will talk more about Gorilla in a minute.

Segment gross margin also increased nicely due to the increased mix of Gorilla Glass.

As a reminder, the gross margin included $16 million in project costs.

For the year, Specialty Materials sales were $578 million, an increase of $247 million or 75% ahead of the prior year.

This is another segment with all-time record sales.

Gross margin increased by 7 percentage points over the last year, again, due to Gorilla.

Gorilla reached nearly $250 million in sales in 2010 and exited the year on a run rate that was over $400 million.

It's hard to put in words how tremendous the interest level right now for Gorilla Glass from both our customers and retail consumers.

For those who attended the Consumer Electronics Show, you have an idea what we are talking about.

For those who were unable to come to CES, I highly encourage you to come to our annual investor meeting next week at Cipriani in New York City.

Attendees will have the opportunity to participate in several hands-on demonstrations, and see firsthand how durable and beautiful Gorilla Glass is up close.

These are not just videos of how durable our glass is, this is an opportunity for you to try to scratch it and break it yourself.

In fact, these are some of the same demonstrations we do for our customers.

And for those investors who have not seen our online commercials for Gorilla Glass, go to Corning.com to view the latest.I think they're worth it.

I have some updated figures for you this morning on how well Gorilla Glass is doing.

As you will see, we are on our way to earn a lot more than just a handful of devices.

Gorilla Glass is now being used by 29 major brands around the world as cover material for hand-helds, laptops, tablets, and TVs.

Our glass and has now been designed into more than 350 different models, more than 190 of those in the market today, equating to approximately 200 million devices.

There are more than 35 other models to be released in the current quarter, which is why we continue to be excited about our sales growth this year.

Additionally, at the Consumer Electronic Show this year, Sony announced the inclusion of Gorilla Glass on their large-sized televisions as a means to eliminate the bezel and create a beautifully designed edge-to-edge effect.

These will be available at retail within a few months.

Now, for those investors who are worrying about competition, we have always told you there will be competition in this market.

In fact, Asahi has been shipping cover glass and competing with us for some time.

We believe Gorilla Glass is a superior product and the most durable cover glass in the market today.

How do we know this?

Because the market has spoken.

Gorilla Glass has become the cover glass of choice by all those different brands who put our glass on hundreds of their devices.

You should never underestimate the importance of first mover advantage.

Corning was the first to market with the best product, and our product is still the best.

Asahi has recently claimed their new glass is 6 times stronger than soda-lime.

I will tell you how they came up with that figure.

There are multiple industry tests, and many more tests at our customers.In the end what our customers really care about is how durable your glass is after it has been abraded.

That is the key.

Not relative strength, because even soda-lime is very strong until it becomes abraded.

This is where Gorilla excels.

Gorilla is extremely damage resistant.

We actually posted the results of these tests on our website months ago; in one of the tests we had proven that Gorilla can be up to 10 times more damage resistant than soda-lime after it's abraded.

And that is the product that we have in the market today, which is actually the fourth generation of Gorilla Glass.

The Gorilla Glass we sell today is much more advanced than our last versions.

And as with all of our innovative creations, we continue to work to improve the technical advantages of Gorilla Glass.

Now, turning to life science, sales were $140 million in the quarter, up 12% over the third quarter.

And for the year, sales hit $508 million, up $142 million or 39% versus 2009, an all-time record.

The increase was primarily due to our 2 recent acquisitions, but we had organic growth as well.

Turning to Dow Corning, quarter four sales were $1.6 billion, up 5% over Q3.

Primary driver was Hemlock, where sales were up 12% sequentially.

Equity earnings were $124 million in Q4, versus $97 million in Q3.

As I mentioned, quarter four equity earnings included $42 million in one-time gains.

Without these one-time gains, equity earnings would have been materially lower despite the higher sales.

Results were impacted negatively by startup costs for the new facility in China, as well as higher year-end spending.

Now, I'd like to shift to the balance sheet where we ended the year with $6.3 billion in cash and short-term investments, which is up $2.8 billion from where we entered the year.

We are very pleased with the financial strength this level of cash provides us.

We believe it gives us interesting options to supplement our organic growth.

Free cash flow was $1.6 billion in Q4 and included the special dividend from SCP.

For the year, free cash flow was $2.8 billion, an all-time record.

This includes the $900 million special dividend that we received from SCP in Q4.

Free cash flow was a non-GAAP measure and a GAAP reconciliation is on our website.

The biggest outflow of cash during the quarter was for CapEx.

CapEx was $473 million in the fourth quarter, and for the year, it was $1 billion.

We will be providing more details about our capital spending plans for this year at our meeting next week.

Moving further down the balance sheet, inventory increased slightly from $712 million at the end of Q3, to about $738 million at the end of Q4.

The increase was primarily in Specialty Materials, which was preparing for a significant increase in Gorilla Glass sales in the first quarter.

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

I will start the outlook with Display.

We expect volumes at both our wholly owned business and SCP to be up in the mid single digits sequentially.

To be clear, volume at our wholly owned business will be up in this range and so will the volume at SCP.

We expect utilization rates at Taiwanese and Korean panel makers to be modestly higher in Q1 than Q4.

And regarding the overall glass market, we expect market volume to be up slightly, quarter-to-quarter.

Glass price declines at both our wholly owned business and SCP are expected to be more moderate than in the fourth quarter.

In our Telecom segment, we expect first quarter sales to be consistent with our very strong fourth quarter.

This is much different than the usual sequential declines we have seen in the first quarter over the last three years.

We expect to see very robust fiber-to-home product demand to offset slight seasonal declines in other products.

Fiber-to-home demand will be driven by increased project activity in Canada and Europe.

In comparison to the first quarter 2010, Telecom sales will be up 20%.

We expect sales in our Environmental segment to be consistent, quarter-to-quarter and up 20% year-over-year.

In Life Sciences we expect sales to be up slightly sequentially and also 20% up year-over-year.

In Specialty Materials, sales are expected to grow 20% to 25% sequentially, driven primarily by Gorilla Glass.

Q1 segment sales did more than double the year ago.

Moving down the income statement, expect our quarter one corporate gross margin to be up slightly, as a percentage basis.

SG&A as a percentage of sales and on a dollar basis will be materially lower in quarter one compared to quarter four.

R&D will be slightly lower.

We expect equity earnings to be down about 5% sequentially.

For your modeling purposes, our guidance here is based on the quarter four equity earnings of $408 million, which included special items.

At Dow Corning we expect equity earnings to be up about 5% to 10%, excluding the one-time gains last quarter.

At SCP we expect equity earnings to be down in the upper single digits, as a result of the higher tax rate.

As we discussed at the Barclays conference the last month, a portion of SCP's earnings have been exempt in the past from corporate income tax under the Korean tax preference control law.

This 100% exemption falls to 50% in 2011.

As a result, SCP's effective tax rate will increase from about 14% last year to be between 18% in 19% in 2011.

Investors should note that the movements in the Yen to US dollar exchange rate can also influence our results.

For your modeling purposes, every one point new in the Yen for the quarter, our sales of net income moves by about $9 million.

The net income impact includes SCP where stronger Yen helps.

Moving to taxes, as we discussed many times, we expect our Q1 in 2011 tax rate to be about 15%.

This is likely the reason why our EPS will be lower despite the higher sales this

Thank you Jim.

Richelle we are ready to take some calls now.

Certainly.

(Operator Instructions)First question from the line of Mark Sue, RBC Capital Markets.

Please go ahead.

Thank you.

Jim, is the $1 billion in Gorilla Glass mostly spoken for for 2011?

Are we at a point where we can increase production if required to do so, or do we have to actually wait until next year?

And then, if you could just talk about also, the interest from TV makers also for Gorilla Glass in addition to tablets and smartphones and IT?

I'm not quite sure how to define spoken for, but I will take my shot at it.

We have overwhelming demand by a series of brands that we think will actually drive our expectation of IT and hand-held sales to be higher.

In terms of Gorilla cover, Sony has made their announcement, so I think that qualifies under spoken for and we do have a contract with them.

So, we feel that we have the potential to get to the billion dollars; that will be mostly driven by how well the Sony product and television sells.

And this is the hardest for us to predict because no consumer has had an opportunity to buy a single one yet.

We still expect to have several hundred million dollars of sales of TV cover but that is where the most variability will probably occur.

We're increasing our capacity for Gorilla Glass this year and we have had the opportunity to allocate more to it, but not a tremendous amount more.

We are spending in our capital to add Gorilla capacity and we expect to have significant capacity coming on as we enter 2012.

We do -- have had interest -- people talking to us after the Sony product was displayed, other television manufacturers.

But we have yet to have another customer.

I see.

So, should we assume that there might be another TV maker to follow Sony; is that discussion going in the right direction?

And separately Jim, since Gorilla Glass is a high valued differentiated product, can Gorilla Glass gross margins ultimately end up higher than traditional display glass margins over the longer term?

I won't make any forecasts about the timing of another customer for TV cover, I think we all have to see how well Sony does in the marketplace, which we should be able to do very shortly.

Gorilla, as we talked about for IT and hand-held, has a gross margin higher than our corporate average and that's the only disclosure we are prepared to make at this time.

Okay that's helpful Jim.

We will see you next week.

Thank you.

Next question from the line of CJ Muse, Barclays Capital.

Please go ahead.

Good morning.

Thank you for taking my question.

I guess Jim, first question on the gross margin for Q1, I may have missed your comments.

Did you guide slightly higher, was that what you said?

Yes we did, CJ.

Okay, and I guess relative to pro form, and I know you don't use that number, but it would have been about 44.8%, and do you think you are in line with that or could it even be higher than that?

I am not going to give you any further details other than to say it will improve.

Okay.

I guess following, same train of thought but a little different, your non-LCD business is seeming to be coming on real strong here, and I guess I was hoping to get an idea of what the trajectory for the gross margin would look like for all of those businesses in aggregate as we move through 2011.

How should we model that?

I won't give you an aggregate for them because that's not how we think about it, but I will tell you we expect the gross margins in every one of our segments to improve in 2011.

Okay.

And I guess final question for me, clearly embedded in your glass volume guides for Q1, relative to what you think the industry will do, you think you are taking some share there.

So I guess if you could comment on what is happening in the glass industry to give you that confidence and how we should think about that share trending through '11.

Well I will just comment about the glass industry itself.

You know, we have had some difficulty predicting exactly what happens in Q1 and Q2, but we believe the glass industry itself will grow in Q1 and we are not expecting significant inventory in terms of absolute square footage gains in just quarter one.

So, that is our current modeling, we will talk more about it next week.

We do believe we gained a little share back, and obviously it was our goal coming out of our severe supply constraints.

And, we did that in quarter four and that's the only share comment I will make.

Thank you Jim.

Thanks CJ.

Your next question from the line of Stephen Fox, CLSA.Please go ahead.

Hi, good morning.

First of all, could you talk a little bit more about the Australia win, and what it can mean for financials in 2011?

You mentioned the $400 million initial order but how does that sort of roll through the year?

The NBN order will be relatively small in 2011; it clearly will be in the back half of the year.

I think you will see much more significant volume in 2012.But, we are delighted by the position we have got there, and we think it will be a contributor in the back half of the year.

But, in terms of significant new dollars, it's really 2012 where it really starts to ramp.

And then secondly, just on the Specialty Materials business, Jim, I think you said the gross margins improved by about 7 points; I'm assuming that was related to Gorilla Glass.

Can you sort of talk around -- about the contributed factors to them?

The primary factor was Gorilla.

I mean Gorilla tripled over the course of the year.

We started to edge out of this being kind of a startup product, and we also are beginning to get out of the cost drags that we have had from changing tanks back and forth because we now can have tanks just dedicated to this.

So, that was the primary driver for this segment and you will see a further improvement this upcoming year, because as the business continues to expand in IT and hand-held, we are going to have large tanks dedicated to this product all year 'round and that should have excellent margin.

And then just lastly, related to that, the GEN6 tanks in Japan that you've been ramping.

Can you just give an update on where that is relative to plans to ramp it, efficiencies, yield, etc?

They're going great.

Those were primarily aimed at TV cover, but we are making some Gorilla for IT and hand-held here, and our new ion exchange facility's doing great.

Our manufacturing folks have really come on strong.

Basically this facility went from demolition of an older building to making glass and the product in 6 months, so we are feeling very good about it.

Great, thank you very much.

And the next question comes from the line of Wamsi Mohan, of Banc of America Merrill Lynch.

Please go ahead.

Yes, thanks for taking my question.

Jim, you said that there's potential for you to convert some more LCD tanks to produce Gorilla this year.

Should we take that as a statement that the overall LCD business does not meet incremental capacity in 2011?

And should we also expect pricing trends that are improving in 1Q relative of 4Q to sustain through the course of the year?

The first question, on the capacity, what we are doing is converting some of the older tanks that we had had in Taiwan from Display to Gorilla.

But Display is adding capacity because there will be some new tanks coming up at our Taichung facility that will be operating for Display.

Remember, we also get capacity gains in the Display business as we go thinner, and I made a few comments on that in my comments.

I didn't catch your second question, Wamsi, could you repeat it?

Yes it's about pricing, So you're saying pricing in 1Q will be slightly better relative to 4Q, glass pricing.

Should we expect a reversal back to the 1% to 2% sequential declines in 2011?

Well clearly that has been our goal, was to try to get back to our moderate price decline strategy and obviously, quarter one is a good step on that way.

Okay.

Thanks a lot.

Okay, thank you.

And the next question comes from the line of Jeff Evenson, of Sanford Bernstein.

Hello.

Two questions.

First, as we look forward, how much of your billion dollars in Gorilla sales depends on actually the uptake of EAGLE XG Slim so that you do get that extra capacity?

And then, unrelated to that, I am interested in the next one to two years of LCD TV demand.

How you think about the lower-priced segments of emerging markets moving over to LCDs?

We are not going to give a specific amount of capacity, due to the Slim, I can tell you it will be a substantial portion of our volume this upcoming year.

Relative to the emerging markets, I would urge you, Jeff, to come to our investor conference next week and Mr.

Clappin will be talking in great detail about our expectations for all the markets around the world.

Thanks.

I look forward to it.

Thanks Jeff.

Thank you.

The next question is from the line of Jim Suva, of Citi.

Please go ahead.

Thank you, and congratulations to you and your team for good results and coming out stronger.

Thank you Jim.

On the comment about Gorilla Glass.

In the past you've talked about some additional efforts beyond hand-helds and the Sony TV efforts.

And in your prepared remarks you talked about some additional costs for winding down some businesses.

Do those winding down of businesses, is that mostly related to the green laser efforts, and winding that down?

Or, are any of those related to Gorilla Glass not going into those other business potential opportunities?

And what is the status if it doesn't result in those costs going to winding down some of those efforts, what is the status update of going into those other businesses; whether it be automotive, solar, for Corning and if you can update us on the Gorilla part of that?

That's a lot of questions all in one there, I will do my best.

So, the one-time costs that were incurred in gross margins were primarily around the green laser in R&D.

It wasn't green laser, it was some other projects.

It definitely is not anything related to glass in terms of AAA or portable tanks, it was some other programs.

So we are not discontinuing any efforts, in fact we are actually expanding our efforts to move strength in glass into other segments.

It has actually led us to throttle back on some of the other new business efforts so we can have more scientists to work on the glass opportunities.

I think we are making good progress on the other areas.

Joe Miller, our CTO will be at our conference next week.

He just returned from some meetings with customers in the appliance area.

And, we also continue to have good interest in automotive, so I think at our meeting next week, you could ask him the questions, but we are feeling very good about that opportunity.

Regarding portable tanks; we're also feeling pretty good about that.

We hope to have sales this upcoming year.

And, I would urge you again to come and talk to the people who are working on the program next week.

Thank you and congratulations again to you and your team.

Thank you very much Jim.

Thank you .The next question from the line of Simona Jankowski, of Goldman Sachs.Please go ahead.

Hello, thank you.

Two questions.

The first one is on the Display business.

It seems that the strength coming out of the quarter and into the first quarter has been driven more by China, and if these Archex would suggest that from the Korea side there has been more, a little bit more weakness in a little more inventories coming out of the holidays.

So, it just seems surprising to me that you're expecting similar volumes in both the wholly owned and the SCP parts of the business.

Can you just expand on that?

I think in Korea, one of the things that was very unusual for us is -- was in inventory correction in general but Korean panel makers don't carry much inventory, but clearly LG, as you saw on their announcement, talked about driving down their inventory, and they remain a very big customer of ours.

So we saw inventory corrections and the throttle back which surprised us really was in the month of December in Korea and that is unusual -- first of all it is unusual behavior that the Koreans allowed inventories to build, they generally haven't done that in the past.

And then they made a correction.

So, we have looked at what we think their inventory levels are, and obviously get input from customers and we are comfortable with the mid-single digit increase in Korea.

And that also comprehends any inventory that's in retail in terms of some of the more mature markets?

Yes.

When we look at our -- we do this supply chain that we model the entire inventory post us, post panels, the broad set area and then in retail.

And then, look at that overall inventory.

And our modeling would say the absolute amount of inventory at the end of 2010, relative to the end of 2009, as an example.

It was exactly in line with the growth of what the business was over the course of that.

We were actually pleased that the inventory, at the end of quarter four came down as much as it did.

It was actually a little ahead of our expectations.

Great.

And then my question on cover glass is -- I heard your comments on the difference in terms of strength of Gorilla and some of the competitive products out there such as the Asahi one, but I was just was hoping that you could help me reconcile that with some of the feedback we have picked up in the channel.

In that several of the products including some of the TVs and tablets actually dual force of Gorilla and Asahi's cover glass.

And so, are we to assume that even if there are some differences in their performance, they're perhaps not meaningful enough to actually prevent dual sourcing?

No, I would say the exact opposite.

The biggest problem that some of our customers have had is that we can't make enough, and so they might have chosen to use Asahi's products in some cases because we couldn't give them 100% share.

But, we believe our product, as I said in our comments, is superior to that, and that brands turn to us first to get product.

And, the only place that any competitors have made any headway would be when, frankly, we just haven't been able to make enough, and that's why we're working so fast to try and raise the amount of capacity there.

But, we do not feel that we lose a losing share as a result of any kind of strength issue.

It is only because we just haven't been able to make enough.

That's very helpful, thanks.

Thank you.

The next question comes from the line of Nikos Theodosopoulos, of UBS.Please go ahead.

Thank you.

This is Amitabh Passi on behalf of Nikos.Jim, just wanted to clarify the $24 million in one-time charges you called out that affected gross profit this quarter.

Should we assume that most of that would be behind you and should not impact the first quarter Outlook?

That's right.

All the one-time charges in terms of one-time Gorilla project costs, as well as the wind down of certain R&D programs is all behind us.

Got it.

Okay, great.

And I might have missed this but any thoughts on what your expectations are for the overall LCD market to grow in 2011 over 2010?

No, you've got to wait for next week in New York City.

Okay.

And just one final one for me, it sounds like one of your competitors, Asahi, is also coming out with a competitive product to Gorilla Glass.

I think you touched on this but again would love to get any additional insights in terms of your initial thoughts on the glass from your competitor.

We believe our glass is much stronger than our competitor's product today.

I don't think we have actually talked about this in the past until today, but we are actually on the fourth generation of Gorilla Glass so the product continues to get better.

And if you go back and look at some of the comments in my earlier speech, you will see that I talked about the relative strength of what we feel, we and our customers focus on which is the ability of this product to withstand damage once it has been abraded or scratched.

That is the most important test and we believe we are 10 times better than soda-lime.

Got it, okay, thanks.

Thank you.The next question comes from the line of Carter Shoop, of Deutsche Bank.Please go ahead.

Good morning.

The first question for you is just a clarification, when you guys talk about the wholly owned business being up by almost 20%, should we read that is kind of 19.5% to 20% or is that more like a 17% to 20% comment.

It's 19%.

19%.

Great.

And then, second question here on Gorilla Glass.

You mentioned $16 million related to the TV cover glass in the fourth quarter.

How should we think about costs like that, going into 2011 for Gorilla Glass?

We are not really expecting much in the way of project costs.

The project costs on Gorilla that we have been calling to your attention in Q3 and Q4 were really related specifically around the conversion of our Shizuoka facility to make the large size cover glass for television.

There may be some minor changes as we convert, expenses as we convert some of the tanks in Taiwan to make Gorilla, but basically the big project cost is behind you.

And why do we have the larger costs for this particular facility versus other facilities converting?

Fundamentally, this facility, the melting tanks were there, but we actually had to create large scale ion exchange facilities because no one has ever done ion exchange at this size before.

It's not something that can be contracted out to somebody else, so we actually had to build a facility to ion exchange these very large sheets of glass, where as in the past, most of Gorilla could be done in existing small tanks, so it's just project cost related to doing that.

Okay.

Last question.

Can you discuss your comments about M&A here; obviously very strong free cash flow in the year.

It sounds like you are looking, based on your comments, you are looking at supplementing the organic growth maybe a little bit more so than in the past.

Can you discuss any changes in the outlook for M&A going forward?

Yes, I'd be happy to.

Our strategic framework that we have been operating to for many years always included M&A, but basically, we were spending all of our money around the organic growth opportunities.

We now feel we have enough cash flow and cash to expand our opportunities in Life Sciences and Telecom.

We really dipped our toe in Life Sciences the last two years as you see.

We have looked at Telecom; we believe it's an area where we can expand and we think we have a very strong position.

So we are looking at Telecom also.

So, I'm not forecasting anything imminent, but we do clearly now believe we can supplement our growth rate by using some of our very strong cash flow and cash position to acquire, hopefully at very appropriate rates and return.

Great, thank you very much.

Thank you.The next question comes from the line of Brendan Furlong, of Miller Tabak.Please go ahead.

Good morning.

Thank you very much.

Three quick questions.

One, you alluded to in your opening statement about a slowdown in China 3G, which I am trying to get some color on if you could.

And secondly, on the XG Slim, I don't know if you talked about any growth margin implications of the introduction of that product, and then lastly, there is a lot of pre-build here on tablets into Q1 with all the announcements at CES.

If there's kind of a pre-build for Gorilla and then we kind of pause a little bit in June and then accelerate in the back half?

Thank you.

So in reverse order, we are not expecting any pauses in Gorilla.

We basically -- the timing of certain launches could be moved by various manufacturers, but basically we are not looking for any pauses due to someone building inventory and launching and then slowing down.

On EAGLE, on XG Slim, it is a positive for the gross margin.

The product itself has good gross margins and obviously, because we can then convert to use the glass that we are not putting into the thicker product to sell other products.

It's overall healthy for the business.

So it's overall a good gross margin statement.

The China 3G was really related to 2009, where China had extraordinarily high fiber.

Sales, it was actually the world's largest fiber market and bigger than the peak back in 2000 and that 3G buildout has wound down.

And was therefore we saw lower fiber sales in 2010, versus 2009 in fiber in China.

Excellent.

Thank you very much.

Richelle, this is Ken Sofio; we are approaching 9.30.

We have time for just one more call.

Okay, and the last call comes from the line of Yair Reiner, of Oppenheimer.

Please go ahead.

Thank you.

One quick follow-up on the Slim product.

Is the main impact then, your ability to price at a premium or is it more the opportunity to spend less in making it and then, should we expect that to have any impact on your share in the market?

I'm not sure it will have a material impact on share, it's clearly an offering that is beneficial to our customers because today, on certain products, where they do a secondary process to thin the product, essentially we believe they'll be able to save that cost.

So we think we are delivering a benefit to them and it's obviously a benefit to us also in terms of our own cost position.

So, it is the proverbial win-win for us and our customers.

And then in terms of building up capacity for the Display business in China, where are we in that process and how is that going to translate into CapEx over the course of 2011?

Thank you.

You asked for the Display business in China?

Yes.

We announced a factory being built in Beijing, and that project is underway and production will start in the first half of 2012 for capacity for the Display industry.

Thank you.

Okay thank you.

And back to you Ken.

Great.

I'll pass it back to Jim.

I just want to close with a couple of quick comments about investor events.

First of all, that I mentioned several times today, our annual investor meeting is next Friday, February 4 at Cipriani on 42nd St., New York City.

We are planning a very dynamic set of product presentations and demonstrations.

For those of who are considering trying to stay in your office or home and listen to the webcast, I highly encourage you to attend.

This will be one of your rare opportunities to interact with all of our business leaders and see all of our current products and future technologies.

And if that wasn't exciting enough to get you to attend, those in attendance will also be receiving a nice giveaway.

So, please come to Corning.com and register.

Lastly, we will also be appearing at two upcoming conferences, the Goldman Sachs Technology conference on February 15, and the Morgan Stanley Media and Telecom conference on March 1 and both of those are in San Francisco.

So, we are looking forward to seeing all of you at one of these or several of these events.

Thank you.

Thank you Jim.

And thank you all for joining us this morning.

A playback of the call will be available beginning at 10.30 AM Eastern time today.

It will run until 5 PM Eastern time on Tuesday, February 8.

To listen, dial 800-475-6701.

The access code is 188589.And the audio cast is also available on our website during that time period .

Richelle, that concludes our call.

Please disconnect

Okay.

Thank you.