康寧 (GLW) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Corning Incorporated first-quarter call.

For the conference all the participant lines are in a listen-only mode.

There will be an opportunity for your questions; instructions will be given at that time.

(Operator Instructions)

As a reminder, today's call is being recorded.

It's now my pleasure to turn the call over to Mr.

Ken Sofio, Vice President of Investor Relations.

Please go ahead, sir.

Thank you.

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

This morning Jim Flaws, Vice Chairman and Chief Financial Officer, will lead the discussion with prepared remarks and move to the Q&A.

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

Those remarks involve a number of risk, uncertainties, and other factors that could cause our actual results to differ materially and those 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 in our first-quarter results.

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

I am going to start by highlighting our terrific first quarter and then provide some color and clarity on the impact of the earthquake in Japan and also Sharp's recent utilization reductions on Corning.

So let's start with the first quarter.

Our first-quarter results demonstrate Corning's growth opportunities are real and we are succeeding at building a bigger, more balanced company.

Each and every one of our segments grew sequentially and year-over-year.

Our consolidated sales in Q1 were $1.9 billion, an increase of 9% over Q4, but even more impressively was a 24% increase over the first quarter of last year.

As we highlighted during our February investor meeting, we strongly believe that every one of our segments will have significant growth this year and over the next several years.

And for investors looking for evidence of that look at our first quarter.

Our first-quarter gross margin also increased, reflecting good operational performance reaching 45%, an increase over the fourth-quarter gross margin of 43%.

Earnings per share were excellent at $0.47 and well ahead of most expectations.

In summary, our first-quarter results are a great example of our growth and earnings potential going forward.

In fact, there have been no changes to the megatrends and growth drivers that our businesses participate in.

The vision of the future we showed you in our Day Made of Glass video is still well intact and Corning remains in position to carry -- to capture these significant growth trends.

For investors, the most frequent questions over the last six weeks have been how have the events in Japan, including Sharp's announcement, impacted Corning.

So let me start with the events in Japan.

First, we are so very pleased that all of our employees were safe and accounted for.

Corning is a company of strong values and valuing the individual is the most important value we have as a company.

Second, none of our operations were impacted by the earthquake, the tsunami, or the rolling power outages.

Third, we have experienced no issues either obtaining raw materials to make glass or shipping finished product around or out of Japan.

Fourth, we have done our own review of the component supply chain in Japan.

As a result of this review, which includes many conversations with key component suppliers and our customers, it's our opinion that the potential shortage of components is unlikely to cause any material disruption.

While there are component makers who are still in the process of repairing their manufacturing operations or resuming production, many of the impacted companies have now made the necessary repairs and are bringing production back online.

In the meantime the panel makers have had inventory of key components as well as finished panels.

At some cases, they have already qualified secondary supply sources so we no longer view this as a potential threat to the production of panel making.

Now I would like to talk about Sharp.

They have been an important strategic partner and customer of ours for a very long time.

For those who know their history, you may remember we collaborated with Sharp back in the 1980s on the first color TFT-LCD panel.

It is based on this mutual history and respect that we continue to work closely with them as they adjust their production plans.

So here is what I can tell you today, and some of this you may have heard directly from them.

Sharp has decided to significantly reduce production at their Gen 8 and Gen 10 fabs to lower their inventory levels.

We view this as a temporary reduction and one that we do not believe will last beyond the second quarter.

Looking ahead, we expect to see a significant increase in glass demand in Q3 as both production at Sharp resumes and the worldwide supply chain prepares for the seasonally stronger fourth quarter.

I will have some more on our second-quarter expectations and some early thoughts on Q3 in the outlook.

Now that I have addressed some of the more important topics from the past few weeks, I would like to return to quarter one and recap our results in more detail.

So moving down the income statement, as I mentioned a moment ago, gross margin increased from 43% in Q4 to 45% in Q1, reflecting strong display volume and good manufacturing performance in display, as well as telecom and environmental.

Included in our quarter one gross margin was $12 million in start-up and conversion costs and project costs related to the conversion of additional capacity from LCD to Gorilla.

As a reminder, our Q4 gross margin included $24 million of project-related costs and other write-offs.

SG&A was $250 million or 13% of sales and significantly lower than Q4, as expected.

RD&E was $156 million and also lower than Q4.

Equity earnings were $398 million and slightly lower sequentially compared to equity earnings without specials from quarter four.

Other income was $27 million in Q1 versus $54 million in Q4.

Approximately $10 million of this swing was due to the non-repeat of balance sheet hedge gains in Q4 as well as approximately $17 million in one-time corporate contributions this quarter.

Net profit before taxes, excluding special items, was $867 million and 15% higher than Q4 and the result of the 9% growth in sales, higher gross margin, and lower operating expenses.

Our tax rate increased as expected from 3% to 13% in Q1.

Net profit after tax, excluding special items, was $751 million, up slightly versus the fourth quarter.

The impact of movements and exchange rates from Q4 to Q1 was not material to our results.

So now I would like to turn to the first quarter with Display.

Display sales were $790 million, an increase of 5% over Q4.

Volume was up in the upper single digits, which was higher than we had expected.

The strong volume was the result of Taiwanese and Japanese panel makers running at higher-than-expected utilization rates, which led to additional glass demand for us but higher panel inventory levels for them.

The stronger glass demand at our wholly-owned business kept us from building any additional inventory in Q1.

As a result, we ended the quarter with healthy glass inventory levels.

As expected, first-quarter price declines were more moderate than the fourth quarter and the benefit of movements in the end was negligible.

Display gross margins increased quarter over quarter reflecting strong manufacturing performance and the strong volume.

At SCP volume was up modestly, but slightly lower than our expectations.

Lower volume reflects the Korean panel maker's decision to keep lower production levels in Q1 to maintain healthy inventory levels heading into Q2.

Price declines at SCP were similar to our wholly-owned business.

For your modeling purposes, SCP's first-quarter LCD sales were about $1 billion, consistent with the fourth quarter.

And as always, a reminder this represents SCP's LCD sales only.

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

Equity earnings from SCP's LCD glass business were slightly lower sequentially, reflecting an increase in their tax rate.

As we had disclosed at our annual investor meeting, SCP's tax rate this year will be between 18% and 19% versus the 15% rate in 2010.

All-in our total glass volume, including SCP, was up 5% in the quarter as a comparison to a worldwide glass market that grew about 2% and reflects good progress against our goal to regain some of the market share we lost in 2009.

So I would like to spend a couple minutes on the display supply chain.

We continue to be very encouraged about the level of inventory in the supply chain heading into Q2.

We believe the amount of inventory, in terms of square feet, actually shrank slightly in Q1.

This is comparison to a buildup of inventory in the first quarter of last year of roughly 60 million square feet.

Recall that buildup was the beginning of an overbuild that continued into Q2 before the mild correction in Q3.

We see no evidence of that repeating this year.

Our models indicate the supply chain exited Q1 with roughly 17 weeks of inventory versus 17.5 at the same time a year ago.

Now regarding retail, the data we have so far suggests demand for televisions and monitors is well in line with our expectations.

However, demand for notebooks has been a little softer.

Worldwide LCD television unit sales at retail were up 28% in January and 12% in February year-over-year.

Both are slightly higher than we had expected.

We do not have complete worldwide data for March.

In the US, the retail market has gotten off to a good start for the first quarter.

January is up 4%, February down 5%, and March up 9%.

In fact, demand has been up year-over-year for the last 8 weeks in a row, including the first 2 weeks of April.

As a reminder, we are forecasting the US market to grow just a couple million sets this year.

In China, LCD television unit sales were up 28% in January and down 26% in February.

This reflects the shift in timing of the Chinese New Year holiday sales.

This year there was only one week of holiday sales in February versus three weeks last year.

Chinese New Year demand in total was up slightly more than 25% and right in line with our expectations.

As a result, there did not appear to be any excess TV inventory following the holiday.

Very importantly, in March LCD television units in China grew 22%.

In Europe, LCD television unit growth was up 16% in January and 9% in February, both in line with our expectations.

We do not have the final data for March.

And in the developing regions the growth rates were very robust.

Emerging Asian sales were up 97% in January, 82% in February.

In South America sales were up 90% in January and in February.

Again, we don't have March data here either.

In Japan, we continue to forecast 12 million units this year, about half of last year's total.

This is the forecast from our annual investor meeting and reflects the end of the Eco-point program in March.

There has been some discussion about whether the program will be brought back but that does not appear to be happening.

LCD television unit sales in Japan were down about 9% in January and up 16% in February, possibly reflecting a rush prior to the expiration of the program.

And they were down 6% in March.

It was actually better than we had expected.

March results did not appear to reflect any additional consumer weakness following the earthquake, but obviously we will keep an eye on the April data when it comes out in a few weeks.

For those who were modeling a softer Japan market following the earthquake, remember there are approximately 10 square feet of glass in the average-sized television.

So if the market, for example, was 3 million televisions less that would equate to about 30 million square feet of glass.

Based on what we have seen so far in the first quarter we have no reason to adjust our forecast for 2011 worldwide LCD television demand.

Now turning to monitors, demand also continues to be on track for our forecast.

Our data is based on shipment of the top 9 monitor brands, which make up about 75% of the worldwide monitor market.

In the first two months of the year unit shipments are consistent with last year.

The notebook market has been weaker during the first quarter and we have lowered our 2011 forecast from 212 million units to roughly 196 million.

Our Q1 data is based on the top 5 ODMs which make up about 80% of the worldwide notebook market.

As a result, we have adjusted our worldwide glass forecast by roughly 100 million square feet, or less than 3% of the total, from our previous range of 3.6 billion square feet to 3.8 billion square feet to 3.5 billion square feet to 3.7 billion square feet.

I would like to give you a brief update on EAGLE XG Slim.

We are very pleased with the pull that we are getting from our customers.

Investors, however, should not view Slim as a significant advantage over our existing competitors.

Although we see no one else in the market with any significant volume, our assumption is they will eventually be able to make thinner glass, although it may be more difficult and costly for them.

We do believe any potential new entrants would have difficulty duplicating Slim.

The way we think about it, peer competitor has been trying for the last few years to produce and sell your first piece of LCD glass at the standard size of 0.7 mm and you have not been able to meet customer specifications.

Now your customers would want glass that is 30% thinner.

Think about how high the bar has been moved.

So I would like to turn to Telecom, which is really hitting on all cylinders.

Sales were $474 million, up 7% from Q4 and significantly higher than our expectations.

Compared to last year, telecom sales were up 30%.

The year-over-year growth was driven by the two areas Clark Kinlin highlighted during our annual investor meeting -- fiber to the home, which was up 70% from last year, and enterprise networks, which were up 20%.

We also saw very strong demand for optical fiber, as well as hardware equipment, in the first quarter.

In fact, in the month of March we sold more kilometers of optical fiber than any other month in our entire history.

Our bottom-line performance was more impressive.

Telecom net income was $41 million in Q1, up significantly from Q4's $18 million and the $8 million reported last year.

We are seeing more of the sales fall to the bottom line as the mix of higher-margin products increases.

Those who model our Telecom segment you will see this in the segment's gross margin performance.

As Clark said in February, we feel very bullish about our Telecom business and the wealth of market opportunities that are in front of us, not only this year but over the next several years.

Now in our Environmental segment first-quarter sales were also higher than we expected and actually an all-time record.

Sales were $259 million, up 12% sequentially and up 35% over last year led primarily by diesel.

Diesel sales were up 18% sequentially and up 81% year-over-year, driven primarily by the recovery in heavy-duty diesel filter demand.

In fact, the business had record quarterly sales in Q1 for both heavy-duty and light-duty filters.

This is another segment that has posted strong gross margin improvement and significant net profit gains.

Net income was about $29 million in the first quarter compared to $15 million in Q4 and just the $11 million we made last year.

Environmental is also poised to capture significant growth over the next several years while expanding its gross margins and profits.

In Specialty Materials, Q1 sales were $254 million, an increase of 29% over Q4 and 2.5 times larger than Q1 of last year.

The significant growth was primarily due to Gorilla Glass, which continues to be the industry's cover glass technology of choice.

Segment net income grew from $2 million to $8 million in Q1.

The segment's Q1 results include the first material sales of TV cover, which are currently not a significant contributor to segment profits.

Gorilla Glass sales were roughly $150 million in Q1, an increase of 50% over Q4.

We continue to believe Gorilla Glass sales could approach $1 billion this year.

In fact, since we launched Gorilla sales -- Gorilla Glass four years ago, the first quarter has represented about 15% of the full-year demand.

So we feel we are on track with our sales goals.

We do need TV cover glass to contribute to our sales goal this year.

We have begun significant shipments of the cover glass in Q1 and we are now awaiting market feedback as consumers have a chance to see this innovative new product.

While TV cover will not contribute to profits this year, we are very anxious to see how well it sells.

And we are continuing to learn how to make large scale strengthened glass with this product, which will help us in other business opportunities.

Our first-mover advantage continues to pay significant dividends.

We are currently designed in over 370 different models since the product was introduced.

That includes 217 in the market today, plus another 30 that are being released in the coming months.

We continue to make progress extending Gorilla Glass into new markets, including an exciting collaboration with Hyundai on a futuristic concept car.

In addition, a major architectural firm announced Gorilla Glass is designed into a prototype prefab apartment unit.

The firm exhibited Gorilla Glass just last week at an industry show in Seattle.

In Life Sciences, sales in the first quarter were $144 million, up slightly over the fourth quarter.

At Dow Corning Q1 sales were $1.6 billion, consistent with the fourth quarter but up 17% over the prior year.

Equity earnings were $91 million in Q1; that is versus $124 million in Q4.

But as a reminder, Q4 had included $42 million in one-time gains.

Without those one-time gains, equity earnings were up 11% sequentially.

Shifting to the balance sheet, we ended Q1 with $6.3 billion in cash and short-term investments versus current and long-term debt of just $2.3 billion.

Free cash flow was negative $104 million in Q1.

The largest outflow of cash during the quarter was for capital spending, which was $532 million, in line with our expectations.

We also completed our acquisition of MobileAccess during the quarter.

As a reminder, free cash flow is a non-GAAP measure and the GAAP reconciliation is on our website.

Moving further down the balance sheet, inventory increased from $738 million at the end of Q4 to about $841 million at the end of Q1.

This increase was almost entirely in just two segments, Gorilla and Telecom.

For Gorilla the business is gearing up for the significant step-up in demand in the second half.

In Telecom, most of the increase was related to the acquisition of MobileAccess.

Now let me turn to our outlook starting with Display.

In Q2 we expect the worldwide glass demand to be consistent quarter to quarter with the Korean glass market demand up substantially and the rest of the world down substantially.

It's a reflection of the Korean panel makers increasing their utilization rates following more modest production levels the last two quarters.

In Taiwan, we expect panel makers to run at lower utilization rates in an effort to reduce panel inventory.

And in Japan, obviously glass demand will be significantly lower due to Sharp's capacity decision.

This will result in our total glass volume, which includes SCP, to be consistent quarter to quarter.

At our wholly-owned business, volume will be down in the low to mid teens sequentially, reflecting the lower utilization rates in Taiwan as well as Sharp's capacity reductions.

At SCP we expect volume to be up in the low to mid teens sequentially.

Regarding the glass market in total, we view the amount of shipments in Q2 to be good news for the overall supply chain.

Typically the second quarter is the hardest to forecast given the traditional and slower seasonal retail environment and the supply chain's desire to build inventory heading into the second half.

So the fact that glass shipments are consistent is viewed as a positive by us.

We do expect the supply chain to build some inventory in Q2 preparing for the second half.

The amount of inventory that is expected to be built, based on our models, is about half the amount that was built in Q2 of last year.

We, again, view this as a positive.

Although absolute inventory will increase, on a forward-looking basis the number of weeks of inventory in the supply chain will remain about 17.5 exiting Q2.

Glass prices at our both wholly-owned business and SCP are expected to moderate even further in the second quarter.

We usually do not provide guidance beyond a quarter, but we thought it was important to note that we believe the worldwide glass demand is going to increase significantly across all geographic regions in the third quarter.

In our Telecom segment we expect second-quarter sales to be up 20% sequentially and compared to last year Telecom sales would be up about 30%.

We expect sequential and year-over-year growth across all of our Telecom product lines.

We expect sales in Environmental to be down just slightly sequentially compared to the stronger-than-expected first quarter, but up 35% year-over-year.

And in Life Sciences we expect sales to be up slightly sequentially and almost 20% year-over-year.

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

In the income statement Q2 corporate gross margin should be down 2 to 3 points, primarily due to the lower volume of sales in display.

SG&A, as a percentage of sales on a dollar basis, will tick up slightly in Q2, reflecting the Company's annual merit increases which occur in April.

And RD&E will be roughly 9% of sales.

We expect equity earnings to be up about 10% sequentially, reflecting the strong volume in SCP.

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

Again, for your modeling purposes, every 1 point move in the yen our sales and net income moves by about $9 million.

The net income impact includes SCP where stronger yen also improves their results.

Finally, moving to taxes.

We expect our Q2 and 2011 tax rate to be about 15%.

That concludes our formal comments this morning.

Ken?

Thank you, Jim.

John, we are ready to take some calls right now.

(Operator Instructions) Wamsi Mohan, Bank of America.

Thank you, good morning.

Jim, can you comment on the inventory increase in your balance sheet?

What are the key elements that are driving that increase and how much of that increase is raw materials versus finished goods?

The increase to the balance sheet inventories would be mostly finished product or [whip].

It's not raw materials.

There were two drivers of it.

It was roughly split half between Telecom and half between Gorilla.

In Telecom mostly it was the acquisition of MobileAccess.

Then Gorilla we are building inventory as we get ready for the increase in the quarters, each quarter as we go along, over the course of the year.

So we were very comfortable with the inventory build.

Okay, thank you.

As a follow-up, you have mentioned you expect a ramp backup in Sharp's production in the third quarter.

Do you anticipate that your shipments to Sharp in 3Q will be back at the levels pre the capacity reductions, or are you expecting a slower ramp back up in the third quarter?

Thank you.

I don't have any specific guidance yet about both of their fabs.

We definitely expect their Gen 10 to be back.

What we don't know is how much their Gen 8 will be back.

I think they made some announcements this morning and talked about it, but we definitely feel their Gen 10 will be back up with substantial operations.

Okay.

Thanks a lot, Jim.

C.J.

Muse, Barclays Capital.

Good morning.

Thank you for taking my question.

I guess first question, on your display gross margins, clearly you benefited a little bit there by running -- I don't want to say full out, but running on a nice utilization building a little inventory.

Curious on what your thoughts are for the second half of 2011 as you think about Slim EAGLE XG in the mix, you think about the expected pick up at core customer Sharp.

Would love to hear your thoughts on how we should see that progress into the second half of the year.

Well, the gross margin in Q1 benefited from us running full, but I remind you we ran full in quarter four also.

We expect to run all our operations full in Q2.

We will build some inventory as a result of that, but obviously without the sales it lowers the gross margin display in Q2 by itself.

Assuming that in Q3 and Q4 that we have continuing to run all our operations and that our sales go back up, which was what we are expecting -- usage and gross margin to go back up from the Q2 levels.

So I am not going to give an exact number, but we definitely expect the Display gross margins to bounce back from Q2.

Okay, that is helpful.

And then I guess in terms of your revenue mix, clearly the other businesses are really starting to contribute in a more meaningful way.

How should we think about that contribution to the gross profit line through the year?

Any programs there to drive improvement other than just a pickup in utilization?

How should we think about that?

I would say, focused on Gorilla, the margins should continue to improve.

They are being held back a little by the conversion cost of our tanks as we convert from display to Gorilla.

But as we told you before, on just the glass alone, for IT and handheld we expect that to be above our corporate average.

So you should see that improve as we go through the course of the year.

Environmental should improve based on improved manufacturing performance.

We think we are making progress on some of the problems that have caused us pain over the last year.

We did show that in Q1 and I think we will continue to prove there.

Telecom is running at a very good gross margin.

Obviously lower than the corporate average, but well into the 30%s.

Even though that feels like it's a downer versus the corporate average, we view it as a very good gross margin given the assets we have invested in this business and very good return on invested capital.

So we feel very good about our margin portfolio of the businesses and the potential for improvement, assuming we are right on the sales.

Thanks, Jim.

Simona Jankowski, Goldman Sachs.

Thank you so much.

Just a clarification on your Q2 commentary in the Display business.

I think you mentioned that you are going to be keeping the tanks full, even though your shipments are going to be down quite a bit, and so you will be building up some inventory.

Can you just give us a little more color on why you think prices can moderate in the context of higher inventory at the glass level in Q2?

And in particular, do you think that is partly in preparation for Q3 and are you still thinking of converting some of your glass tanks over to Gorilla in Q3?

So is that Q2 buildup in anticipation for that potential diminished supply on your part in Q3?

That was a lot of questions rolled into one.

So first on the price for Q2, since we have already agreed with most of our customers now we feel comfortable that that price moderation will be, in fact, what we see.

In terms of the amount of inventory we are building because -- in Display because of the lowers sales, we actually build no inventory in the Display business in Q1.

The amount we are building is not a substantial amount.

It will help us as we see the ramp up in Q3 and Q4 and, as you mentioned, obviously gives us some flexibility if we want to convert another tank to Gorilla versus Display.

So we are very comfortable with continuing to run and build that inventory.

So as of now there is no plan that is certain as far as whether you will be converting that capacity?

It's just more contingent on how the end-market dynamics develop?

Well, we do have a plan for a conversion of our capacity on various tanks over to Gorilla, but we obviously have the flexibility as the market shifts to potentially do more.

Okay, thank you.

Rod Hall, JPMorgan.

Thanks for taking my question.

I just had a couple.

One quick one is on Sharp.

I wonder would you guys be able to quantify how much production was lost or give us any kind of quantification of what the impact there might be so that we can think about what the -- how much production might come back to us in Q3.

And then I have got one follow-up to that as well.

I am sorry; we won't give specific numbers on a customer.

Okay.

The follow-up question is when we look at the Gorilla Glass situation you guys are saying that you had TV glass, cover glass included in the numbers this time around.

Yet we look out in the market and we don't see very many Gorilla Glass products out there, TV products.

I am just wondering what your expectation generally is for H2.

Do you think that the number of products is going to multiply quite a bit?

I am not asking you about specific producers or anything like that, but do you think as we get into H2 we are going to see a lot more TV products with that Gorilla Glass incorporated?

I would be surprised right now, because we only have one customer and that is Sony.

So I think we will have to see how their models sell.

But right now we have no other customers who are working with us to be -- that would be imminent for coming up in the second half.

As I have said before though, I think that if these televisions are well accepted by consumers we might see other people thinking about it.

But right now we basically -- our plans are that at Sony in their various models and that is what you will see in the second half.

Okay.

And then just one last thing.

The revenues in the Telecom business were pretty strong this quarter, quite a bit stronger than we thought they were going to be.

Could you guys give us any color on where the fiber is going?

You talk about fiber demand being strong.

Any information you could give us on regionally what is happening or what is developing in the market that has driven that big demand for fiber and whether you think that will continue.

So the fiber demand regionally is strongest in the United States and Europe.

It's not long haul; it's just fiber that is going into local networks and access.

We are actually down slightly in China, which we had expected with their having finished the builds.

So that is where the strength that we are seeing from a fiber point of view, but I will point out it's more than fiber.

Every one of our product areas in telecom is actually up.

Okay, great.

Thanks a lot, guys.

Nikos Theodosopoulos, UBS.

Thank you.

A couple of questions.

Jim, you might have mentioned it so I didn't pick it up, is -- at the current run rate and mix is Gorilla still near corporate average given TVs are a very small contribution in terms of gross margin?

So we have always said that when we talk about Gorilla Glass for IT and handheld, obviously excluding the TV cover, the number would be about our corporate average.

It will be above it, but including the conversion cost it's not above it right now.

It's for the glass for IT and handheld.

If you include TV cover, it's obviously below, but we have known that for a long time as we have not been expecting to make much money on TV cover in the first year.

Okay.

So in the first quarter, excluding the start-up costs, we are looking at something close to corporate average then?

That is correct.

Okay, okay.

And if I look at your revised outlook for the LCD market for the year, a quick calculation would suggest volume growth expectation of around 11% to 17.5%.

Just looking at the first quarter and then the second-quarter guidance, it would suggest a very strong second half for Corning to get into that range, assuming no share loss.

Is that pretty much your expectation then when we look at the full year?

Yes, we are expecting a strong Q3 and Q4 for the glass market.

Part of it is that we are seeing what we would regard as very good supply chain behavior relative to what in the first quarter and second quarter.

And I will remind you, every time in the last five years that there has been a problem on inventories in the supply chain it's because the industry got too excited and built too much in Q2.

So we don't see that happening right now and our assumption is that they will run much stronger in Q3 and continue to run strong in Q4.

So that is our belief, that is how we are structuring.

That is what plays into our glass market forecast.

Okay.

And just one clarification on that.

For the first quarter do you have -- just I am looking at the numbers, it looked like your combined volume growth year-over-year was in the mid to upper single digits.

Is that reasonable?

Yes.

Okay.

All right, thank you.

George Notter, Jefferies.

I guess I had a question about China.

I get the sense that we have seen some softening of panel makers' desires to move into China with panel-making facilities.

Do you agree with that, why or why not?

And then, how would that impact your CapEx plans going forward in terms of adding glass capacity in China?

Thanks.

Well, I think the pace of the additional fabs beyond the first two, BOE and -- I forget, China Star I think is the other one -- those are moving -- those two fabs are moving ahead very crisply and that is where our capacity is aimed at BOE right now.

I think the question is really for Samsung and LG, what the pace of their facilities will be.

And there I think there is some feeling that they might be slower, but we don't have any specific start dates from either one of those.

But clearly, once we have an understanding of those two that could influence our capital, but I don't think it would have much impact at all this year.

The impact would be next year, assuming that we are building it and Samsung Corning is not.

Got it.

Great, thank you.

Jim Suva, Citi.

Congratulations to you and your team on great results.

The question I have is Gorilla Glass is definitely attractive to the market and you have put out a goal of about $1 billion for the year.

Can you help us understand a little bit about -- is that assumption primarily or almost all of it on the tablet smartphone side?

Or how should we think about it as it relates to, say, versus the other things like LCD TVs, automotive, architectural?

How does the pie kind of split up when you see the future there for this year and maybe even going further down the road?

So for this year we are not expecting anything out of architectural and automotive.

We would love to ship a few pieces, but it's not going to be meaningful.

So it really is all around the IT handheld market and then TV cover.

We have TV cover in our forecast originally for several hundred million dollars.

We are prepared for the fact it might be less than that, in which case we believe we could use some of that capacity to sell more IT and handheld.

But that is where all the action is.

Great, and then a quick follow-up back to the gross margins.

Can I just clarify a little bit for the way the accounting goes?

I believe, if I am correct, you have a little bit of a headwind in Q2 for the gross margin because the operations will be higher than the sell-through.

And then in Q3 and Q4 that should revert to be more favorable for the Company.

Is that the way the accounting works?

Even though I am a CPA, it has been an awfully, awfully long time since I have actually ran the numbers.

I think I need you to be very specific about which business you are talking about.

Sorry, for the Display.

So in Display what is happening is from the accounting perspective is that even though our demand is -- our sales are down in Q2, we are continuing to run and build inventory.

Therefore, we absorbed the fixed costs on that inventory but obviously we missed the benefit of the sales and, if you will, the standard gross margin on sales, which is quite high for Display.

Assuming that we then sell that inventory out in the back half of the year, we get that sales and standard gross margin but obviously we have already gotten a fixed cost absorption on it.

Great.

Thank you very much and again congratulations to you and your team.

Mark Sue, RBC Capital.

Thank you.

Jim, recognizing that TV applications are still very early for Gorilla Glass, is there any early feedback from some of the consumers?

Is the price premium something that is resonating?

And is there something that Corning might do to stimulate the TV application, or do you think it's just going to take a little bit of time?

I have no retail feedback.

I don't expect these televisions actually to be in big-box retailers until the month of May.

You can see them on some online services, but I have no retail information.

In terms of what we can do, we are looking to see what we can do to help promote these when they finally get to retail and support it with our Gorilla campaign.

But beyond that that is all we are doing.

And maybe in terms of framing it for next year, should we kind of take the several hundred million that we thought this year and might think about that as an opportunity for next year?

It's just so hard for us to judge right now.

We are at this stage where we have got to find out whether consumers like these TVs.

They are really beautiful.

They obviously are more expensive, but we will have to see.

It's just too early for us to judge what the impact is going to be next year.

We are hopeful, but I think we will all have some information by the time we get to the July call to see how well they are selling.

That is helpful.

Jim, separately, the strength in Telecom is some of that related to catch up from delayed projects, particularly maybe in Europe, or do you think the strength is related to the beginning of new carrier projects which points to sustainability?

I would say catch-up may not be the right word.

It may be that there were projects that we had previously expected in Europe that, as we went through the financial crisis, didn't start when we thought they were going to and we are now seeing that.

So some people view that as catch-up.

We just view it as it's great that people are finally doing the fiber to the home projects and they feel confident enough about it.

That is helpful.

Thank you and good luck, gentlemen.

Yair Reiner, Oppenheimer.

So just a question on competition first.

Has the earthquake in Japan at all changed the competitive dynamics?

Have you seen your competitors perhaps hobbled in ways that you haven't been?

And then kind of related to that, can you talk about what the factors have been behind your significant share gains in the market, in the display market, over the last, I would say, two or three quarters?

So on the latter on share, this was clearly our strategy, once we had enough capacity again, to try and get back with our large customers what we had lost when we had the problems from the original earthquake and the original power outage.

So we have always thought that we would be able to gain some share points back once we had capacity, and that is what we were able to do.

Relative to competition in Japan, we have not seen any material disruption as a result of either of our competitors having any problems.

I think both have announced they had minor issues.

We did provide some small Gen glass to one of our customers to make up for something that one of our competitors couldn't supply, but these were very tiny amounts.

Basically I think our competitors are continuing to operate and we are not seeing any advantage given to us as a result of that.

Frankly, I just have to say we don't wish damage on anybody as a result of the natural disasters.

Thank you.

Then in terms of FX, can you clarify what you are assuming in terms FX, Japanese yen to the US dollar, for your second-quarter guidance please?

We basically assume that where we exit the quarter that is what we assume for the going-forth quarter.

We are not the greatest at predicting the yen exchange rate, so we just use the average for the most recent quarter and predict that again for the second quarter.

Got it.

So you are not really reflecting the recent strengthening of the Japanese yen over the last couple of weeks?

Well, the yen has -- if you looked over the month of March, after the earthquake the yen went from basically 82 down to 76 then up to 85 and now it's back to 82.

But the basic it has -- the average in quarter one was 82, it's 82 today so that is what we used.

Great, thank you.

Ajit Pai, Stifel Nicolaus.

Good morning.

A couple of quick questions.

The first one is just looking at your specialty materials segment.

Before the slow down and before Gorilla Glass the revenue run rate of that business was, I think, close to about $400 million.

So right now just looking at the semiconductor capital equipment market and the other end-markets that are served outside of Gorilla Glass by that business, do we expect that business to come back to those prior levels of 2006, 2007?

And then $1 billion of potential Gorilla Glass on top of that so you are looking at about a possible $1.4 billion, and whether that is in 2011 or 2012?

Can you give us some color as to how to think about the non-Gorilla Glass side of that business?

So the non-Gorilla part of Specialty Materials is very much driven by the cycle of semi equipment is what you have talked about.

But clearly that potential does exist.

We are not quite as bullish as some people are on the semiconductor cycle, but at that point that potential could exist.

Got it.

The second question, looking at your very solid balance sheet and the two sort of midsize or small acquisitions to the overall operations that you have as a company have made in Telecom and then in Life Sciences.

Could you give us some color as to whether that is going to continue to be an active part of Corning's strategy going forward and whether the size, relative scale of operations is going to be similar?

And what is going to drive the kind of companies you would be looking at?

So we expect to be very active from an acquisition point of view, but the size could vary.

The two places that we are looking primarily are Life Sciences and Telecom, but the size could vary.

There is nothing imminent, but we are working very hard to see whether we can improve the growth of the sales and profits of the Company by adding acquisitions to our innovation.

And the last question would be looking at your emerging technologies, both the reactor technology side as well as your portable technologies, these are areas that we have been discussing now for a while.

So could you give us a progress report over there of any kind of milestone over the next 12 to 24 months that we can expect from these businesses?

I don't have any update on the reactor business, but in the photovoltaic area I think we will be able to give you an update in the quarter two call.

Okay.

Thank you so much and congratulations on a great quarter.

We have got time for one more caller.

Wamsi Mohan, Bank of America.

Thanks for taking the follow-up.

Jim, could you comment on what percent of your LCD glass output is now XG Slim and where you expect that to be at the end of this year?

I am sorry, Wamsi, we are not giving out the percent, but it definitely has been moving up each quarter.

Would you say it's the majority of your shipments now?

No, it definitely is not.

Okay, thank you.

Jim?

Just a couple of closing comments from me.

First of all, from an investor relations perspective, we will be presenting at three conferences in the next few weeks.

On May 16 we will be at the JPMorgan Technology Conference in Boston, on May 23 we will be at the Barclays Americas Select Conference in London, and on June 2 we will be at the Bernstein Strategic Decisions Conference in New York City.

Just a couple of quick follow-up comments.

We are absolutely delighted with our position entering Q2.

We had a great first quarter based on broad-based strength.

Over my 38 years with the Company it's very rare for us to have all of our segments pulling in the same upward direction.

Second, we are very pleased about the display industry in total being cautious about inventory building in Q2.

In the last five years, whenever the industry overbuilt inventory it always started in Q2.

Third, we are very happy about our Environmental segment making progress in improving gross margin and we believe this segment will be a big contributor to Corning.

Fourth, Gorilla demand remains very strong.

And lastly, we are making excellent progress in building our new businesses, such as photovoltaic, and we plan on discussing our progress in this area in the summer.

Ken?

Thank you, Jim, and thank you all for joining us today.

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