康寧 (GLW) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to Corning's first-quarter conference call.

As a reminder, this conference is being recorded.

Now I'd like to introduce Ken Sofio, Vice President of Investor Relations.

Please go ahead

Thank you.

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

Jim Flaws, Vice Chairman and Chief Financial Officer, will start the call with some prepared remarks.

Wendell Weeks, our Chairman and Chief Executive Officer, as well as Dr.

Richard Eglen, Vice President and General Manager of Life Sciences, will join us for the Q&A.

Today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995.

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

These risks are detailed in the Company's SEC reports.

And now I'd like to turn the call over to Jim Flaws.

Thanks, Ken, good morning, everyone.

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

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

I'd like to begin with our key messages this morning.

Two months ago at our annual investor meeting, we announced we were facing a significant reset in the Company's profit levels.

The reset was primarily due to significant price declines we are experiencing in our Display business over the fourth quarter of 2011 and the first quarter of 2012.

We told you one of the most important objectives was to reduce the level of these very significant quarterly price declines.

This morning, I'm very pleased to report we expect our glass price declines in the second quarter will be much more moderate than the average of the previous two quarters.

In terms of glass shipments, Display volume was better than we expected in the first quarter.

Volume at our wholly owned business was up in the mid-single digits sequentially versus our expectations of being flat.

SCP volumes were down less than 10% sequentially which was also better than our guidance of down in the low-double digits.

We told you at our investor meeting that in addition to needing significant slowdown in glass price declines, we also needed to continue to grow our other businesses.

I'm very pleased that in the first quarter, all of our other businesses grew sequentially.

Specialty Materials sales were up 21%, lead by the stronger-than-expected demand for Gorilla glass.

Sales in Environmental were up 12%, also more than anticipated.

We also told you to reach our goal of $10 billion sales by 2014, we would supplement organic growth with acquisitions.

Hopefully you saw our announcement to acquire a significant portion of Becton, Dickinson's Discovery Labware unit.

This acquisition is expected to be completed later this year and is part of our strategy of becoming a bigger, more balanced Company.

We're delighted with this pending transaction.

Several years ago, we established a plan to grow our Life Sciences business to be a $1 billion business.

We have grown organically and with the acquisitions of Axygen, Gosselin and Mediatech reached nearly $600 million last year.

The pending purchase of BD's Discovery Labware unit will complement our existing portfolio and provide access to new customers.

We believe this business will help catapult our Life Science segment towards its $1 billion goal by 2014.

I will share some more details on this shortly.

I do want to stress this transaction will not impact our ability to increase dividends or buy back additional shares.

And we have the financial flexibility to pursue additional acquisition opportunities in both Life Sciences and Telecom.

For those who have not had a chance to see our balance sheet yet, we ended the quarter with $6.8 billion in cash.

In summary, we are pleased with our first quarter results and our progress against our key initiatives.

So with that intro, I'll walk you through our Q1 results and our Q2 outlook.

First quarter sales were $1.9 billion, up slightly sequentially and consistent with a year ago.

Gross margin was 42.4% and lower than the fourth quarter as we had expected.

Lower gross margin in Display offset improved gross margins in Environmental, Specialty Materials and Life Sciences.

SG&A was lower on a dollar and a percentage of sales basis while R&D was slightly higher.

Equity earnings of $218 million were down about 10% sequentially compared to equity earnings excluding special items of $241 million in quarter four.

Now as a reminder, we had excluded a significant one-time gain that occurred at Dow Corning in Q4.

Earnings per share excluding special items were $0.30, just slightly lower than Q4 but a material decline from a year ago.

Both equity earnings and EPS as stated here are non-GAAP measures.

You can find a reconciliation to GAAP on our website.

Now I'd like to start with Display.

Display sales were $705 million in Q1, a decrease of 10% sequentially and versus last year.

Volume was up in the mid-single digits exceeding our expectations.

Price declines over Q4 and Q1 were in line with our expectations.

Q1 results were negatively impacted by the weaker yen which averaged 79 for the quarter.

Volume in SCP was down less than 10% sequentially, which is better than we had expected and the result of customer utilization rates strengthening in March.

Equity earnings from SCP's LCD glass business were $182 million in Q1, a decrease of 5% from the fourth quarter.

Now for your modeling purposes, SCP's first quarter LCD sales were about $730 million, a decline of 8% from the fourth quarter.

As a reminder, this represents SCP's LCD sales only.

Our public filings will report SCP's total sales to of course include CRT glass and other product sales.

Now I'd like to spend a few minutes discussing inventory levels in Display's supply chain, glass supply, demand and retail.

We have revised our estimate of Q4 supply chain inventory now that we have the final data.

We feel the Q4 number was 15.2 weeks and that the supply chain had actually reduced more inventory than we previously thought.

Our preliminary estimate of inventory at the end of Q1 with approximately 15 weeks.

We think this supply chain built a small amount of inventory in Q1.

We will continue to monitor inventory levels, especially as we progress through the second quarter.

Historically, the second quarter has been the most difficult time period for the supply chain because of the lower seasonal retail sales.

In terms of glass supply and demand, we believe both were in a relative balance entering the second quarter.

Regarding our own capacity, we continue to evaluate our need to bring back glass capacity for both LCD and of course Gorilla glass.

At this time, we consider our own glass inventory levels to be at the low end of what we would consider to be healthy.

As a result, we'll likely take some measured steps to ensure we have adequate supply to meet demand.

Now turning to retail, we don't have a lot of new data.

In the US, we're seeing growth rates that are a little higher than we had expected, this is likely driven by continued growth in larger screen TVs.

However, in Europe demand is definitely weaker and likely a reflection of the economic uncertainty there.

This is an area we're going to continue to monitor.

As expected, year-over-year unit sales in Japan are down due to the tough year-over-year comparisons with the Echo Point promotions last year.

In China there was an interesting dynamic this year with the Chinese New Year falling in January versus February, and therefore the promotional activity for the holiday actually started in December, leading be strong pull in of demand.

You may recall in December units grew 45%.

So had the lower demand in January, but we were pleased to see a strong growth rate return in February.

We've aggregated the months of December, January and February to deal with the holidays changing and the blended unit growth rate in China was 15% up.

In terms of PC demand for the year, we have no change to our estimate of 4% unit growth excluding tablets.

In terms of glass demand into retail, our estimate remains at the 3.6 billion square feet.

As we mentioned on our January conference call, we have a variety of cases with retail demand being above or below that point estimate of 3.6 billion, driven primarily by different economic scenarios.

Lastly in terms of our migration to EAGLE XG Slim, we continue to make excellent progress.

We are well on our way to meeting our goal of more than half of our glass being shipped thin.

Now turning to Telecom.

Sales were $508 million, up 4% sequentially but slightly below our expectations of being up 5% to 10%.

This slight miss from expectations was due primarily to lower demand for cable products.

Fiber to the home and optical fiber demand grew sequentially and while enterprise sales were consistent.

Net income was $21 million, down from $26 million in Q4 and $41 million a year ago.

Now compared to a year ago, the decrease in net income largely reflects weaker submarine cable sales and an increase in project spending to support fiber to the home and growth initiatives for NBN in Australia, China and India.

Environmental sales were $263 million, up 12% sequentially, which was higher than our expectations.

In addition to the normal seasonality increase in Q1, we saw additional growth.

Strong auto demand in North America drove sales of gasoline substrates, and higher heavy-duty sales reflected manufacturing improvements during the quarter.

Net income in Environmental jumped from $28 million in Q4 to $40 million in Q1.

In Specialty Materials, sales were $288 million, up 21% sequentially and much higher than we originally expected.

This better than expected sales was due primarily to very strong demand for Gorilla glass.

We saw a surge in demand in March which we believe was due to finishers preparing for the launch of new product models.

Gross margin expanded significantly in the quarter and the segment posted net income of $21 million versus a net loss of $105 million in Q4.

Now remember that loss in Q4 is primarily due to one-time charges.

In Life Sciences, Q1 sales were $155 million, up 8% sequentially and 8% above the year ago driven primarily by acquisitions.

As I mentioned in my opening remarks, we have great expectations for our Life Sciences business.

We have been and will continue to be innovators in Life Sciences.

In fact, as a result of our innovative new business platform such as unique Cell Culture vessels and Novel Surfaces, business has grown organically at a faster rate than the overall industry in the past three years.

It is an industry that remains very attractive to us.

Life Science is very different from our Telecom and consumer electronic related businesses as it is more immune to economic recessions and has much less seasonality.

In addition, the amount of new capital requires typically very low which is a nice divergence from our other very capital intensive businesses.

Very excited about the pending purchase of BD's discovery Labware unit, this business is currently profitable and generates cash.

They have an excellent long-standing reputation in the market.

In fact, even those who do not follow Life Sciences industry have heard of Becton, Dickinson and their world-class products.

We could not be more excited to welcome the Discovery Labware unit into the Corning family.

We expect the transaction to close by the end of this year and be accretive by 2013 excluding the amortization of purchased intangibles.

And looking ahead to 2016, which is the end of our planned integration time frame, we expect to reach $0.05 per share accretion also before the amortization of purchased intangibles.

We estimated synergies will contribute about half the accretion through revenue expansion, SG&A reductions and manufacturing efficiency needs.

Let me quickly highlight the revenue expansion.

If you recall this chart from our investor day in February, I've highlighted in blue text some key examples.

First the BD unit brings complementary products we hope will add to our sales opportunities.

Additionally, we have multiple revenue synergy opportunities in adjacency areas like biological coatings on Corning products, expanding our products like Epic and services into the ADME toxicology.

For analyst who may not know what ADME toxicology is, Dr.

Richard Eglen, Vice President and General Manager of Life Sciences, is actually on our call this morning, and he can answer any of your questions you have regarding the pending acquisition and the business.

Now turning to Dow Corning, equity earnings were $35 million, down 29% compared to the equity earnings [X specials] of $51 million in Q4.

And as a reminder, we had excluded a large one-time gain in Q4.

In the silicone business, Dow Corning did see good volume growth and much more moderate pricing pressure, which led to an increase in silicone sales.

However, this is more than offset by the results at Hemlock.

I'll have more commentary on Dow Corning and Hemlock in our outlook section.

Now moving to the balance sheet, we ended the first quarter with $6.8 billion in cash and short-term investments up from $5.8 billion from the end of the year.

The increase was primarily due to the $750 million debt issuances during the quarter.

Biggest outflow in the quarter was cap spending a $412 million.

Free cash flow was a positive $345 million, and a great start to the year as the Company often experiences an outflow in Q1.

We also continued our share repurchase program during the first quarter, although the pace of repurchasing was much slower than the fourth quarter.

Investors should not view our repurchasing pattern in Q1 as being less bullish or the Management to continue to believe the Company's current stock price is trading at a value that is lower than the long-term value of the Company.

I'll not speculate on how fast we'll go through the remainder of the approved amount and what the Board will decide to do next.

I can tell you that our given-- our current cash balance and cash flow expectations over the next several years, we expect to have ample financial flexibility to fund additional share repurchases, do M&A or to increase the dividend.

Regarding the BD transaction of US cash, we have ample cash on hand domestically to pursue all [through].

So that completes my remarks on the first quarter.

To summarize, I'd say we're very pleased with the first-quarter performance, especially in light of the headwinds we talked about just two short months ago.

Now I'll turn to the outlook and I'll start with Display.

In the second quarter, volume at our wholly owned business should be consistent with the first quarter.

And at SCP, volume should be up slightly sequentially.

Our primary reason for these levels of expected volume is that TV demand in some areas of the world has been weak, and the supply chain has already built some inventory.

As always we could be wrong, we're monitoring panel maker utilization closely.

We do expect stronger pickup in glass demand in the second half assuming normal retail seasonality.

Now for glass pricing, as I mentioned in the beginning, we expect our price declines to be much more moderate in Q2 compared to the significant declines that we experienced over Q4 and Q1.

As a reminder, the pattern of price declines varied in those quarters, but all customers received significant price declines over that period.

Moving to Telecom, we expect sales to be up in the low to mid teens sequentially driven by growth across all product lines.

Environmental, we expect sales to be consistent with the first quarter while we anticipate strong growth in heavy-duty filters, we're forecasting softer sales in the European market for light-duty filters for cars.

Specialty Materials should have another strong quarter led by Gorilla glass.

Sales are expected to be up 10% to 15% sequentially.

And in Life Sciences, we expect sales to be up 5% to 10%.

At Dow Corning we expect equity earnings to be up about 40% driven primarily by the higher volumes for both silicones and polysilicon.

Now at Hemlock, we're anticipating the challenging price conditions in poly will continue.

The global oversupply of poly combined with the decline in subsidies for two of the world's biggest markets for poly, Germany and Italy, continue to impact poly pricing and solar demand.

We do not expect pricing to improve until supply demand levels return to balance and the current over capacity situation subsides.

Now turning to the rest of our Q2 forecast, we expect gross margin to drop almost a percentage point.

While we expect some margin expansion in Telecom and Specialty Materials, these will be offset by slightly lower margins in Environmental and Display.

In Display, gross margin will be slightly lower even though price declines be much more moderate than previous quarters.

From a modeling standpoint, typically takes higher amount of volume increase to offset even moderate price declines.

The volume levels are not enough to hold gross margin this quarter.

SG and R&D will be consistent as a percentage of sales in the second quarter.

Equity earnings, excluding special items, will be up slightly sequentially.

Our tax rate will remain around 20%.

Now for FX, the yen has significantly weakened over the past few months.

Fourth quarter, the yen to the US dollar exchange rate was 77, Q1 it was 79.

The month of April it actually reached as high as 83, and today its bouncing between 81 and 82.

As a reminder, our results move with the changes in the yen to US dollar exchange rate, weaker yen lowers our results, the stronger yen helps.

So if the yen averages one point higher or lower in Q2, we estimate our sales and net income would decrease or increase by approximately $7 million.

That concludes my opening remarks.

Ken?

Great, thank you Jim.

Operator, we're ready to take some questions for Jim or Wendell or Richard.

Thank you.

(Operator Instructions) Ehud Gelblum from Morgan Stanley.

Hi, guys, thank you, it's Ehud.

First of all Jim, of course we know what ADME stands for, it's Absorption, Distribution, Metabolism and Excretion, so I think that's what it means at least.

Now did you know that or did you Google it while I was--

I Googled it, are you kidding me, I of course I Googled it.

A couple questions quickly.

First of all, can you give us an update on the China tanks coming online and timing wise and progress there?

And you previously had talked about having 25% of your capacity offline and spoke about one of your competitors having 35% of their capacity online and that helping create a supply/demand, a better supply/demand balance.

Are you-- you made some comments that your own inventory of glass was low and so did I detect that you're bringing some of that 25% back online or are you letting the move to thin glass sort of add to your capacity, and so where do you see the offline amount of capacity a quarter or two out from there?

So you're first question on China, we haven't had a change in the Display factory in Beijing.

We expect the capacity to begin coming online in Q3.

We're going to only bring up a portion of the factory, we're going to be very deliberate about how much capacity that adds.

Obviously we're already shipping to our customer there from our facilities elsewhere.

But we will start one tank there in the third quarter.

In terms of our own capacity, we're not giving out the new number.

We have brought up some Gorilla tanks.

We are being very careful about how much capacity we have online, it's less than 25%, but we are keeping it in balance with what we see as demand.

It's our feeling that the glass industry overall is doing exactly the same.

We see no wholesale charge to light up a ton of capacity by our competitors.

And so that's why we continue to believe we're basically pretty much in line with supply and demand.

Thanks.

If I could just ask a follow up on the Korea customer that you had the issue with over the last several quarters, is that now settled and where do you stand with them with respect to they're clearly not down to zero but where do they stand with respect to what they're purchasing from SCP let's say three quarters ago and is that now stable going forward or do you anticipate more gyrations?

So three quarters ago, if you're talking about the summer quarter, which would be Q3, we clearly are -- they are purchasing at a lower level, probably not too far off of what they did in Q3 which is when we lost the share originally.

Compared to Q2, obviously it's a lot lower.

But they are continuing to buy from us.

We continue to talk to them, but as I indicated, I think actually your conference, we are not going to give very low prices to try and gain share back.

Great, thank you.

Mark Sue from RBC Capital Markets.

Thank you.

Jim, maybe if we could get a sense of the quarterly sequence of price declines in Display glass.

It was bad for two quarters, sounds as if it gets better as near term as the capacity is taken out of the system.

Is this kind of the new norm going forward?

Maybe some insights into how the negotiations for pricing proceeded and what indications that holds for pricing discussions over the longer term.

Well Mark, we had significant price declines in Q4 and Q1 at essentially all customers.

They didn't happen exact same time at each customer, but in the end, all customers got significant price declines.

When we went for Q2, we obviously wanted to try and get back to our much more moderate price decline pattern.

And that's what we rolled out and we were delighted that we were able to achieve that.

But we think a primary precursors to allowing that to happen is number one that capacity is more in line with demand.

And number two, that demand at retail has been okay.

So that has worked for Q2.

We obviously haven't negotiated pricing for Q3.

I think the thing for you to pay attention to is if retail demand flowing through to the panel makers is as we expect in Q3 and Q4, and the industry continues to balance its capacity utilization from a glass point of view, that would be very favorable for pricing.

But obviously we are not giving guidance at this point in time for Q3.

Okay.

And then Jim separately Gorilla glass seems to be reaccelerating, what's driving that?

Is that broad-based adoption in terms of applications or is it a concentrated customer that's kind of lifting your outlook for Gorilla glass?

So I would say that you know we had some disappointment in the third and fourth quarter on Gorilla where we would say in the end market for demand for smartphones and the mix of smartphones overall was quite strong as well as tablet sales were good, but that wasn't flowing through to us in quarter three and quarter four and now we feel like we're catching back up to that.

The reason why we are think we were off of it was that we do know that some customers built inventory in the first half of 2011 when remember we were very tight on capacity, and then also their own yields have been improving over that period of time.

So what we're hopeful of is that the demand that we saw in Q1 is more representative of us being in line with the real end market where smartphones and tablets continue to be doing quite well at retail and that's why we'll hope that that will continue in the second quarter.

Okay, so more broad-based return?

Yes, so let me just add to that in that it is broad-based and we view that it is driving more in line with what is happening with the market.

It's just important to note, this is a long supply chain.

It's a complicated supply chain.

We take glass, ship it to finishers, who cut it and [ion] exchange it, then they in turn ship it to a touch panel manufacturer.

They in turn send it on to an ODM who then assembles the whole thing and then finally it goes to the brand whose the person that we sold to really originally.

And each of these steps has different yields and different players have different yields, somewhere between 70% and 95% depending on the step and depending on the player.

And our market position is so strong in this, it means that classic supply chain variability, right, we're going to feel 100% of that.

And as-- so that can mean just depending how the supply chain works, that our glass shipments in any given quarter can be different than the end market pull through.

And that's what we experienced in the back half of last year.

And now you see us sort of moving in line with the overall poll.

And we're going to continue to have some fluctuation here not because of anything bad that's happening, but only because of the strength of our position and the length and excitement in this supply chain.

That's helpful.

Thank you, gentlemen.

Nikos Theodosopoulos of UBS.

Yes, thank you.

Couple of questions.

I guess the first one is in the press release you mentioned that you think that the LCD revenues could show growth in the second half of the year.

Even under a more moderate price decline environment, it would seem that in the third and fourth quarter, you would have to have roughly 15% kind of sequential increases in volume to achieve that.

So I guess the question is, what gives you confidence that that would happen?

And then so there's question number one.

And then question number two, on Life Sciences, I guess maybe if I look at-- its an area I don't know that well for Corning.

If I look at your other businesses, you have very high market share in leadership.

And when I look at this business before you started acquiring companies, you were doing just slightly over $100 million a quarter, it didn't seem like a business you had material leadership.

Can you give me an update on what you think your market share is in this business and what this -- why continue-- why the rationale in doing these acquisitions do you think you should become a material leader in that segment?

Thank you.

So I'll start with Display.

I think what we were trying to say at back half of the year is that the volume for-- available for glass makers from the flow-through of retail back to the panel makers would be substantially higher driven by the fact that the end market is seasonally stronger than.

And what has happened to this industry over the last couple of years is that in fact, people don't have to build for televisions back in April for the Christmas season.

They can do it much closer.

So what we were talking about is strength in volume sequentially compared to the first half of the year.

I'll let Wendell maybe open on Life Sciences why we find it attractive and then ask Richard to add a few more comments.

To your point on leadership, it was exactly that that we identified as the opportunity, Nikos, is that we could bring to bear some of the same things that make us be a leader in our other segments and become a leader here, and leadership in two ways that matter.

I think one is innovation where we've shown with our ability to grow organically at about twice the rate of the underlying market growth.

And that has been solely due to our ability to bring more innovation to bear.

And then also, with brands.

And so what you see us doing on the acquisition front is augmenting our already strong brand in the Discovery Labware markets with additional brands like Falcon, which are quite strong.

And then global expansion, which also plays to our strength because we already very strong as Corning in a lot of the markets that are going to be the real hyper growth areas for doing more Discovery work in the Life Sciences area, which is where our product strength lies.

Yes, I mean just a few words to add to that.

I mean a good number to bear in mind is that the Life Sciences division of Corning has grown about 16% from 2006 to 2011, and that's the combination of the innovation that's been brought through as well as the strategic acquisitions, of which out of the proposed acquisition of the Discovery Labware business would be the fourth there.

So as we've grown, as Wendell says and expanded our geographic reach, we can now move with a broad product portfolio offering into both the academic research market as well as the drug discovery market as well.

Amir Rozwadowski from Barclays Capital.

Jim I was wondering if we could talk a bit about some of the ASP decline that you've seen.

I mean you've said that there has been a reset with respect to ASP declines obviously and with respect to margins on your Display business.

With your commentary that you now expect to see sort of easing pricing declines going forward, should we now expect that that marginally that reset is behind us or are you still somewhat cautious going into some of the forward quarters to see some level of stabilization here?

Well I would say we're hopeful that we've achieved back to the moderate level.

If you go back over most of the last five years, majority of the quarters were this moderate price decline philosophy that we had brought out at the end of 2006.

And we're hopeful that we have with what we've achieved in quarter two, and the conditions that we think are allow that, that we'll get back on that.

I cannot guarantee you that that-- that we've achieved that in perpetuity, but what we have done is to try and have capacity be in line with the demand, and we think that allows for more moderate price declines.

We achieved it in Q2, we're hopeful the same set of conditions will allow us to achieve it in the back half of the year.

I can't make that guarantee yet.

Okay, that's helpful.

And then if I think about sort of innovation on the LCD TV market, I mean a lot of us and investors have seen some of the developments on the OLED side at CES earlier this year.

There's been a lot of talk also of possible new entrants into the TV market, perhaps bringing some of their innovation to bear from other tangential markets.

I was wondering if you could give us an update on where he see sort of OLED development and it's impact for you folks and whether or not you are seeing potential new entrants that could help drive further either replacement sales or some level of increased innovation that gets people a bit more excited about replacing televisions here?

It's a great question because as the LCD market has been going through the great challenges and sort of maturity that it has been, what our customer base has done is to invest very strongly in new innovations.

I think OLED captures a lot of the headlines, but really it's part of a overall innovation trend around high-performance displays that are in the area of doing very high pixel count displays, as well as thinner, faster refresh and then OLED adds the opportunity of a little bit more dynamic color with the potential to go even thinner.

These higher performance displays put -- do two things that are helpful.

First, the point you're making, which is higher performance displays encourage the market to trade up because it's more visible literally what it is you're looking at.

And then the other is for our perspective, it puts way more challenges on the glass itself, because the way you get a higher pixel count styled display is by putting -- by making more complicated electronics packages, which put more stress on the glass which offer us the opportunity to innovate.

So those I think the two positive forces.

There's a lot of different technology nodes out there.

And what we're doing out there is covering our bets across as you saw with the new OLED venture for glass was Samsung whose the leader in OLEDs.

And as you see when you start to hear things like oxide TFTs, all of these new backplane technologies, we're also having a significant amount of effort and innovation in that space and alliances with the leaders in that space as well.

So overall, we look at the amount of innovation in LCD right now in our Display business to be really at a high.

And you're not going to see it in television first, where everybody is focused is where the growth is at which is in the same area the Gorilla is at.

So that's going to tend to be in mobile displays is where you're seeing the bulk of the focus.

There is work going on on TVs and large size, but I think that's going to be a little bit later as opposed to sooner in terms of the size of its impact on the display technology landscape if that makes sense to you.

That certainly is very helpful.

And perhaps on the question around new potential entrants into the LCD TV market, have you folks been seeing any or can you even comment on that?

I cannot comment on the activities of any of our customers.

It's for them to comment.

Okay.

Thank you very much for the incremental color.

Rod Hall from JPMorgan.

Yes, thanks for taking my question.

I guess I've got two.

One is a little bit bigger picture question about the industry, the panel industry.

So not profitable and marginally profitable, I guess that's the primary reason that pricing remains sort of volatile and uncertain in the future, and I just wonder if you guys could comment a little bit about what it is that repair that industry profitability?

Is it only demand that we have to look forward to or is there-- are there other things that could happen and help these panel manufacturers get more profitable so there's not so much pressure on pricing?

I guess that's my first question.

Then just a quick housekeeping question for Jim.

I didn't hear you mention the overall industry glass volume, (inaudible) glass volume for Q1 and I wonder if I just missed that or if you didn't mention, if you could talk about that a little bit?

Thanks.

So we didn't give out the glass volume for Q1, we've been-- we stopped giving out that level of detail about the supply chain.

In terms of the panel industry, I'll start and ask Wendell to jump in.

I think what we have seen over the past quarter is stabilization and slight pricing increases in panel prices.

And as Wendell was talking about, we've seen the industry I think slowing their capacity additions or actually in some cases stopping them.

And we see them focused on products that could bring them higher revenue off of that capital as Wendell was talking about with some of the high-performance displays.

Wendell, anything you'd like to add on the industry?

First, I think you're on a really excellent question.

In that the display industry, our customer base are quite challenged financially.

And I think there's three things that they're doing to try to address that.

First is getting an industry structure where you see a sweeping set of moves by a bunch of different players as they either emphasize or deemphasize their investments in the space and consolidation.

That basically is [aimed] at demand versus supply balance and that's where Jim is addressing.

And the best proxy for that usually one way or the other is what's happening with panel prices.

And non of us would over react to the latest sort of relative stability in panel price.

I think we just got to look at this going forward and see how that plays out.

Second, is what's leading to their challenges is first the market wasn't as big as everybody was expecting.

And second, there's a lack of strong differentiation in the product sets.

That's where you see the emphasis on innovation for high performance displays, which by the way people talk about OLEDs, note, oxide TFT technology, which is a new backplane technology, is revolutionizing what LCDs can do.

It is making them faster refresh rate, much higher pixel count, it's way more dynamic displays, so it is far from over on which displays are going to win in which segment.

But you see that strong focus on differentiation.

And we'll see how that plays out in the technology nodes in one area or the other.

And then finally, you see the focus on those areas in the market that are growing the strongest.

And their profitability pools are more aimed at these smaller mobile areas and that's why you see the emphasis towards that space.

So I think those are the three things that the customer base is working its way through.

And we'll have to see how it all plays out.

Clearly, the best and most important thing that can happen in the near term is for the market, the end market to perform in line with our expectations and theirs and that'll certainly help create the type of environment that's a little more stable.

Okay, thanks guys.

Jim Suva from Citi.

Thank you very much for your details.

I'd like to ask that your commentary about more moderate pricing, is that something kind of in a range of 3% to 4% as I noticed the Company did not say like historical ranges, which have traditionally been down closer to 2%?

Or for differently, is the future pricing now slightly more aggressive or am I just being too sensitive on the wording as I think you know, I'm a sensitive guy?

We think all our analysts are sensitive.

Don't read too much into the wording.

I will tell you that the price declines are significantly down from what we experienced in Q4 and Q1.

And I'm not going to give out an exact number for competitive reasons, but you'd be very pleased with the reduction in the price declines that we've had, particularly because you're a sensitive guy.

Thanks for that.

Take you back to your original plan I believe it was in the 2007 time period or something where you implemented this new pricing discipline nature of disciplined pricing, does that take you back to that type of level or I guess what I'm trying to get at is, are we back to that original plan of pricing or is something just slightly more aggressive?

I'm sorry Jim, I'm not going to give you an exact number for competitive reasons.

Okay, okay, well maybe I can ask a different question.

On the gross margin, I think I heard you mention that will be down about one point, if that's correct, does that imply that you think maybe Q2 will be the bottom for your gross margins?

Or will something such as ramping China impact that going forward?

And I don't know if when you ramp China are you just layering in that additional supply slowly or will you be taking off production elsewhere and the impact of gross margins?

In terms of our gross margin, in terms of China, we will balance all of our production against what we think the market needs.

So, if China came up and we didn't need it, we need to light one tank there, we would cut back elsewhere.

But we actually think that in quarters three, which is when China would start, in quarter four that the glass demand will be higher if we're right about the normal seasonal uptick at retail and the fact that the supply chain doesn't appear to be building excess inventories.

So you should-- based on what we think, you shouldn't expect China to be a drag on profitability of Display.

In terms of our gross margin as to whether Q2 is the lowest, it all depends on what we see in Q3 and Q4.

If we're-- our hopes turn out that we're back on a path of moderate price declines, and we see volume grow at a greater rate in Q3, that will improve display gross margins and that will improve our corporate average gross margin.

Thank you very much.

Simona Jankowski from Goldman Sachs.

Hi, thanks, it's Simona Jankowski here.

Just a couple of clarifications on your Display business and a couple of questions.

Just wanted to clarify first in terms of the upside you saw in the quarter on your volumes, was that better demand that you saw or was there some better share gains for you at some of your customers particularly as you caught them up on some of the pricing?

And than the other clarification I had was on the competitive situation at your career customer, looking at that now, do you feel that that was really kind of unique and contained to that one customer or is there anything that would lead you to believe that there could be similar type of situations, maybe not to that same magnitude arising at other customers?

And then I have a couple of quick questions.

So the upside was better utilization by various customers, that's what was the improvement.

As to our characterization of what happened in Korea in Q3 and Q4, we regard that as a very unique situation and not something that we are really experiencing elsewhere.

Okay, that is helpful.

And then just a couple of quick questions, is one you didn't mention anything on the Olympics and I guess we've all been kind of burnt with that in the past, but if you can just give us some sense of what you're expecting or seeing in the supply chain ahead of that, if anything?

And then lastly, what impact, if any, do you see from the change there at Sharp in terms of Hon Hai purchase of an equity stake in their 10g plant?

Well I'll take the Olympics and let Wendell take Hon Hai.

So we're not hearing the same buzz about the Olympics as we heard before the China one.

And as you know, generally our philosophy is that sporting events create a minor uptick, it's usually less than what people's expectations is.

So we're actually quite pleased that people aren't getting over hyped about this.

But we really are not hearing the buzz like we saw in 2008 before the Olympics in China.

Wendell, you like to comment on Sharp and Hon Hai?

Well first I like to take a little piece of the Olympics one and then I'll move right into Hon Hai, which is actually, we were hoping that my daughter who is a track athlete was going to make the Olympic trials this year.

So I can guaranteed you there was going to be a huge upsurge in television purchases here in the upstate New York region.

However, she injured her ankle so now I don't know.

Don't like to hear that.

Yes, anyway, I digress.

The Hon Hai Sharp play.

So-- well let's contain ourselves to the publicly disclosed information from Foxconn, Hon Hai, Terry Gou basically and Sharp because I just have to, okay?

In their rationale for the transaction, what it really comes down to is Sharp is an absolute leader in display technology.

They're the people that we did all the original work with LCDs, it is true.

And they are a leader, earlier in the call you heard me talking about oxide TFT and the revolution going on for LCD, Sharp is an absolute leader in oxide TFT, especially very large size oxide TFT.

So they have that strength.

Terry Gou says I have enormous market access, but I am missing the relevant technology to be able to take my market access and turn it into volume and panel plans that I have an ownership interest in.

Hence for the merger here or Terry Gou's investment in Sharp and in Sakai-city and the logic is he will take his market access, fill up Sakai-city and be able to take this new technology as well as some of the existing technology and be able to greatly enhance the position of the non- Korean panel manufacturing industry.

So that is the stated logic of the transaction.

If that is indeed how it plays out, given our position in Sakai-city, that would be a very favorable outcome for us.

Right, so in that scenario you would expect utilization to rise and indirectly you'd gain share in that situation?

In that situation, if that is the way indeed that it plays out.

It's early days, so sometimes industrial logic of transactions doesn't carry it's way all the way through to reality.

Sometimes it does and it's better, it's just a little early for us to be able to call it definitively.

Great, thank you very much.

Carter Shoop from KeyBanc.

Good morning, thanks for taking my questions.

First question, assuming you increase inventory levels at the wholly owned Display division in 2Q, can you comment on the magnitude of that increase?

It would not be significant, such that you would notice the impact in our results.

Okay, that's helpful.

And then in response to a question by a particularly sensitive analyst you mentioned that China won't be a drag to gross margins in the third quarter when that comes online, are you suggesting it's not going to be a net decline in gross margins or are you saying that the increase won't impact at all because I know when we brought on the Gen 10 facility obviously a much larger facility, I think it was about 2.5 points, a 2.5 point drive to corporate gross margins in the June '09 quarter, so you don't expect any drag there whatsoever, is that accurate?

My comment was I do not expect a drag on Display margins in Q3 from the start up of a tank in China.

Going back to the Sakai-city, it was a very large facility and remember both the Display business and Corning Incorporated were much smaller then.

But definitely I don't expect to see a drag from China based on what I know today with how we're going to face the start up.

Great, and then just two housekeeping questions, if I may.

Did you say what the Gorilla glass sales were in the quarter?

If so, I missed that, and if you didn't, could you provide that?

Did not and we are not providing it.

Okay And then on the acquisition, the BD acquisition, when you say it's going to be slightly accretive in 2013, what type of financing are you assuming in that calculation?

Is that a whack or is that using cash financing?

We're doing it all with our cash which we earn nothing on.

Okay, thank you very much.

George Notter from Jefferies.

Hi, thanks very much.

I guess if I look back on pricing, historically you had these catch up scenarios play out where Corning for periods of time has experienced more moderate rates of price erosion and then we found four or five quarters down the line that you've kind of been out of whack a bit relative to your competitors and you've had this catch up period where your pricings come down more aggressively.

Do you think that scenario could play out here going forward?

I guess in other words I'm wondering if you see everyone kind of behaving like you guys in terms of price erosion for the next few quarters?

Well I would say clearly our hope is that we are getting back to moderate price declines for ourselves, and we're hopeful that that's what the entire industry is going to do.

And it'd be pure speculation for me to say how long that would last.

I mean our hope is that it continues for a long period of time.

Got it and then just--

Just one other point because your lead in on the logic flow, I just want to touch on which is usually us relative to our competition, yes we indeed get a premium.

That premium has that sort of couple 3% range of premium that within that, we can maintain our share position at a given customer above that pressures increase.

So it's not so much that our-- we're not deliberately trying to expand that premium, and that our competitors are dropping lower than us.

Usually what leads to this sort of disconnect and more catch up is when market demand is very different than glass supply and our competition moves more aggressively on price in a given quarter and then we are usually more restrained in our reaction, and that's what tends to open up the gap.

Just want to make sure logic flow, we're all seeing it the same way.

Got it, okay, that's very helpful.

And then just switching gears real quickly, any new perspectives on capital spending relative to what you guys were talking about at the analyst day, I think $1.8 billion this year and $1.2 billion to $1.3 billion for next?

No change there.

We still expect a decline in 2013, so you should count on those numbers.

Thanks.

And Operator, it's Ken, I recognize we're coming up on the market open I want to be respectful of people's time, so we'll take one more call.

Wamsi Mohan of Bank of America.

Yes, thanks a lot, good morning.

Can you give us maybe some indication of concentration now in Gorilla glass versus where you were a year ago?

There were a lot more devices that were being launched, new devices, seems like a lot of them have really not met with market success.

And it's being concentrated with a few key players, but really have shown success.

So I'm trying to understand if we should expect significant volatility in this business outside of the supply chain issues that Wendell alluded to earlier?

And what risk if any do you see from any substitution of alternative materials?

And I have a follow up.

So I'll comment on concentration.

I think that in smartphones, we're seeing demand by a number of players.

The things that you referred to last year really were the launch of the early tablets by some people who didn't do that well.

But we're seeing broad-based demand in smartphones for Gorilla.

Wendell do you want to comment on competition?

Yes.

So competition continues to be about the same as it was last year, which is there has been competition throughout last year.

There is competition now.

We've been blessed with continuing to have our very strong position.

The change between Gorilla glass one and Gorilla glass two sort of reestablished an advantage again enabling customers to go about 20% thinner and have the same strength.

And so following our classic model, which is do a combination of product leading innovation together with strong process work to develop competitive cost advantage, that typical model for us continues to work right now in Gorilla.

And hopefully more innovation to come, so watch this space.

Okay, thanks, Wendell.

And as my follow up here, you mentioned oxide TFT several times today.

So I'm curious to get your opinion on the possibility of the use of lower quality alkali glass as one of the two sheets of glass if oxide does become the backplane technology of choice?

Thank you.

That's a very good question.

So oxide TFT is going to require two probably higher performance pieces of glass relative to what it is that's used today.

And that mainly has to do with that the backplane is more challenging.

It's just the backplane is more challenging, then you're creating an overall sandwich and then you want to match the expansion rates between the top and the bottom of that device.

If you have an alkali containing glass in the top, first you have the potential for poisoning in these relatively complicated electronics packages.

But also you have different rates of thermal expansion.

So those factors will tend to bring you into a more concentrated approach of two pieces of technical glass.

You hear the more one piece two pieces of glass when you hear about OLEDs.

And especially those OLEDs that are a little bit lower pixel count and whether or not it's bottom emission or top emission.

Bottom omission has a potential to use a different encapsulant material other than glass because it's coming out the bottom, the top of it doesn't necessarily need to be transparent.

Most of the work that we are seeing right now go on is leaning towards the technology node of two pieces of glass.

But this is going to be a continually evolving technology as the industry seeks true differentiation.

Thank you for all the color.

Great, Jim as a close out?

Yes, just a couple quick comments at the end.

First of all, we're going to have a fairly robust investor relations schedule over the next months.

There's actually four conferences.

First we'll be at the Jefferies Global Conference in New York City on May 8, and that we'll be at the JPMorgan TNT Conference in Boston on May 15.

Back in New York City at the Barclays TNT Conference on May 22.

And finally at the Bernstein Strategic Decisions Conference in New York City on May 31.

So hopefully you gather we'll be on the road a lot, we would love to see you all in person.

Lastly, our annual shareholder meeting is going to be held tomorrow right here in Corning, New York starting 11.00.

If you happen to be in the Corning area, please stop by.

But for those who can't, we will be audio casting the website, on the website for the speeches.

In a wrap up, we've just completed four months of the year and we continue to feel very good about our results.

Our non-Display businesses are all performing well and continue to demonstrate the growth potential we've been anticipating.

And in Display, we're more encouraged now that we were just a few months ago especially on the pricing front.

Looking forward to continuing this momentum as we head into the second quarter and we will continue to keep you updated along the way.

Ken?

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

A playback of the call available being at 10.30 AM Eastern time today go until 5.00 PM Eastern time on Wednesday, April 25.

To listen, dial 800-475-6701.

The access code is 244213 and the audio cast of course available on our website during that time.

Operator, that concludes our call, pleased disconnect all lines.

Thank you.

Thank you, Hope.