Corning Inc (GLW) — Q1 2018 Earnings Call Transcript

Thank you, Julie, and good morning. Welcome to Corning's First Quarter 2018 Earnings Call. With me today are Wendell Weeks, Chairman and Chief Executive Officer, and Tony Tripeny, Senior Vice President and Chief Financial Officer, and Jeff Evenson, Senior Vice President and Chief Strategy Officer. I'd like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the Company's financial reports. You should also note that we will be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at corning.com. As noted in yesterday’s disclosure and this morning’s release, we updated our segment tax rate to 21%, to reflect changes under U.S. tax reform. 2017 segment data has been recast for comparability. This data is included in the slide deck that we're using for today's call. You can also access this information on our website with downloadable financials in the interactive analyst center or the web disclosures page. Supporting slides are being shown live on our webcast; we encourage you to follow along. They'll also be available on our website for downloading. And now, I'll turn the call over to Wendell.

Thank you, Ann and welcome everyone. This morning we reported the results that keep us on track toward the strong 2018 that we described in January. Our business has performed as expected for the quarter with year-over-year sales growth in our Optical Communications, Environmental, and Life Science businesses. Our progress towards stable returns in Display remains excellent. Sales and net income were in line with expectations. The pricing environment in Display is the best it has been in a decade. And we are ramping our new Gen 10.5 plant on schedule. We expect to reach the important milestone of annual price declines improving to a mid-single-digit percentage in 2018. This sets the stage for higher profitability in Display as our new plant and process technology come online in the second half. Our sales and net income in Specialty Materials were also on plan, coming off very strong shipments in sales towards the end of 2017, consistent with our customers' patterns for major product launches. For the quarter, sales were $2.5 billion, net income was $299 million and EPS was $0.31. As we discussed last quarter, we have significantly increased our operating and capital investments to meet committed demand and capture the opportunities that we have in front of us. The expenditures associated with these projects were necessary and we expect to drag on our gross margins toward the end of 2017 to continue in quarter one and quarter two of 2018. However, we expect the expenditures for these investments to decrease and new plant production and efficiency rates to climb for the remainder of the year. This will allow us to meet demand, increase our sales, and significantly improve our profitability in quarter three and beyond. As Tony will describe in more detail in just a few moments, we expect quarter one to be our lowest quarter from a sales, gross margin, and net income perspective. As our investments come online, our sales and profits will accelerate. So we feel great about the year ahead of us. Now let's turn to the strategy and Capital Allocation Framework, which outlines our leadership priorities. Under the Framework, we target generating $26 billion to $30 billion in cash through 2019. We plan to return more than $12.5 billion to our shareholders through repurchases and dividends and invest $10 billion to extend our leadership and deliver growth across all of our market access platforms. We've made great progress toward those goals since we announced the Framework in October of 2015. Our cash generation is on target and through the end of the first quarter, we returned $10 billion to shareholders, including a 16% increase in the common stock dividend in February. Dividends per share have increased 50% since the Framework began. Investments in R&D, capital expenditures and in acquisitions also remain on track to our four-year plan, totaling $5.3 billion through March 31. We are best in the world in three core technologies, four manufacturing and engineering platforms, and five market access platforms. We focus 80% of our resources on opportunities to use capabilities in at least two of these three categories to increase our probability of success, reduce the cost of innovation, create stronger competitive barriers, and most importantly, delight our customers. We continue to achieve technical and commercial milestones on our growth initiatives. So as I mentioned earlier, we have appropriately stepped up operating and capital investments. For example, we have 23 capital expansion projects underway, including construction of 11 new plants. All of these projects are on track and several of the largest have begun ramping up production. As I also mentioned, we expect to see the sales benefit from these investments increase and the gross margin drag to decrease in the second half. Now, let me review progress in each of our market access platforms, starting with Optical Communications. We remain the world leader in passive optical solutions and the only true end-to-end supplier of integrated solutions. Strong market demand and the continuing success of our co-innovation model support our goal of achieving $5 billion in sales by 2020. To respond to the demand, we're expanding our manufacturing capacity. We're also investing in acquisitions such as our pending purchase of 3M's communications markets division. And we're investing to support new customers and to advance state-of-the-art so that the world technology and telecom leaders can continue to rely on Corning for innovations that deliver greater efficiency, performance enhancements, and cost savings. At the optical networking and communications conference in March, we introduced an extreme density cable tailored for next generation hyperscale data center architectures as well as a fiber that offers significant advantages for high throughput transmission. We also gave a joint presentation with Professor Tim Whitley, British Telecom's Managing Director of Research and Innovation. He gave a great description of how our co-innovation process works, saying, 'Widespread adoption of high definition and 4K streaming TV services is driving nearly 50% growth in demand for bandwidth. Optical fiber underpins this growth, making it vital for us to explore the practical capacity limits of optical fiber transmission. Working with Corning, one of the world's leading innovators in optical fiber technology, allows us to explore the fundamentals of optical performance with an aim to enhance the speed, reach, and ultimate capacity of our optical networks.' This is just one example of the many customer relationships that keep us confident that we can continue to grow more than twice as fast as overall communications infrastructure investment. Now let's turn to Mobile Consumer Electronics where we are the world leader in glass for smartphones, tablets, and emerging categories like wearables and augmented reality devices. Our goal is to double mobile consumer electronic sales over the next several years. We continue to make significant progress in adding more sales dollars per device by innovating in both glass and value-added components, while also expanding our share in developing regions and entering entirely new product categories. The fundamental properties of Gorilla Glass make it an ideal choice for smartphone enclosures. Of the 13 devices featuring Gorilla Glass that were launched in February at the Mobile World Congress, five used Gorilla Glass 5 on both the front and the back, including LG V30S ThinQ and Samsung’s Galaxy S9 and S9 Plus. Also, we are continuing to work with several OEMs on potential opportunities for Vibrant Corning Gorilla Glass as design customization options grow in importance for some customers. For example, in February, Motorola started selling the new style shell moto mods, the swappable back covers for their Moto Z smartphones. Vibrant Corning Gorilla Glass is central to the design and construction of the style shell, and earlier this month, an Acer Swift 3 notebook featuring a Vibrant Corning Gorilla Glass was launched in Southeast Asia. We will be launching our next generation Gorilla Glass during the second half of the year and expect it to once again redefine durability for mobile devices. Our broad product portfolio has enabled continued wins in the intermediate and value segments with new products introduced in India, Turkey, and China so far this year. We also are well positioned with glass-based solutions to meet tough technical challenges and growing demand across a multitude of applications beyond cover glass. Corning is partnering with leading OEMs on innovations and augmented reality devices and for precise 3D sensing technology. The precision glass we supply, coupled with our laser processing and characterization tools, enables optimized image quality, compact device form factors, and more accurate facial recognition. Turning to our Automotive market access platform. Our expertise focuses on helping customers build cleaner, safer, and more connected vehicles. Corning pioneered the substrate at the heart of catalytic converters and is now leading the next wave of emissions control with our introduction of gas particulate filters. Most European and many Chinese OEMs have now awarded platforms. New wins for Corning in the first quarter accelerate our market leadership in this important new technology. Once regulations are fully implemented in Europe and in China, we expect gas particulate filters to add $0.5 billion in annual sales for Corning. Moving to Gorilla Glass for auto, collaboration from more than 20 OEMs is increasing, and we expect additional and significant progress in 2018. Excitement about car interiors continues to grow; integrated and interactive displays are becoming a seamless part of the cabin end-user experience. Corning is helping OEMs with this transition because Gorilla Glass provides a durable, optically advantaged interface surface with tremendous economics. For exteriors, Gorilla Glass laminates are tougher and lighter than conventional auto glass plus the superior optical quality allows for larger and clearer head-up displays. We believe that our solutions provide compelling value, and we are investing to deliver as the industry transitions to highly connected and autonomous vehicles using Gorilla Glass. In our Life Science Vessels platform, we took another important step on the path to a new long-term multibillion-dollar franchise. Earlier this month, we announced the construction of a high-volume manufacturing facility for Valor Glass in North Carolina. Adding capacity was part of the plan we announced last July when we introduced Corning Valor Glass, our remarkable new pharmaceutical glass package insulation. Valor Glass dramatically reduces particle contamination, breaks, and cracks while significantly increasing throughput. Valor helps protect patients and improve pharmaceutical manufacturing. Our development partners, Merck and Pfizer, joined us at the North Carolina event, showing their ongoing support. We're pleased with the progress we've seen with pharmaceutical customers overall in recent months. We've completed various line trials, stability testing and other necessary steps to support adoption of Valor at multiple customers. In addition, we remain closely engaged with the Food and Drug Administration, which is committed to streamlining the introduction of new innovations so technology like Valor can reach patients quickly. We also continue to share details on the science behind Valor's technology. The team was recently recognized for a paper on particular generation on manufacturing lines. It won the Frederick D. Simon Award for the best technical paper published in the Parenteral Drug Association Journal in Pharmaceutical Science and Technology in 2017. We continue to believe Valor has the potential to power Corning’s growth through the next decade and beyond. In Display, we remain the global leader; our priority is to deliver stable returns and win in new display categories. We expect strong progress for our display business during the year. We're seeing the most favorable pricing environment for LCD glass in a decade. We expect to reach the important milestone of annual price declines improving to a mid-single-digit percentage in 2018. Additionally, we are bringing up our Gen 10.5 facility and improving the efficiency of our manufacturing assets. Our new plant in Hefei is producing the world's first Gen 10.5 glass and it is ramping on schedule and in tandem with BOE’s panel production. We're also taking advantage of the seasonally lower volume to upgrade more of our fleet with the latest process technology. As a result of all of our actions, we expect profitability to increase substantially in the second half of 2018. I think it's pretty clear. We're making terrific progress across all of our market access platforms. We are investing to capture opportunities and plan to deliver another strong year of sales and earnings growth. Ultimately, we remain on track to fully achieve our strategy and capital allocation framework goals.

Thank you, Wendell, and good morning. Our first quarter results provide a strong start to 2018. Our performance in each of our businesses met or exceeded our expectations. We continue investing to support near and long-term growth and to extend our market leadership. Our first quarter investments in capacity in operating expenses were in line with our plan and set us solidly on our way to delivering strong sales and earnings growth for the full year. We expect Q1 will be our lowest quarter in terms of sales, gross margin, and net income, and we remain confident that 2018 core sales will grow to approximately $11 billion. Now before reviewing segment results, I want to talk about the primary item affecting our GAAP results, mark-to-market accounting. As we discussed before, GAAP accounting requires earning translations hedge contracts settling in future periods to be mark-to-market and recorded at current value at the end of each quarter, even though those contracts will not be settled in the current quarter. For us, this resulted in an after-tax GAAP loss of $547 million for the first quarter. To be clear, this mark-to-market accounting has no impact on our cash flow. Our currency hedges protect us economically from foreign exchange rate fluctuations and provide higher certainty for our earnings and cash flow, our ability to invest for growth and our future shareholder distributions. Our non-GAAP or core results provide additional transparency into operations by using a constant currency rate, aligned with the economics of our underlying transactions. We're very pleased with our hedging program and the economic certainty it delivers. We received $1.6 billion in cash under our hedge contracts over the last five years. Now let's look at our results and outlook. For the first quarter, core sales were up 4% year-over-year and EPS was $0.31. As we expected, our planned growth investments constrained the gross and operating margin percentages in the quarter. The investments include capacity expansions for optical fiber and cable, our Gen 10.5 Hefei display glass plant, capacity for gas particulate filters, Gorilla Glass projects for mobile devices and for automotive, plus development for Valor and a few other projects that were not quite ready to dive into publicly. Across the projects, there is lots of progress. Our new cable facility opened in Newton, North Carolina; we are producing Gen 10.5 glass and we're shipping gas particulate filters. The start-up of these projects is suppressing display, optical communications and environmental technologies profitability in the short-term. As we exit the start-up phase, we'll see improved profitability. You'll see that in our financial results beginning in the back half of this year. Turning to the balance sheet, we ended the quarter with $3.1 billion of cash. With new flexibility created by U.S. tax reform, we brought $2 billion in cash back to the United States during the quarter and now have more than half of our cash here. Adjusted operating cash flow for the quarter was $396 million. Now let's look at detailed segment results and outlook. As Ann noted, we've updated the segment tax rate to 21%. Let's start with Display Technologies. Display's first quarter sales were $745 million and net income was $185 million. We're making great progress towards maintaining stable returns in display. Our results were in line with expectations; production at our new Gen 10.5 plant is on schedule and the pricing environment is the best it has been in a decade, first quarter sequential price declines for the best first quarter since 2010. Second quarter sequential price declines will be even less than the first quarter and the best price decline performance for second quarter we've seen in well over a decade. We expect to reach the important milestone of annual price declines improving to a mid-single-digit percentage in 2018. Three factors drive our view that this more favorable pricing environment will continue. First, we expect glass supply to continue to be balanced or even tight. Our new Gen 10.5 plant supports the expected growth of large-sized TVs. It is co-located with and dedicated to our customer BOE. We pace aligned capacity in tandem with BOE to ensure our Gen 10.5 glass supply is balanced to demand; the ramp is on schedule. We expect the glass supply-demand balance below Gen 10.5 to tighten further because demand continues to grow in 2018 but public information indicates there is little capacity growth planned in this segment by glass makers. Second, our competitors continue to face profitability challenges at current pricing levels. Therefore, we expect their price declines to slow further as they try to remain profitable. And third, LCD glass manufacturing requires ongoing investments in current and new capacity to support growth. To generate acceptable returns on investments, glass pricing will need to improve even further. Turning to glass volume, first quarter volume was down by low single-digit sequentially, in line with the market and normal seasonality. We continue to expect the LCD glass market to grow mid-single digits this year, as television screen size growth continues. We expect our volume to grow faster than the market as we ramp production in tandem with BOE’s Gen 10.5 demand in Hefei. TV demand is recovering from last year as lower panel prices from three quarters are having a positive impact on TV prices and demand is increasing. Reported retail sales for the first two months of 2018 support that view. And preliminary March numbers also look strong, and we expect TV retail demand to remain strong for the rest of the year. For the second quarter of 2018, we expect the LCD glass market volume to grow low single digits and our volume to grow faster as we ramp production in Hefei. In total, we feel good about price and volume. As we described last quarter, our first half is being affected by two factors. First, the Hefei facility start-up continues. As always during a plant start-up, fixed cost and staffing ramp ahead of production. And second, we're continuing to take advantage of the seasonally lighter volume in display and Gorilla to rebuild tanks and optimize the fleet with our latest technology. As we move forward, the utilization at the Hefei plant will increase and the fleet optimization will be completed. This will naturally improve productivity in gross margin in the second half of the year. In summary, we remain very pleased with the current dynamics in our Display business and our progress in maintaining stable returns. Let's move to Optical Communications. First quarter sales were $886 million, up 8.4% year-over-year, and net income was consistent at $109 million. Sales growth was driven by our data center and carrier businesses. Costs associated with our planned capacity expansions and related investments are keeping profits from growing with sales in the short-term. Committed customer demand supports the investments we're making and the new capacity we are bringing online. We expect second quarter sales to be up low teens year-over-year. For full year 2018, we continue to expect sales to be up about 10%. We expect profitability to improve in the second half as the new capacity ramps. We expect additional sales growth from closing the 3M communication markets division acquisition later this year. For your modeling purposes, think of it as closing in the middle of 2018. The transaction will add about $200 million in sales and be neutral to EPS in 2018 due to integration costs. As previously announced, we expect it will be accretive in 2019 and beyond. Stepping back, we're excited about the growth we're seeing in our Optical Communications business. Environmental Technologies’ first quarter sales were $322 million, up 17%. First quarter net income was up 18% to $52 million, driven by increased volume in auto and diesel, as well as improved performance in our manufacturing operations. As anticipated, the North America heavy-duty market continues the improvement that began in the second half of last year, driving 21% growth in our diesel sales for Q1. The worldwide auto market also grew in the first quarter. We grew faster than the market as we're winning additional business. In addition, our gas particulate filter business added sales as OEMs ramp for full adoption of Euro VI regulations this September. And we sustained our majority position of awarded platforms to-date with additional wins in the quarter primarily at OEMs preparing for China VI implementation in 2020. For the second quarter, we expect sales to be at high teens over last year. Full year 2018 sales should be about 10% driven by continued strength in auto sales, ongoing improvement in the heavy-duty diesel market, and from the GPF launch. In Specialty Materials, first quarter sales were $278 million and net income was $46 million. As expected, sales were down 7% and we expect a similar year-over-year decline for the second quarter. As a reminder, the amount of Gorilla Glass sales in any given quarter is mainly driven by the timing of supply chain builds in front of customer product launches. Taking a step back, our long-term goal is to double sales in Mobile Consumer Electronics despite a maturing smartphone market. We'll do that through innovations and we're seeing that play out again in 2018. We expect to see increasing shipments in year-over-year sales growth in the second half. As a result, we expect to build on the very strong growth in 2017 by growing again for the full year. The 2018 growth will depend on the timing and extent of new model launches and customer adoption of Corning's innovations, including the next generation of Corning Gorilla Glass, which remains on track for launch during the second half of 2018. We expect this to lead to strong earnings growth in the second half. In Life Sciences, first quarter net sales were $232 million and net income was $27 million, driven by strong demand. We continue to outpace market growth. Second quarter sales are expected to be up high single-digits over last year and full year 2018 sales at mid-single digits. So for 2018, all of our businesses have positive momentum, and we continue to expect full year sales of about $11 billion, which is up 7%. Now I'll share some additional outlook details. We expect the full year gross margin to exceed 41%, similar to 2017. We expect the second quarter gross margin to be consistent with Q1 as we continue investing for sales growth. In the second half of 2018, our investments, for example in the Gen 10.5 facility, gas particulate filter capacity and new fiber and cable plants will exit the start-up phase, and will also benefit from display tanks running with the latest technology. Quarterly gross margin should exceed 42% in the second half. Annual operating expenses should remain consistent with last year as a percentage of sales. For the full year, SG&A is expected to be about 14% of sales and RD&E about 8%. The slides we're showing give you additional detail for the second quarter and reiterate the full year outlook that we gave in January. We expect other income, other expense to remain at our first quarter run rate, generating a net expense of approximately $200 million for the year or about $40 million to $50 million in Q2. Full year 2018 total gross equity earnings are expected to be similar to 2017 at just over $200 million, predominantly from Hemlock Semiconductors, with the second quarter at approximately $30 million to $35 million, consistent with typical seasonality. And as a reminder, our tax rate should be between 20% and 22% for the year and for the second quarter. In 2018, we expect to spend slightly more than $2 billion on capital expenditures with programs in every market access platform. How much more will depend on how quickly we ramp some of our investments. We will continue to keep you posted as the year progresses. In closing, our first quarter results show we’re off to a solid start on the second half of our four-year strategy and capital allocation framework. Our expectations for a strong 2018 are unchanged, and we're on track to reach approximately $11 billion in full year sales with second half capacity and margin expansion. We expect continued growth in Optical Communications, Specialty Materials, Environmental Technologies, and Life Science segments. And as we said, the display pricing environment is the best in a decade, and we expect to reach the important milestone of year-over-year mid-single-digit price declines in 2018. Our progress on the framework included returning $953 million to shareholders in the first quarter of 2018 for a total of $10 billion since the framework's introduction. We're also investing to position businesses to meet short and long-term sales growth opportunities. Putting it all together, as we invest $10 billion to drive growth and extend our leadership, we are rewarding investors by returning more than $12.5 billion, which compounds the benefit of our future growth for long-term shareholders. With that, let's move to Q&A.

Thank you. I had a question just overall about the potential impact of the China tariffs on the business that you have there, and specifically with anything that's coming out of ZTE, how that affects your supply chain and whether there's anything we should be thinking about. I know the guidance is intact, but I’m wondering if there are any puts and takes to certain decisions that the company is making right now?

As the tariffs are currently outlined, because none of those have taken effect yet, but as they are currently outlined, we just don’t think it’s going to have much impact across our businesses. One of the things we looked closely at was in television sets, and as we take a look at that, really the supply chain, more than half of it is driven out of Mexico. So we just don't feel a lot of near-term impact from the tariffs. We'll keep you posted. We'll watch it closely, but so far so good.

And then if I could just throw in one more on optical fiber, can you just give us a sense of the relative growth rates data centers versus telecom and then some geographic color? I have been reading China may have a lot of fiber right now, just the balance of North America, Europe, and China for fiber demand.

Yes. I think from an overall standpoint, Joseph, in the first quarter our enterprises business grew about 10% and our carrier business grew about 8%. So similar growth rates between those two businesses; clearly for us, the North American market is very important and that's where we're seeing a lot of the growth from a carrier standpoint. But I think on a global basis, there is growth that’s also pretty significant in China. We don't experience it as much in North America, but that is – we're seeing growth in both places.

Thanks, good morning. So there's obviously a lot of moving pieces in going from the Q1 profit levels to the Q3 and Q4 profit levels. So I was wondering if, maybe, you could just sort of walk through the most important piece of that would create the swing factor in Q3 and then Q4 whether it’s top line or cost savings. How should we think about those developing based on what you've seen so far year-to-date? Thanks.

Sure. I would be happy to do that. It's really three major things that the first major item is in the Display business. Both the combination of the ramp of the Hefei facility and then demand in the back half, as the back half is seasonally stronger than the first half, drives probably the largest part of that step-up. The second area is in Optical Communications. And again, as we bring capacity online there for committed demand, we expect to see sales growth receive both at the top line and then at gross margin. And then the final area is in Specialty Materials where, as we've talked about, the back half with the various product launches is going to be much stronger than the first half. And then we're also introducing our next generation of Corning Gorilla Glass. And that impacts both sales and gross margin positively from a standpoint.

No, I think its demand as we get to the new product introduction is a big part of it. How much it ends up being will depend on the adoption of some of our technologies. But clearly we're – a lot of it’s driven by underlying demand and then also we feel very good about the introduction of our next generation of Gorilla Glass.

Yes, thank you for taking my question. One, my first question is for Wendell. You talked about aiming at doubling your mobile revenue over the next couple of years. Can you provide some more color on how you're going to hit these targets? What are the key variables that we should keep in mind, especially in the context of the maturing smartphone industry? And I have a follow-up for Tony. You talked about remaining on track to spend more than $12 billion for buybacks; where are we year-to-date? How much is left and what are the prospects for increasing the overall buyback budget? Thank you.

I think you have the question framed right. As we have presented it, we've always anticipated a relatively mature smartphone market. But we believe we could still double our revenue over the next several years due to the value of our new innovations. What really comes out is if you step back from a technical standpoint, if you look at the trends in smartphones, you've seen a tremendous need for increased RF transparency, increased optical functionality, and with things like facial recognition and many different areas that use the device as an image enhancer. So all these different things drive towards our core capabilities around three core technologies in four manufacturing and engineering platforms, if you link it with the terrific customer relationships we have. And that's what is giving us the confidence that we can continue to innovate and increase our revenue per device, even if the industry itself is relatively mature. So it really comes down to technical accomplishments lighting up with technical trends; calling the exact timing of that is never easy. But we're really encouraged by the interaction that we're having, and you've seen that happen over the last couple of years with our increasing revenue per device being driven by our new innovations.

And Mehdi, on the shareholder distribution question, if you recall we introduced our strategy in capital allocation framework, we committed to returning greater than $12.5 billion to shareholders. The first thing is we would increase the dividend by at least 10% a year, and in February, the board approved a 16% increase, in fact our dividends are up 50% since we originally introduced the framework. In addition to that, we said we will be opportunistic on stock buybacks and in total, we've returned about $10 billion since we introduced the framework, and a lot of those stock buybacks happened in the first couple of years where we're taking advantage of the fact that the stock was lower than its real value because investors didn’t understand the total level of growth that we have. And so we are on track to return more than $12.5 billion and we feel very good about that commitment.

Hey, good morning, Wendell and Tony. I'd like to hear your thoughts on the Optical Communications business. How it waterfalls through the rest of the year? When you talk to your big cloud customers, data centers, Telco, cable customers, what are they telling you in terms of their fiber build-out plans, CapEx spending? REITs have been trending better than expected even this morning from Verizon. So I’d like to get your thoughts from a viewpoint as well as from a seasonality viewpoint as we head into the back half. Thanks.

So as we look at it, demand for our products and our innovations has been exceeding our ability to supply, and as we bring on more capacity, we're going to be able to sell more. So as we think the pattern of revenues through the year, you're going to see a pattern of building strength quarter by quarter as that capacity comes online and we meet our customer's strong appetite for our products. What's behind that appetite is really a pretty simple thing, which is networks, be they wireline, be they wireless, or be they cloud-based are densifying. What that basically means is as we increase bandwidth, fewer people – fewer switch ports, etc., are sharing fiber, right? So that basically means it's taking you into the realm of sort of classification of networks equals densification of networks.

Hi, thanks very much. I was just wondering on the Gorilla Glass for automotive, may as well ask, from the – you mentioned more OEM wins, but if you look at the exterior opportunity, I mean you have the JV that you announced a while back, but we're sort of still waiting, or you're still waiting to announce, I guess, sort of building actual manufacturing capacity. Is that something we can, sort of, hope for as a milestone? Do you think this year just in terms of actually building a facility that we then have to wait for rebuilt? Or is it not just that one milestone? Is it more the interiors that you are looking to ramp in the near-term? Thanks.

Thanks, great question. It's both. I don't know where we are in public announcements so far on manufacturing, but I think it is reasonable for investors to expect that we're going to see a buildup of manufacturing capability for exteriors in Gorilla Glass. Of that exact timing, where the location is, how that's going to be integrated to take advantage of existing glazing capabilities, because all the stuff that we're really still working through. One of the areas where you should also look to increasing manufacturing capacity reflecting additional wins would be reasonable to expect we should be relatively soon having to capacitate the value add piece of that. We're doing the optical treatments, being able for these parts to take form. Both of those things, as we win more, we're going to have to move beyond sort of the supply chain that we have to develop customers as they now turn into customers who want commercial production and we start to drive real revenues in our automotive efforts. Those real revenues are getting closer and closer. So it's reasonable for you to expect we're going to start talking about how we're going to capacity to fill those.

Yes, thank you. I was wondering, if you can give us some sense on the year-on-year price decline in LCD glass. I appreciate your comments about it trending much better than prior years. But did we start the year mid-single-digit decline? Or was it more of a higher number than that? And we're also hearing of some increased pricing pressure coming from one of your competitors at one of the Korean customers as we've seen in the past. Just wondering if you had any takes on that? And I have a quick follow-up.

Yeah, I think if you remember Wamsi, the back half of last year is when we entered the year-over-year single digit price declines, and that's true in the first quarter and the second quarter. And what we're going to reach in the back half of the year is the mid-single declines. And again, we can't be more excited about this. This is the best pricing environment in a decade. And I think really reflects what we've been saying for a long time relative to supply and demand being balanced, where our competitors are from a profitability standpoint. If you're going to continue to invest in this business like you have to, you have to get returns on that. So from an overall standpoint, we're very happy with pricing, and I'm not going to make any comments relative to competitors.

I don’t know what our competitors are doing exactly, but we're closed on our contract in Korea. All of our closed contract pricing in Korea is reflected in the guidance and the comments that Tony just made.

Thanks Wendell and thank you, Tony. And if I could just follow-up. There is some talk of potentially in North America an LCD panel plant in Wisconsin that may be getting announced later in the year. Would Corning be open to building a glass melting facility? And would you require the same sort of economic agreements or maybe split of economics as the Hefei plant as you think about incremental investments? And Wendell, if I could just sneak in one more. Longer term can you just address your portfolio roadmap to address foldable phones that seem to be coming over the next two years? Thank you so much.

Sure, let’s deal with the potential of a U.S. LCD manufacturing plant first. Our strategy that we articulated a number of years ago was that we weren't going to put in new melting capacity for display unless we got out at least $2 out of every $3 from others and keep 100% of revenues and profits. We've done better than that with our recent capacity moves, in things like Hefei. We would apply that same rule to any LCD manufacturing anywhere in the world because we believe it's really important to preserve high returns on capital for our investors. And then if our customers want a leading player in the display industry to be with them, then they're going to need to subsidize that for our shareholders. So wherever anybody's going to build, we're going to apply that rule. Does that address your LCD in the U.S. question? Now let’s turn to foldable. As you know, we've been working closely with our customers on foldable displays for a very long time, both the display part then the cover part. So in the display part, that’s one of the reasons we fired up our glasses to help enable polyimide OLED displays. As you know, that uses more glass than an active matrix LCD and our share is very high. So to the extent that people use more of the polyimide OLED that's a small, but positive impact on us and it's small because the size is small. Now let's deal with the cover. So we're obviously highly engaged in any effort that needs a transparent and durable cover. The great dilemma is that to make a compelling form factor, you need to have a very tight bend radius. If not, you're better off just with how thin and large phones are today. To make one that folds that thin tends to take you to materials that are not highly durable. This problem is yet to be effectively solved; we can make foldable displays, but they tend not to be that compelling versus what you can have today. And if we try to make a very compelling form factor, they tend not to be durable enough. This doesn't mean that customers won't try to introduce some foldable products that aren't really durable; this happens a lot of times in the new technology area. But we're a long way from having really compelling product here. We'll continue to work on inventing something that can help enable this vision. We've been working on it. It's our problem; our customers and others are going to work on this problem. But in the end, I think a really compelling product is going to need a highly durable, reliable material that is transparent and that tends to bring it towards our field over time.

Thank you very much. I wanted to follow up on the Optical business and I know that in the past you've set a target of roughly $5 billion in revenue. Can you give us an update on how we're tracking towards that target? And how much you're expecting at this stage to come from organic growth versus future M&A that you may need to do to get to that target?

Yes. James, we're doing great against the target. I mean, we've had very significant growth last year, and we're expecting 10% growth this year. And we continue growing at that level and add on the acquisition that we've already announced of the 3M business, we get very close to the $5 billion. So I think from this point forward, we think that this is going to come from the strong underlying position that we have in this very significantly growing optical business.

Great. Well, I think we have run out of time today, so thank you all for joining us. Before we close, I want to let everyone know that we will be attending the J.P. Morgan Anniversary Conferences in May. We'll also be doing some virtual presentations and webcasts on business topics. Finally, the web replay of today's call will be available on our site starting later this morning, and there is also a telephone replay available for the next two weeks, and you can contact IR for those details. So once again, thank you all for joining us. Julie, that concludes our call. Please disconnect all lines.