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Welcome to the Corning Incorporated Quarter Four 2023 Earnings Call. [Operator Instructions] It is my pleasure to introduce to you Ann Nicholson, Vice President of Invest Relations.

Thank you, Shannon, and good morning. Welcome to Corning's fourth quarter 2023 earnings call. With me today are Wendell Weeks, Chairman and Chief Executive Officer; Ed Schlesinger, Executive Vice President and Chief Financial Officer; and Jeff Evenson, Executive 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'll 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. For the fourth quarter, the difference between GAAP and core EPS primarily reflected constant currency adjustments, realized gains and unrealized non-cash mark-to-market losses on translated earnings contracts and non-cash translation losses on Japanese yen denominated debt as well as restructuring and asset write-off charges. As a reminder, these mark-to-market accounting has no impact on our cash flow. A reconciliation of core results to the comparable GAAP value can be found in the investor relations section of our website at corning.com. You may also access core results on our website with downloadable financials in the Interactive Analyst Center. Supporting slides are being shown live on our webcast and we encourage you to follow along. They're also available on our website for downloading. And now, I'll turn the call over to Wendell.

Thank you, Ann. Good morning, everyone. Today we reported fourth quarter and full year 2023 results. Sales for the fourth quarter were $3.3 billion and EPS was $0.39, in line with expectations. Free cash flow was $0.5 billion. Gross margin was 37%, consistent with the third quarter despite lower sequential sales. As I shared with you last quarter, demand in most of our markets is temporarily depressed due to supply chain corrections and macroeconomic factors, therefore our sales are well below long term trends. Nevertheless, the actions we took to improve our profitability and cash flow generation throughout 2023 are evident in our financial performance. And based on detailed assessments, we are confident that we've extended our leadership positions across our markets While our current sales are below trend, we expect that to change in the midterm as our markets begin to normalize. This creates an opportunity for us to increase our sales by more than $3 billion when that happens. As we capture that growth, we expect to deliver powerful incrementals because we already have the required production capacity and technical capabilities in place and the cost is already reflected in our financials. The incremental profit and cash flow annuity created by increasing sales by $3 billion plus is a terrific opportunity for our shareholders, and we expect to start making progress towards realizing that opportunity in 2024. Now it's difficult to call the specific timing of a recovery, but we continue to see signs that it will occur in 2024. As a result, we expect the first quarter to be our low quarter of the year. So, that's a summary of where we are and how we seek to create value in the medium term. I'd like to provide some additional facts and perspective. At the start of 2023, we introduced plans to improve profitability and cash flow in this lower-demand environment. Throughout the year, we took action to restore our productivity ratios to historical levels and to raise price to more appropriately share inflation with our customers. I'm happy to report we delivered on our plans. When you look at our fourth quarter results on a year-over-year basis, the evidence of our progress is quite clear. We increased gross margin by 330 basis points and free cash flow by $110 million to $0.5 billion despite sales being down by more than $350 million. Our profitability and productivity improvements led to significantly improved free cash flow conversion and we expect to continue converting profit to cash at attractive rates going forward. Overall, our results in the quarter and throughout 2023 demonstrate that we continue to make solid progress advancing our market leadership, strengthening our profitability and improving our cash flow generation even in the lower demand environment we're experiencing. As a result, we're entering this year operationally strong. Now we intend to build on this strength. As I previously mentioned, we have an opportunity to increase our sales by more than $3 billion in the medium term. Let's take a deeper look as to why we believe this. I shared a bit of how we're thinking about Optical Communications on the last call. I'll start there again today because it's a significant part of our opportunity. We anticipate Optical Communications sales will spring back because we believe and our carrier customers have confirmed that they purchased excess inventory during the pandemic and that they've been utilizing this inventory to continue deploying their networks. We believe these carriers will soon deplete their inventory and execute on the increased broadband deployment plans they've communicated to us over the last several months. As a result, we expect them to return to their normal purchasing patterns to service their deployments. We also continue to expect speed funding for network builds in underserved areas to begin in the second half of 2024 and continue adding to our addressable market for several years. Additionally, we expect to grow hyperscale sales in support of the growing role of cloud computing and the need to build the second optical network necessary to directly connect the GPUs that drive artificial intelligence. Last quarter, I shared trend lines for fiber shipments, which showed that we are significantly below trend and outlined why we expect our sales to get back on trend. I'd now like to update you on progress during the fourth quarter. Here you see Corning's fiber shipments measured in fiber kilometers since the beginning of 2007. The trend line shows a 7.3% compound annual growth rate over the last decade compared to a 6.6% CAGR for industry fiber shipments over the same period. As I explained during our third quarter call, our fiber shipments in quarter one of 2023 were basically in line with expected market trends, but started to drop below our trend line in quarter two and even more so in quarter three, with our shipments more than 30% below trend line, primarily due to elevated carrier inventory levels. We now have another quarter of data to share. In the Q4, we saw a small uptick in fiber shipments, but they remain more than 30% below trend. More importantly, our regular sit downs with key customers indicate that they are deploying at a higher rate than they are purchasing as they continue to make progress on drawing down inventory. Additionally, they have plans to increase deployments in 2024. We look forward to updating you on takeaways from our next round of sit downs. We're also seeing encouraging signs in hyperscale. Overall orders grew in the fourth quarter and we're seeing the earliest edge of AI related network builds in our order books. Returning to trend adds more than 40% to our revenue run rate for Optical Communications and we are laser focused on doing just that. Beyond that, we expect the strong underlying growth trend to continue far into the future and our sales to grow faster than the market through more Corning innovations. Optical fiber remains the ascendant technology with growing applications in wireless, cloud computing including AI and broadband efforts to connect the unconnected. As those applications grow, we have new product innovations in each that will increase our revenue per installed fiber. Government incentives to ensure everyone has Internet access also extend the long term trend line. Display provides another example of how our sales will spring back. Retail sales During the fourth quarter selling season were softer than industry expectations. Panel makers responded by reducing their fourth quarter utilization levels. Additionally, industry reports indicate that panel makers plan to run at lower utilization levels in the first quarter as they continue to align panel supply to demand with fab shutdowns planned during the Lunar New Year holidays in February. For the first quarter of 2024, we expect the glass market and our volume to be down by a mid-single digit percentage sequentially. For the full year of 2024, our expectations are in line with the industry. We anticipate relatively flat television unit volume, another year of TV screen size growth, and some recovery in PC demand. Combined, this adds mid-single digit growth in glass volume at retail versus 2023. We expect panel maker utilization to increase after the first quarter to meet the expected retail demand. As a result, we expect our financial performance to significantly improve from our first quarter run rate. Longer term, we expect continued volume growth in retail to be mainly driven by television screen size growth as it has the past several years and for some improvement in units as consumer demand normalizes. Well, we expect to win in this market because we are the undisputed technology leader. Our successful development and capability in Gen 10.5 aligns with the continued move to larger sized TVs produced on the lowest cost platforms for large displays. Life Sciences is another segment where market normalization contributes significantly to our expected growth. Customers in North America and in Europe are completing their inventory drawdowns. We are continuing our productivity and operations improvements, and we're refocusing our commercial and production efforts on drug discovery and production as the market returns. We also continue to evolve our products and business model for vials in our pharmaceutical technologies business. In addition to markets returning to normal, we continue to execute our more Corning content opportunities across the company. In Mobile Consumer Electronics and Automotive, we see more Corning as the primary growth mechanism. Let's look first at Mobile Consumer Electronics. Since 2016, handhelds have declined 21%, while our sales of Gorilla Glass have increased 41%. Now, we've done this by advancing the state-of-the-art for cover materials. And this is just a classic more Corning play. We have a strong innovation portfolio in support of our close collaborations with leading OEMs. And we expect to continue delivering new products that increase our content per device. You saw a great example of this earlier in January in our announcement with Samsung about Corning Gorilla Armor, which dramatically enhances sunlight readability and scratch resistance. Extreme ultraviolet lithography, or EUV, a market we serve with our advanced optics products, is another great, more Corning opportunity. We are the market leader for the photo mask and mirror materials of choice for GPUs and other advanced semiconductors. In automotive, proposed US EPA regulations would require adoption of gasoline particulate filters and provide an incremental driver of demand for our market-leading GPF offerings. In terms of more Corning, GPF adds two to three times the content opportunity in ICE vehicles. This would mean significant growth in our environmental business, even in the face of global BEV adoption. Additionally, we're winning both interior and exterior auto glass business, as customers increasingly view our solutions to be system enabling components. As I wrap up, here's what I'd like to leave you with. A majority of our markets are operating below trend. And as a result, our 2023 full year sales are down from the prior year. In this lower demand environment, we have successfully taken actions to improve our profitability and cash flow, and we believe we have extended our leadership positions across our businesses. We are confident that our markets will normalize. And as they do, we have an opportunity to increase our annual sales by more than $3 billion. As we capture that growth, we expect to deliver powerful incrementals since the required capacity and technical capabilities are already in place and the costs are already in our financials. This represents a terrific opportunity for our shareholders. We expect to make progress on this opportunity in 2024 and we believe the first quarter is our low quarter of the year. While it's difficult to call this specific timing of a recovery, we will continue our regular engagements with our large optical customers to review their recent deployments in detail and better understand their plans for deployments in 2024 and beyond. Following the Lunar New Year, we'll have similar meetings with our display customers. And we look forward to updating you in the next few months at investor conferences on our learnings and our progress. As I conclude, I'd like to remind you that the essence of what we do here at Corning is invent, make, and sell. We drive durable multi-year growth by inventing category defining products, developing scalable manufacturing platforms, and building strong trust-based relationships with our customers who are the leaders in their industries. Now, I'll turn the call over to Ed, so that he can get into the details of our results and our outlook.

Thank you, Wendell, and good morning, everyone. I will start by summarizing a few key takeaways and then I'll move to the fourth quarter results. Our full year sales were $13.6 billion, down 8%, reflecting our markets being well below long-term trends. Despite the lower sales, we improved profitability and cash flow by restoring productivity ratios back to historical levels and offsetting inflation by raising prices. As a result, in the fourth quarter of 2023, we expanded gross margin by 330 basis points versus the fourth quarter of 2022, despite sales being down by more than $350 million, and we grew free cash flow sequentially every quarter from first quarter levels. As you heard from Wendell, we have an opportunity to increase our sales by more than $3 billion in the medium term as our markets normalize. And we have in place the necessary production capacity and technical capabilities to service that growth. Our operations and finance teams are collaborating closely on processes and tools to ensure that we capture the growth and operating leverage required to deliver significant incremental profit and cash flow. We expect to make progress during 2024. Moving to fourth quarter results. Sales were $3.3 billion, gross margin was 37%, EPS was $0.39, and free cash flow was $487 million. Now, let me provide some details on our segment results. In Optical Communications, sales for the fourth quarter were $903 million, down 2% sequentially, primarily reflecting temporarily lower demand from carrier customers as they continued to draw down inventory. Net income for the quarter was $88 million, down 3% sequentially on the lower volume. Longer term, we remain confident that Optical Communications market will normalize. We believe that the industry's underlying growth drivers are intact, specifically broadband, 5G, cloud computing, and advanced AI. We will also benefit from public infrastructure investments to help connect the unconnected and bring broadband to a much larger share of the US population. And from an order rate perspective, we are beginning to see green shoots in the hyperscale data center space. Moving to Display Technologies, fourth quarter sales were $869 million, down 11% sequentially. The remainder of our second half price increases partially offset a sequential volume decline that was consistent with the market. Results -- retail results during the fourth quarter selling season were softer than industry expectations. Panel makers responded by reducing their fourth quarter utilization levels. Additionally, industry reports indicate that panel makers plan to run at lower utilization levels in the first quarter as they continue to align panel supply to demand with fab shutdowns planned during the Lunar New Year holidays in February. For the first quarter of 2024, we expect the glass market and our volume to be down by a mid-single digit percentage sequentially. For the full year of 2024, our expectations are in line with the industry. We anticipate relatively flat television unit volume, another year of TV screen size growth, and some recovery in PC demand. This adds mid-single digit growth in glass volume at retail versus 2023. We expect panel maker utilization to increase after the first quarter to meet the expected retail demand growth. As a result, we expect our financial performance to significantly improve from our first quarter run rate. Moving to pricing, we successfully executed a double-digit price increase at our customers in the second half of 2023. We expect the pricing environment to remain favorable with glass supply balanced to demand as display glassmakers reduced capacity in 2023. We expect our Q1 2024 glass prices to be consistent with Q4 of 2023. In Specialty Materials, sales in the fourth quarter were $473 million, down 16% sequentially, following strong third quarter sales of our smartphone cover materials in support of customer product launches. Net income was $58 million, down 19% sequentially, reflecting the lower volumes. In Environmental Technologies, fourth quarter sales were $429 million, down 4% sequentially, reflecting normal seasonality. Net income was $98 million, consistent sequentially. For the full year, sales increased 11% to $1.8 billion, outpacing the automotive market recovery. Our content-driven growth strategy and increased GPF adoption due to mid-year implementation of China 6b regulations led to our outperformance. In Life Sciences, sales in the fourth quarter were $242 million, up 5% sequentially. Customers in North America and Europe are completing their inventory drawdowns. Additionally, productivity improvements allowed us to improve service levels to better supply the market as it normalizes. Net income improved sequentially to $17 million, up 31%, resulting from higher volume and productivity improvements. Turning to Hemlock and Emerging Growth Businesses, sales in the fourth quarter were $356 million, up 9% sequentially, primarily reflecting higher semiconductor polysilicon volume. Now let's turn to our outlook. We expect sales in the first quarter of approximately $3.1 billion. We expect EPS in the range of $0.32 to $0.38. The improvements we made in profitability and cash flow will continue to deliver benefits in 2024. We expect gross margin in the first quarter of ‘24 to be similar to the fourth quarter of 2023, despite lower sales, and to improve first quarter free cash flow by $200 million to $300 million versus the first quarter of 2023. We expect the first quarter to be our low quarter. We believe we are going to grow from these levels for the following reasons. In Optical Communications, we expect carriers to complete inventory drawdowns and increase deployments throughout the year. We also see orders increasing from hyperscale data center customers. In Display, we expect panel maker utilization to increase from first quarter levels to meet expected full year retail demand. In Life Sciences, we expect markets to continue normalizing. And we plan to deliver more Corning content opportunities in mobile consumer electronics and environmental technologies. Now, I'd like to take a minute to address currency exchange rates. As a reminder, we have actively hedged our foreign currency exposure over the past decade. This serves as an effective tool to reduce earnings volatility, protect our cash flow, enhance our ability to invest, and protect shareholder returns. We're very pleased with our hedging program and the economic certainty it provides. We have received more than $2.5 billion in cash under our hedge contracts since their inception. Our largest exposure is the Japanese yen. As we've previously shared with investors, we have most of our 2024 yen exposure hedged. We plan to keep our yen core rate at [JPY107] (ph) through the end of 2024. As we look ahead, we are actively working to improve our hedge coverage for 2025. The yen forward curve works in our favor. If you go out one year, the forward yen rate is about JPY7 stronger than today's spot rate. Out two years, it's about JPY12 stronger and so on. Also, the current yen spot rate is significantly weaker than the 30-year average of approximately JPY110. So we believe there will be an opportunity to place additional long-term hedges at more attractive rates. And in combination with hedging, we can institute an industrial solution, like pricing increases for display glass, the first step of which we took in 2023. So that's how we think about it. It will either solve in the currency markets in a reasonable timeframe or will move to an industrial solution. Now before I wrap up, I want to spend a minute on our priorities to maintain a strong and efficient balance sheet and return excess cash to shareholders. We ended the year with $1.8 billion in cash. We've created one of the longest debt tenors in the S&P 500. Our current average debt maturity is 23 years, with only $1.4 billion in debt coming due in the next five years, and no significant debt coming due in any given year. And essentially all of our debt instruments are fixed rate. Additionally, we prioritize returning excess cash to shareholders. We have consistently done this including throughout the pandemic. And one of the ways we do that is through dividends. We have grown our dividend 40% since 2019, and our dividend yield is top quartile in the S&P 500. We will propose that our board maintains a quarterly dividend of $0.28 in the first quarter and we will continue to be opportunistic on share repurchases. Now, here's what I want to leave you with today. We are entering the year operationally and financially strong. We expect the first quarter to be the low quarter of the year. We have an opportunity to capture $3 billion plus in sales over the medium term as markets normalize and we capture more Corning content opportunities. As we do, we are positioned to capture significant incremental profit and cash flow because we have the capacity and capabilities in place and the costs are already in our financials. I look forward to updating you on our progress. And now, I will turn things back over to Ann.

Thanks, Ed. Shannon, we're ready for our first question.

Thank you. [Operator Instructions] Our first question comes from the line of Mehdi Hosseini with SIG. Your line is now open.

Yes, thanks for taking my question. I joined the call late. So I apologize if you already covered this on the prepared remarks, but can you give us an update on the CapEx clearance for this year? And how you see your cash flows are shaping up throughout the year? And to what extent, when should we expect the company to become more active in buyback program? And I have a follow-up.

Sure. Thanks, Mehdi, for your question. So first of all, we expect our CapEx in 2024 to be about $1.2 billion below our 2023 levels. As we mentioned, we have the capacity in place to deliver what we expect to be a significant sales opportunity. So we don't necessarily need to add a lot of CapEx. With respect to cash flow, what I shared was that we are guiding Q1 to be about $200 million to $300 million better than the prior year, better than Q1 of 2023. And we expect to continue to make progress on profitability and cash flow as our sales come back. And then I think your last question was around buybacks. Okay, yeah. So, we, of course, we always prioritize in returning cash, excess cash, to shareholders, and we will continue to look to do that through both our dividend and buybacks. I don't have anything specific to report right now on buybacks.

Okay. Sorry for multi-part first question, but just if I may quickly squeeze the second question. In the optical business, have you seen any change to increasing broadband access? Is there any update on the BEADS program you can share with us? Or BEADS contribution?

So we continue to expect BEAD funding really to start to translate into demand, the beginning of it, sort of late this year. They are progressing with awarding the grants and it will just take a bit for those to turn into real programs. So we expect sort of late this year.

Got it. Thank you.

Thank you. Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is now open.

Yes, thank you. I was wondering, Wendell, if you could characterize sort of midterm as you think about the $3 billion opportunity that you're talking about incrementally. And can you give us some sense of how you see that opportunity across your segments? Sounds like you're -- probably most of that is going to be optical, given the magnitude of inventory correction there, but would love any color you can share on that.

Sure. Thanks, Wamsi. So, as you would expect, we expect the market to normalize at a different rate depending on the market. And then we expect our more Corning pieces to come in, in timing with the particular innovation. So those will have some markets that will begin this year. And we'll have some which will make even more progress as time goes on. When we say midterm, by and large we mean that within the next three years that we will see all of it, right? But we'll start to see it beginning to happen sooner in different markets. Does that make sense, Wamsi? Is that responsive to your question?

Yeah, yeah, that's helpful. And, Wendell, just -- is there -- would you say that the off the $3 billion incremental, half of it is optical, more than that is optical? How would you define sort of how do you can break that out across your segments?

Okay. So it's a little harder to answer that because the actual opportunity between our markets returning to normal and our more Corning activities is larger than the $3 billion. So -- and then we discount back to what we're talking to you about, right? And so therefore, when you do the relative shares, it gets non-trivial to figure out. But I think, Wamsi, your fundamental grasp that the biggest individual mover will be that 40% up opportunity in optical, I think your own thought processes here are really solid.

Thanks, Wendell. Sorry, if I could just ask one clarifying question…

Sure.

…on your comment around price or Ed’s comment on price as a lever to offset potentially the currency movement. You've done a great job using your contracts with some of your customers on display such that you've been a price taker and it's kind of eliminated a lot of the price competition for share reasons. Should we think that that regime has sort of ended and now we're in a new regime where you are willing to force pricing and not be a price taker anymore? Thank you.

So, I'm not positive I understand your question, but let me tell you how we tend to think about pricing and display. And it really sort of ties back to Ed's commentary around the yen. You've seen us do in really across our whole platform that we have sought to share inflation more appropriately with our customers. And that has led us to be a price increaser across our company and that has helped us improve our profitability. In display, we've been doing that. Perhaps more importantly is almost the reverse of that. What has happened with the yen being so well below, at sort of 130 year -- I mean it’s a 30-year average, is that our customers are getting a lower price real in yen, right, while they sell in dollars. And we're fundamentally seeking to share that more appropriately with our customers. And so what we say is like, either the yen will come back sometime here in the reasonable point of time, right? Or we will raise price to provide an industrial solution to have us be in a position where we can continue to earn the appropriate return on our invested capital in display that our shareholders expect rightly. So what Ed's commentary there on pricing has to do with is really tying around the totality of that situation and how our customers experience their price since we price in yen. Does that make sense to you, sir?

Yeah, yeah it does, Wendell. Thank you so much.

All right, next question.

Our next question comes from the line of Asiya Merchant with Citi. Your line is now open.

All right, thank you for taking my question. On optical, if I may, it seems like there was an order uptick or some sort of a demand uptick that you mentioned in 4Q. If you could drill down one more into that, if that was from your service provider or cloud customers? And then looking ahead into 1Q, what should we be expecting for optical here better than seasonal trends? And again, if you could drill down if you're seeing that from your service provider or cloud customers, thank you.

Thanks, really excellent question. So first, that tick-up you see, right, in our data, isn't big enough yet for us to go, oh yeah, it's happening the way we expect. Right? It's encouraging, but it's too small for us to over-conclude something analytically. Anecdotally, the conversations with our customers and what we can see from their data is that they are deploying at higher rates for carrier customers, to get to your question of where is it. They continue to deploy in those numbers at higher rates than their purchases. So they continue to draw down numbers in that piece. I think the other -- now moving beyond just that fiber shipment data, right, what else are we seeing? We are beginning to see the tick up already in hyperscale in our order book, not yet in those shipments that you see in that data. So there's an area where we're starting to get nice confirmatory to our anecdotal understanding of what will need to happen with these new Generative AI networks. And we're seeing sort of the cloud and the beginning, the leading edge of that second optical network that will need to get built to do these Generative AI programming. So that is what we're seeing in more of the detail. It's just too early yet for us to over-conclude and call timing. We'll know more in the coming months. Ed and Jeff and Ann are out there speaking with you all, they will make sure they share as we learn more. Does that work for you?

Yeah, great. And if I may, on display as well, I think it's tough to call when these panel makers come back with their utilization levels off of the 1Q down tick that you guys have talked about and I think the industry has talked about. But if the retail volume happens to be, let's say, mid to high single digits from a glass perspective and you're already starting the year with healthy inventory levels, is it reasonable to assume, like a, sharp snapback in 2Q and 3Q? Any color there would be helpful. Thank you.

Yeah. Asiya, I'll take that one. And I won't give you a specific quarter. I think that's hard to call. But if you think about the Q1 panel maker utilization levels and a mid-single digit glass market for the year, you would need to see a double digit increase from their current levels in Q1 to achieve that glass market. And even if the glass market were lower than that, let's just say even flat, you would still need to see a double digit increase from their Q1 level. So I think the answer to the sharp part of your question is yes, the timing is obviously harder to call.

Okay. Thank you.

Next question.

Our next question comes from the line of Meta Marshall with Morgan Stanley. Your line is now open.

Great, thanks. Maybe doubling down on Wamsi’s question, just around whether you've seen with the pricing increases on the display business, any changes in share or has it largely played out as expected? And then maybe just second question, on the gross margin stability that you expect into Q1, is that from kind of efficiencies that you found in the business over the last year that are just starting to play in or kind of the pricing increases on the display business or is that from a mix of the business? Just how to think about that stability in Q1 over Q4? Thanks.

Yeah, hi, Meta. I'm going to -- I'll start with your second question on gross margin. So I think if you think about what we've done throughout ‘22, we improved our productivity across all of our factories significantly and back to historical levels, best demonstrated levels. That's improved our gross margin. We've also raised prices and we're now sort of right side up versus inflation. So that's improved gross margin. And we've certainly taken out some costs as well. So we're able to run at a much more efficient level, even at a lower volume, in a lower volume environment. That's allowed us to hold our gross margin, and we're also managing OpEx well, so that actually helps on the operating margin line. And that's what's allowed us to increase gross margin through the year despite sales falling, and that's why we feel confident around the gross margin or operating margin or both as we go into 2024. And I apologize, can you repeat the first question?

I understood the first question. I think what...

Yeah, just share on...

Did our price increase lead to a disturbance of our market position. And we see no significant change in our market position as a result of our pricing actions to share more appropriately where the yen is at and where inflation is at.

Great. Thank you.

Next question.

Our next question comes from the line of Martin Yang with Oppenheimer. Your line is now open.

Hi, good morning. Thank you for taking our question. First question on display. Have you ever done an analysis similar to the chart that presented optical fiber thinking of a normal trendline for display volume in relation to current weakness on retail, particularly in China? China has been weak for quite a few years now. Are we significant below the trend line if there is such a more normal retail demand?

So, excellent question. The answer is yes, we have done those. And we'd be happy to share this. We'll put that on our list to at some point in time this year. To be a little more responsive to the specifics of your question, China is just behaving a little differently than what you would normally expect on display demand as a country goes through its development cycle. And you are right, it seems to be net underperforming. We are not counting on, in the dialogue that we've been having with you about the $3 billion spring that we have. We are not counting on China “sort of” reverting to a more traditional demand cycle. We're continuing to expect that to be relatively below trend for the foreseeable future. Does that make sense to you, Martin?

Yeah, definitely. Thank you. Another question on specialty, given that the semi-exposure within specialty has been pretty strong, has that changed that segment's seasonality a little bit, where it was more exposed to smartphone cycle, and now do you think that has shifted a little bit?

I still think that the biggest thing that drives the seasonality or the different demand in different, I don't even know what to call it, seasonality, the different demand in different quarters is major product launches. And also major product launches not only of our customers, but also of us introducing a major new category defining product. And any sort of real analysis of this sort of points to it's the product, right? So I don't know that we can over-conclude much beyond that yet, Mark.

Got it. Thank you. That's all from me.

Great. Thank you. Next question.

Our next question comes from the line of Samik Chatterjee with JPMorgan. Your line is now open.

Hi, thanks for taking my questions, and thanks for all the color today on the call. Maybe just the way I'm interpreting your comment about the $3 billion opportunity that you have in front of you is, let's say hypothetically the markets do recover by 4Q of this year, your exit run rate on a quarterly revenue would be somewhere close to $4 billion. And maybe just help us sort of then range bound some of the sort of the revenue opportunities here in terms of if you don't see a macro improvement by the end of the year, what is sort of the exit run rate for the year if you just have the seasonal improvements that you've talked about from 1Q onwards without a material macro improvement that hopefully gives us some sense of where the potential outcomes are here in terms of exiting the year? And then a quick follow-up, I guess, Wendell you mentioned BEAD a few times and the visibility here that it starts late in 2024. One of the suppliers reporting this morning as well is pushing out some of that expectation to early 2025, saying things are looking a bit more delayed than usual, just any more color on what's sort of driving the confidence that it's more 2024 than 2025. Thank you.

Thank you. I think perhaps, my emphasis was a little wrong in talking about BEAD. We expected to start, this is what I was trying to say, it's not going to be a big mover in 2024. I think your understanding is correct. It starts to become a much bigger mover in 2025. So if I created any dissonance with that understanding that you had, I didn't mean to. I think you have a correct understanding of it. It's just that it actually, it has been not there and now it's going to be there beginning in 2024. But the bulk of it starts after that.

And, Samik, I'll take the first part of your question. I want to start by just talking a little bit, we did it in our prepared remarks and then a little in Q&A, on the drivers of why we grow and why we think our first quarter is the low quarter. I think in optical, as carriers continue to deplete their inventory, that will come to an end, even if they don't increase their deployment rates, which we think they will, but even if they don't, that is a good demand driver for us that will start at some point this year. Okay? In display, we talked about panel maker utilization being really low in the first quarter and needing to sort of spring up from that level quite significantly. And then in Life Sciences, we're seeing market normalization in North America and Europe and we actually started to see a little bit of that happening even in the fourth quarter, right? So those drivers, we expect to bring our run rate up significantly as we go through the year. The timing is really hard to call. And so I think sitting here today, I would not want to leave you with a specific guide for the fourth quarter or how we exit the year, but just that we believe Q1 is the low. And if we got to levels like you spoke about, okay, that'd be awesome. And we would be well on our way to that $3 billion that Wendell talked about. But even if we don't, we still feel very confident in that window of time that Wendell shared earlier. Does that help?

Yes, no, thank you. Thanks for the color. Thank you for taking the questions.

Thank you. Our next question comes from the line of Josh Spector with UBS. Your line is now open.

Yeah, hi, good morning. Two quick ones. First, just on the FX side of it, understanding you're hedging at a lower spot rate today when you look out to ‘25 and you have some industrial options. Is there really a timing or milestone we should be looking at, at some point this year where you would know what the impact might be in 2025, be it you're doing some pricing action, you have hedging locked in, and then you might communicate what that impact would be to us?

Yes.

You're not willing to share roughly what that timing would be?

I thought you'd take yes.

I'll push a little further.

Yes. And no, we're not going to share what timing we will.

All right, fair enough.

It's too involved with our customers. I'm not being non-responsive. That's why I really do think that yes is about right. This is super important with our customers. And so we want to get that pretty well advanced and have a high confidence of where we're going to end up before we share that with our shareholders, right, so that we can make sure we're as accurate as possible. And that's -- so I'm not going to give ourselves an exact timeline, but this year, you can expect us to do that.

Got it. Appreciate that. And just quickly on free cash flow, in the first quarter your guidance of up a few hundred million, it would seem that's a pretty low bar given that there was about $0.5 billion of working capital use last year and your expectation on margins are relatively flat. So are there any offsets we should be considering in the first half of the year that maybe make that a little bit less favorable from what we could see otherwise?

I don't think so. I think we expect to have a nice year on free cash flow for the year. Nothing specific I would call out.

Okay. Thank you.

Okay. We can do one more question.

Our last question comes from the line of Matt Niknam with Deutsche Bank. Your line is now open.

Hi, thanks for squeezing me in. I'll keep it fairly brief. On the $3 billion incremental sales opportunity, maybe for -- a question for Ed, can you just walk us through the incremental growth and operating margins this would come in at? And is it safe to assume there's minimal incremental CapEx here? I’m just trying to understand, is this more opportunity to scale past existing OpEx or is there a gross margin accretion opportunity as well? And then this may be a more open-ended question, but on the macro relative to the last call three months ago, maybe for Wendell, any material changes in customer demand or spending plans across key verticals, i.e., what's really changed would you say, if at all, over the last three months in terms of customer demands or customer conversations you're having? Thanks.

Yeah, I'll go first, Matt, on your first question. So I'll start off with, we have the capital in place or the capacity in place to deliver the sales. So first, from a cash flow perspective, typically we would add CapEx as we add sales. So that's a positive for free cash flow as we go forward. We also have the depreciation in our P&L for those assets. And then we also have some fixed cash costs that run through our P&L to support those assets. So generally speaking, the fixed costs are already in our P&L. So you would expect our gross margin to accrete at a higher level than our current gross margin level. So that's one operating leverage point or leverage point, if you will. And then I think on OpEx, we can also grow without adding OpEx much from these levels and that creates a second leverage point for us. So that should accrete both gross margin and operating margin from our current levels, and you should start to see that as the volume comes back.

On your question of, in our discussions with our customers, sort of what are the anecdotals, and it's a really good question because sometimes highly quantitative analysis and data points one way and anecdotal evidence points the other, right? And in those situations, that's telling you, there's dissonance there and how do we dive deeper to make sure we have the right data set and how do we create an understanding of those things that are pointing differently. In this case, what we're seeing is the anecdotals are in support of what we're seeing in our deeper analytics in our understanding of being well below our long-term trends and a need for that to revert back towards those underlying huge secular trends that drive our demand over time. So basically reinforcing the opinion of the data. And that is what we tried to reflect in what we discussed with you today.

Very helpful. Thank you both.

Thanks, Wendell. Thanks, Matt. Thank you everybody for joining us today. Before we close, I wanted to let you know that we'll be attending the Susquehanna Financial Group 13th Annual Technology Conference on March 1st and the Morgan Stanley Technology, Media & Telecom Conference on March 5th. In addition, we will host management visits to investor offices in select cities. Finally, a replay of today's call will be available on our site starting later this morning. Once again, thank you, and operator, you can disconnect all lines.