Ann Nicholson - VP, IR Jim Flaws - VC and CFO Wendell Weeks - Chairman and CEO.

Mehdi Hosseini - FIG Amitabh Passi - UBS Mark Sue - RBC Capital Markets Wamsi Mohan - Bank of America Merrill Lynch Patrick Newton - Stifel Nicolaus George Nader - Jefferies Simona Jankowski - Goldman Sachs Ehud Gelblum - Citigroup Brian White - Cantor Steven Fox - Cross Research Rod Hall - JPMorgan.

Ladies and gentlemen, good morning. Thank you for standing by and welcome to the Corning Incorporated Quarter One 2014 Earnings Results Conference Call. (Operator Instructions) And as a reminder, today's conference is being recorded. At this time it’s my pleasure to turn the conference over to our host, Division Vice President Investor Relations, Ms.

Ann Nicholson. Please go ahead..

Thank you, Tom. And good morning. Welcome to Corning's first quarter conference call. With me today is Wendell Weeks, Chairman and Chief Executive Officer; and Jim Flaws, Vice Chairman and Chief Financial Officer.

Before we begin our formal comments, 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 remarks involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially.

These factors are detailed in the company's 2013 10-K report. You should also note that this presentation contains a number of non-GAAP measures. Reconciliation can be found on our website. Now I’ll turn the call over to Jim..

Thanks, Ann. Good morning everyone. I’d like to begin today by looking back at what we said at our Annual Investor Meeting in February, regarding our plan for 2014.

We said we wanted to continue the positive momentum in display, work to quickly integrate CPM in Korea in order to realize synergies, gain further cost advantages and increase our flexibility of glass supply.

We want to grow sales and profits and optical communication, especially environmental life sciences driven by the growth in their end markets and their operational improvements. And finally, we wanted to executive $2.5 billion of share repurchases. I am very pleased to say we’re off to a great start in delivering this plan.

In the first quarter, we closed on a CPM acquisition and launched integration activities. There are some combinations with improved manufacturing efficiencies resulted in improved gross margin performance and the realization of synergies in display. We executed customer negotiations for lower priced declines on LCD glass for the second quarter.

We grew the company's core sales with optical communications and environmental exceeding expectations. We continued our strong control of operational expenses.

We grew our core NPAT and EPS by 7% year-over-year, and we executed $1.25 billion accelerated repurchase program and also repurchased shares in the open market to retire a total of nearly 99 million shares during the first quarter.

In summary, we had broad based contributions to our first quarter performance and we look forward to gaining momentum as the synergies from CPM bill and as acrylic grows, allowing us to get greater year-over-year gains. Now let's delve in to the first quarter details.

As a remainder, we’re providing core performance results in order to exclude non-performance related items and increase the transparency of our operating results. Core financial measures are non-GAAP financial measures and we continue to report our GAAP results.

You’ll find detailed reconciliations on our website, outlining the differences between these non-GAAP measures and the most directly comparable GAAP measure. First quarter sales were $2.4 billion up 32% versus last year increase driven largely by the consolidation of CPM sales.

Gross margin was 44% up year-over-year and sequentially, but slightly lower than our original expectation of almost 45%, this was due mainly to lower sequential volume growth of LCD glass versus our expectations. LCD glass volume was down mid-single digits sequentially, more than our original forecast due to a technical issue at one customer.

We’ll have more on that in a minute. SG&A and R&D spending were higher year-over-year in absolute dollars driven by the consolidation of CPM, but lower as a percentage of sales. Gross equity earnings of 61 million were down 66% year-over-year driven by no longer having the equity earnings from a CP after completing the acquisition.

Dow Corning equity earnings were up 40% year-over-year and I’ll walk through that in more detail shortly. Our effective tax rate was 20% which is now what we expect our rate to be for the full year. EPS was $0.31 up $0.02 over a year ago and $0.01 better than $0.02.

During the quarter, we completed our 2 billion share repurchase program than we had announced in April 2013 and started repurchasing under a new 2 billion share repurchase program associated with the CPM acquisition. As part of the new repurchase program we launched 1.25 billion accelerated stock repurchase program.

Since the announcement of the SEP transaction we repurchased enough shares to offset the impact on fully diluted EPS of the shares embedded in the convertible preferred stock issued to Samsung. Now let’s look at the detailed segments results and I’ll begin with display.

Display sales were $1 billion in quarter one, a 55% increase versus last year driven by the additional sales from an now consolidated operations in Korea, Corning Precision Materials. Q1 price declines were higher than Q4 as we had expected, driven by a specific situation that we described in our January earnings call.

Sequentially volume was down mid-single-digits a little softer than we had expected driven mainly by a technical issue at one customer in Korea. Our volume growth was lower in the quarter than the overall LCD glass market due to this issue, but we expect to reverse in Q2 as glass volumes returns to previous levels at this customer.

For the full year we expect our volume growth to be in line with the worldwide market growth and as we expect our worldwide share will remain stable, compared to last year on a full year basis. Gross equity earnings from our equity venture in Korea SCJ were immaterial. Gross margins improved in display driven by the CPM consolidation.

Net income was down 4% year-over-year reflecting the impact of a larger price declines and the delayed volume due to the technical issue at a Korean customer. On the supply chain front, we estimate the inventory into the quarter of approximately 17 weeks, and is spread fairly evenly along the supply chain.

This is in a range we consider healthy and reasonable and I’ll talk more about the industry in our outlook section shortly. Now turning to optical communications, Q1 sales were 593 million, up 26% versus last year and better than we expected. Sales for carrier networks were stronger than expected in North America and EMEA.

Sales of fiber-to-the-home and data center products were very strong in North America. All businesses and regions contributed to the year-over-year growth with the exception of fiber sales in China. Net income was up 11%, a little lower than sales growth due to pricing mix and lower fiber production levels this quarter versus the quarter one of 2013.

The environmental Q1 sales were $275 million up 21% versus last year and better than we had expected. New regulations in China and Europe as well as a pickup in U.S. order show strong heavy duty diesel sales. Light duty diesel and auto sales were also up versus last year.

Net income was up 59% on the higher volumes, our focus on manufacturing in past over the last few years allowed us to convert the sales volume into strong incremental profits. We are delighted with the strong financial performance in environmental.

Special material sales for the quarter were up slightly year-over-year as expected while Gorilla Glass volume grew high single-digits year-over-year, we experienced larger than usual price declines in Q1, the order renew key annual supply agreements, maintaining our market position. Pricing is expected to return a moderate declines in Q2.

Net income in Q1 was down year-over-year by 18% driven by the year-over-year Gorilla Glass price declines and the lower production levels this year compared to quarter one of 2013. Recall on quarter one last year we were manufacturing in a high level to replenish inventory after the huge Q4 2012 sales.

In life sciences, Q1 sales were up slightly year-over-year, net income was down 13% due to non-repeated favorable one-time items that occurred in Q1 of 2013. Now turning to Dow Corning, our core performance measures now include Hemlock Semiconductor operating results.

We had excluded the operating results Hemlock Semiconductor in 2013 to remove potential impact of severe unpredictability and instability in the polysilicon market. We’ve seen stabilization of the polysilicon market and very positive behavior by Hemlock’s customers with respect to the long-term contracts.

These facts combined with the rulings on trade disputes have led us to include Hemlock operating results and core equity earnings for 2014. Hemlock equity earnings were positive in Q1, Hemlock's customers are purchasing further contractual obligations, drove increased sales and profits in both Q4 of last year and Q1.

Now we do expect lumpy quarters this year due to likely timing of these customers taking their volume commitments more towards the end of the year and I’ll walk through this in more detail in the outlook. Gross equity earnings from the silicon segment were down slightly in Q1 versus last year.

Sales and gross margin improved year-over-year, earnings there were impacted negatively by the net impact of one-time items and unfavorable exchange items. Now moving to the balance sheet, we ended the first quarter with 5.6 billion in cash and short term investments. We had strong operating cash flow in the quarter.

Receipt of Corning share of the existing cash on CPMs balance sheet of approximately $1.5 billion drove this. Strong operating cash flow also resulted in strong free cash flow for the quarter of 1.5 billion. As a reminder free cash flow is a non-GAAP measure, and the reconciliation of GAAP can be found on our web site.

We ended the quarter with approximately 1.4 billion of cash in United States, capital spending for the quarter was 246 and we are on track to reach 1.5 billion for the full year. So now that we've entered 2014 and with the Japanese yen spending most of the quarter in the range of 101 to 103 compared to the U.S. dollar.

Investors have been asking about our strategy for hedging the yen exposure in 2015 and beyond especially with the risk that the yen could weaken significantly in the future. Now as a reminder, we had hedged all our expected translations exposure for 2013 and 2014 back in February of last year.

Those hedges only covered the 50% of SEP that we owned at that time. We added hedges for a portion of 2015 in later last year. So we’re approaching the end translation risk with two strategies; number one, we have a plan to execute hedges during any period of unit strengthening.

It's always tempting to say that events will not bringing in below 100 it’s very possible the situation could occur in the world and we will be ready to add to hedges to match any residual underlying exposure if we see such an opportunity.

Our second strategy, we recognize there is some that the yen weakens further from the current trading range of 101 to 103. And we’ve taken action to protect Corning from that potential adverse translation in fact.

During the first quarter we entered into a series of additional average rate forwards at approximately JPY99 which will partially hedge the impact of the Japanese yen translation on our projected 2015, 2016 and 2017 net income. These forwards have no premium.

You will find additional details on this on our Form 10-Q filing which should be filed at the end of the day today. We have not yet made any decisions on the core reporting rate for 2015 and beyond. We have some of 2015 hedged at 93 and some at 99. We’ll keep investors updated on our activities and thinking as the year unfolds.

Obviously we’d love an event that caused the yen strengthening even if short lived as we would step into hedge. And I’ll turn to our outlook and I’ll start with display. We have no change in store expectations for the overall LCD retail and glass markets for the year.

To reiterate, we expect that retail market as measured in square feet of glass to be up in the mid to high single digits. We think LCD TV units will grow low to mid-single digits but area growth will likely be higher. We believe the trend of consumers buying larger televisions will continue.

Many investors ask us about our expectations for ultra high definition televisions and it was 4K. While we still expect ultra high definition televisions to be a high-end category in 2014 and beyond, we believe ultra high def has the opportunity to be a major driver of the area of demand in the near future.

We expect about 10 million sets to be shift in 2014 up from 1.5 in 2013. And all these ultra high def sets have a higher average screen size. Now we expect to monitor desktop and notebook portions of the IT market to be flat, however we do expect very strong growth in tablets this year.

We continue to feel good about the glass market, inventory levels which are healthy and glass supply seems aligned with demand. As I mentioned earlier, we did have a technical customer issue in the first quarter that led to some lower volume.

But we expect to return to previous share levels of this customer in Q2 and also to offset the Q1 volume loss of this customer in the second half. So for the full year, we still expect stable share compared to last year. We see the Q2 LCD glass market up mid-single digit sequentially reflecting normal seasonality.

We expect our glass volume to be up high single digit sequentially, slightly higher than the market driven by the share recovery of the customer in Korea. We expect LCD glass price declines in Q2 to be significantly less than Q1.

Recall from our January earnings call, we believe that a higher Q1 decline was driven by specific situation that would not be repeating in Q2. While the Q2 price declines are not quite as moderate as in most of the quarters of 2013, they are a significant step in the right direction. We expect further price decline moderation in the back half of 2014.

We are off to a strong start on the integration of CPM and we expect additional synergies from CPM in Q2 driven by the relocation of production from Japan to these lower cost assets and other integration activities. Consolidated earning synergies and additional LCD glass volume are expected to drive higher profitability for Corning.

Now moving to optical communications, we expect Q2 sales to be up mid to high single digits versus Q2 of 2013. We expect strong growth in carrier networks and enterprise networks led again by the sales of fiber-to-the-home and datacenter products as well as strong sales of our wireless products.

These to be partially offset by lower churn of fiber sales. Contributing slightly, revenue growth is also the consolidation of an equity affiliate and an acquisition in Brazil that occurred in mid Q2 of 2013.

Environmental, we expect Q2 sales to be up in the low to mid-teens year over year driven by continued stronger heavy duty diesel sales for the new regulations in Europe and China. I’d like to pause here after giving optical communications environmental guidance. We think each of these two segments is poised for a very strong year.

In optical communications the market continues to move towards optical products, our strength. We’re seeing strong fiber demand earlier than we expected, we’re confident we can deliver on the 2x times the industry capital spending rate as our [indiscernible] discussed at our IR day.

In environmental, we made significant improvements to our cost and capability position over the last three years. With the improved sales outlook and heavy duty diesel and continued strong car demand worldwide, we think environmental could have a very strong year.

Now turning to specialty materials, we expect sales to be up 20-25% versus the first quarter driven mainly by higher Gorilla Glass volume of the seasonally slow start to the year. The supply chain’s preparation for upcoming new product launches will be driving the volume growth of Gorilla Glass.

I want to take a moment to discuss Gorilla volume relative to the end market and supply chain. We’ve been working hard to improve our models at the Gorilla market. It is not as strong as our understanding of LCD, but it has improved.

First at the level of shipments of devices into retail, we expect covered glass growth as measured in square feet to be up approximately 14%. We expect to grow Gorilla at a higher rate at this level. Second, at the level of Gorilla Glass going into finishers, we expect to see consumption volumes by 24% this year.

Corning shipments of Gorilla will exceed this level because of the inventory work off last year. In life sciences, we expect sales to be consistent with last year’s second quarter.

We expect Dow Corning core equity earnings to grow 20-30%, 2014 driven by single digit silicone sales growth and improved margins in silicones and the addition of earnings from Hemlock. Hemlock sales are expected to grow 20% over 2015. We expect Q2 equity earnings from Dow Corning to be approximately $40 million.

This is down Q1 driven by the lower sequential sales of polysilicon, we don’t polysilicon sales to pick up until Q4 and customers to fill their annual contractual obligations. Now continuing with the rest of our Q2 forecast, we expect gross margin to be 46% driven by display.

Display’s gross margins improved versus last year due to the volume and consolidation of CPM. SG&A and R&D spending should be lower year over year as a percentage of sales. Our effective tax rate for 2014 is now expected to be approximately 20%.

The projected rate is higher than 2013 driven by the addition of CMP’s income which is taxed at the Korean tax rate of 24%. That concludes my opening comments, Ann. .

Thank you, Jim.

We’ll now open the lines for questions, Tom?.

Thank you, (Operator Instructions) our first question today comes from the line of Mehdi Hosseini with FIG, please go ahead. .

Yes, thanks for taking my question, going back to your commentary about the retail and the inventories, can you provide more qualitative or quantitative assessment where glass inventories are in Q1 compared to Q4 and how do you see the inventory changing in Q2, and I have a follow up. .

So the inventories versus the end of Q4 are about the same, at the panel makers, set makers also about the same and down at retail which is what we would normally expect. Relative to Q2 we expect overall inventory in supply chain to build slightly and that’s normally what happens because Q2 is actually the lowest quarter of glass used at retail.

But that normally happens is we see a slight uptick in Q2.

What’s your follow up?.

And the follow up has to do with, you talked about the hedging of strategy in longer term how you’re dealing with it.

What about the cash offshore, is there any update there?.

So our US cash which I talked about is 1.4 billion, we have some cash strategies to bring more back to the United States, which we believe it will happen now later on this year. But we haven’t detailed the exact amount yet. .

Next question today, comes from the line of Amitabh Passi representing UBS, please go ahead..

Hi, thank you. Jim, my first question for you is, I think there is a little bit of a confusion and some of us trying to back into what the LCD ASV declines were and I was wondering if you can give us a pro forma sales figure for last year relative to the 1.0 turn on billing you reported this year..

No, we’re not giving out pro forma for that number. .

You’re not. Okay, are you able to give us some sense, I think the expectations maybe about 6% ASP decline sequentially. Are you able to give us any sense of whether it came in slightly higher..

It was slightly higher than that level..

And then just a quick follow up, on the telecom segment, can you provide any clarity or greater insight in terms of the source of strength, I mean significantly above I think what many were forecasting and you cited strength in North America. Any incremental color would be helpful..

You know I’d love to, but I’ll let Wen take that one..

Jim as you note, we were up 26% versus last year, what’s behind that is a strong demand for fiber-to-the-home solutions in North America and EMEA and by continued strong growth in our data center products of course supporting data center builds. Those are the primary drivers. .

Is the fiber-to-the-home from your Tier 1 customers, is it broader based in North America?.

All our customers are Tier 1 customers. Yes, we’re positively surprised by both the breadth and depth of fiber-to-the-home demand. It’s nice because Australia has been through some pits and starts and now we’re seeing activity really across the base with major players committing more and more to fiber-to-the-home..

We’ll go to the line of Mark Sue representing RBC Capital Markets. Please go ahead..

Jim, the issue with the one Korean customer, I just the thought is that they'll return pretty quickly and you have to also recover the amount that they didn’t purchase. Maybe if you could give us some additional color there? And then maybe on Gorilla your outlook is pointing to a reacceleration aided by some inventory fill this year.

Yet if I look at the near-term growth rate, it's kind of slow to the high single-digits.

Is there some accelerated pricing that should linger? And just conceptually, how are we now thinking about pricing of Gorilla, is it similar to market share? Is it by customer base? How should we think of the frame work for pricing for Gorilla Glass this year?.

I’ll let Wendell talk about the technical problem of Korean customer and then I’ll take the other one..

So we had a specific technical issue, one customer began to shift its manufacturing process and it led to an interaction with our product that has led to this delayed volume. We’re addressing the issue, we’re already experiencing increased demand in Q2, we still have some more progress to make, but we’re on it.

And we’re making that progress and we feel pretty good, we’ll get this going..

Also relative to Gorilla, as the business has matured we have experienced more price declines than we did in the first few years. But the ones, and a few one related to ringing up our annual agreements, we don’t expect that to carry over as you indicated in your question.

More importantly for us we expect to see a significant volume increase in Q2, that will be both sequentially and year-over-year. Year-over-year we’re beginning to get a benefit and now having to compare it to last year when we were not shipping as much because the supply chain was working off of inventory.

Sequentially we get the benefit of both seasonality in Q2, one has always been the lowest for Gorilla, but also, as our customers prepare for new model launches. In this business new model launches have always driven some of the lumpiness, depending on the timing when customers do that.

But we’re expecting to see a very good Gorilla growth in Q2 and actually in Q3 and Q4..

And just on the Gorilla application in terms of what might be better as we look into 2014 and ‘15.

Would it be the touch notebooks, would it be the tablets or how would you kind of rank order relative to year ago where you’ve seen more promise in Gorilla Glass applications?.

We’re expecting touch on notebooks to grow this year, it’s obviously a small number but I think the growth of touch on notebooks will be 50% and we’re gaining share in touch on notebooks this year. So that’s important for us. Tablets continue to be an excellent market and obviously tablets are a whole lot bigger than smartphones.

So we feel good about both of those..

Our next question is from the line of Wamsi Mohan with Bank of America Merrill Lynch. Please go ahead..

Jim sounds like glass pricing is improving significantly here in 2Q, but not quite at the level where you wanted yet.

Any color that you can share why that’s the case? Is that a continuation of the pricing issue that you had highlighted last quarter or is it a different issue?.

I would say there is -- it's not necessarily specific issue, we’re delighted by the dramatic reduction that we got in Q2 from what we had in Q1. We’re not quite yet at the level we define as moderate but there is no specific issue that’s hanging on with that and we hope to get there.

Wendell anything you’d like to add?.

No I think you characterized it well, it’s not an issue. It’s improved a lot, just not as good as we would like and so we’ll continue to try to optimize and do better..

And Jim is the expectation for a CapEx for ’14 still the same, and that you came in a little bit lower than what we thought in Q1?.

Q1 CapEx is always our lowest quarter seasonally, so you know it annualizes to be 1 billion, our official forecast is 1.5, my guess is it will probably for the year come in slightly under that, but generally Q1 does not represent a full quarter’s worth, it has to do with how capital close at year end.

But I think we’re forecasting 1.5 could come in a little under that..

Okay, thanks.

And last one from me, was the technical issue at your Korean customer, was that related to Lotus or EAGLE XG if you could share that?.

It’s in our -- in the base ASI business, it’s relatively typical that I mean if you were not the lead supplier in a given line that what can happen as a customer shifts its process, that they’ll first optimize or whose ever lead on that given line and then the person who is not in the lead on that given line has to play catch up and that’s where we are.

So it’s nothing dramatic it’s sort of a pretty typical type of issue in ASI you’re just not used to us talking about it because we’re usually the primary supplier..

Our next question today comes from the line of Patrick Newton with Stifel. Please go ahead, sir..

Yes, thank you. Good morning. Thank you for taking my questions. I guess just first on Gorilla Glass I want to make sure I understood this. I think entering the year you discussed volumes growing in excess of 30% year over year and during this call you put a finer point on that expectation, I wanted to make sure I got that right.

I believe you said that volumes should increase about 24% year over year for the cover glass industry as a whole and that Gorilla Glass you grow faster than that.

So if I understood that correctly, I’m curious if we should see this as a moderation of prior guidance?.

No, there is no moderation, the 24% that I was talking about is what’s happening going into the finishers, but from our shipments, we’re expecting to be over 30%..

Okay, great.

And then I guess just on the synergy side of CPM relative to your original guidance, can you give us an expectation or I guess some details on what was achieved in the quarter and then perhaps something to kind of quantify some of the synergies to give us a base line for analysis price utilization?.

So the synergies from utilization are not really occurring because they are starting in quarter two. We are beginning to make the shift, we announced that we are going to be shutting down some Japanese capacity actually in Gorilla first and getting that.

We continue -- we had tanks offline in Korea at SEP, it’s really related to 2011 we lost a share at one of our customers in Korea and we are not bringing that capacity backup until it’s needed. So we’re beginning to see the utilization shifts and starting in Q2 that will be the first half under its Gorilla.

Wendell would you like to add anything on?.

Sure. We’re off to a great start on the integration. But as you would expect, we will be building momentum in the coming quarters. So that will be part of our strengthening of our earnings per share year over year as the year goes on as we gain more and more progress on our integration plans.

But we’re delighted with the start, this is going really well..

Great, and just one more, if I may.

I just want to Jim take it but maybe in intermediate term look at gross margin as we think about maturation of the display business you have lower margin segments that are driving some of your fastest growth with the optical communications and also environmental you have benefits that are coming off from CPM and perhaps a margin tailwind from Gorilla Glass that's somewhat slowing as that business matures.

How should we think about your gross margin profile over the intermediate term when weighing all those different variables?.

Well as you know, our corporate gross margin is obviously the add up of mix of all those businesses.

From display assuming that we get back to moderate price declines in the back half of the year which we believe we will, adding into next year also, you’re going to see the benefit of the synergies well primarily in the gross margin with some in OpEx, so that’s good news for displays margins.

In Gorilla as you noted, Gorilla margins are actually higher than the corporate average today. As that business grows, that will help the corporate average. We expect a continued growth in Gorilla, obviously strong this year and again we believe for next year. The good news in environmental right now is that actually gross margins are pretty strong.

We’ve done a great job in manufacturing there. We’ve been waiting for a little wind at our back from the heavy duty market which is -- goes towards some fits and starts in the U.S. but now that we have heavy duty showing up in Europe and China with the new regulations, that should be a good contributor to our corporate gross margin.

Telecom is the place where it’s lower and obviously life science is lower. In life sciences we think it will creep up a little within that segment over the next couple of years.

And telecom the good news is that even though it’s lower than the corporate average, the fastest selling products fiber-to-the-home and enterprise, actually are higher gross margins within that segment than the overall corporate group.

So generally I believe that the corporate gross margin has the ability to go up because every segment has the ability to improve their gross margins. The ultimate number will be depending on the mix of the quarter, but we feel pretty good about it, gross margin outlook, obviously with the biggest watch out is as always is display prices..

And we will go to line of George Nader with Jefferies. Please go ahead..

Hi, thanks very much guys.

I wanted to ask about, the efficacy of your contracts that you put in place on pricing in the display business in Taiwan, obviously did that I think a little bit more than a year ago in -- now look at the 10-K pricing came in I think mid-teens in Taiwan and then obviously some more price erosion here in Q1 was pretty significant, can you kind of talk a little bit about, what the experience has been, have you been able to maintain share as laid out on those contracts.

And certainly, you think in an oligopoly environment, your competitors would react to those types of contracts pretty well, but it seems like, again pricing is still coming down a bit more than may be you anticipated, I guess I am trying to understand your perspective if you’re looking back on this contracts, a year later? Thanks..

So, we’re delighted by the contracts, we're entered in them in quarter, I guess quarter four really month of October 2012, our customers renewed them, we believe that they are providing benefit to both us and our customer, for us it’s led to stable share, which is what the contracts would focus on, stable share really helps us, because it allows us to own our manufacturing, very stable and when that occurs, we get good cost performance.

What we talked about, which is what shows up when you view the comparison over the last 12 months with a Q1, see in Q1 we had the spike up where we talked about before, where we believe a competitor had to normalize pricing between a customer in Taiwan and what they had elsewhere. And that because of the contracts drilled back on us.

But as you can see with our guidance for Q2 that situation is not repeating. So we feel very good about how those contracts have contributed.

Relative to our competition, we’ve obviously commented that we believe overtime that the lower margin competitors will drive to lower pricing, but that’s obviously up to them, but we feel good about the contracts overall..

Our next question comes from the line of Simona Jankowski with Goldman Sachs. Please go ahead..

Hi. Thanks very much.

This results of question on pricing, so I think you -- when you commented about gross margins coming in a little below your expectations, you had cited the lower glass volumes than expected, but since it looks like ASPs were down in the low double digits which I think was also worse than initially expected, was that an impact on your margins as well.

And since those were loss of contractually, I was just curious what drove that delta versus the original pricing expectation?.

No, our pricing sequentially were not down double-digits, so for the year-over-year pricing was down double-digits but they were not down sequentially.

The weakness in our performance from our perspective, because pricing we had talked about it being -- declines being greater in Q1, a disappointment for us was the volume that we didn’t get due to the technical issue.

If we had gotten the volume that we originally expected, we believe we would have seen year-over-year profitability increase in display..

Okay. And then the second question was on the competitive environment in Gorilla Glass. It looks like from the volumes you’re expecting that, you’re certainly looking to gain some share there, but you also talked about having some price declines as you’re walking up some of these contracts.

So can you just give us a sense, a little bit of how the competitive environment looks like right now.

And what type of price decline should we be thinking about for this year for Gorilla Glass? Is it something on the order of 20% or not quite that high?.

Well, I started the end and then worked my way up. So we would expect that Gorilla price declines to moderate very significantly as we go forward into Q2. Specifically on price, we a had much larger than normal price declines in Q1 and Gorilla due to us wrapping up full year contracts to maintain our market position.

And what led to that really is just competitors being more aggressive on price than they have been, they’ve always been pretty aggressive but they found a new level of aggression for this round.

Now what’s important to note is it our significant price premium versus the competition is continuing or actually it’s even increasing, but they just made a big move.

So even though our premiums in place, the baseline that it moves from, move downward, we would expect that type of premium for the performance segments anytime you have a product that you care about its performance to continue because we’re going to launch a new Gorilla. The team embedded in our current Gorilla this year. So it feels good about that.

I think the next area of opportunity and challenge is the ultra low performance segments, that we’re seeing now emerge in China, another example is low but not ultra low a touch-on notebook, and for that, what we’re looking to do is create a real soda-lime glass spider that can be really competitive with those offerings for the lower performance segment.

More on that as the year goes on because of innovation in market work ahead of us to make that happen as well..

We’ll go to line of Ehud Gelblum with Citigroup. Please go ahead..

Couple of questions, Jim.

Could we just talk on Hemlock in having normalized a little bit? Hemlock, if I understand it correctly, was that in already in Q2, but was not in Q1 or is it only going to included going forward in -- I'm sorry was it included in Q1, but not included in Q4 or only is going to include in Q2 going forward?.

So, Hemlock was in none of our results last year, we included in Q1. If we had had it last year in Q1, it was just a tiny, tiny loss. So it really would have only made the numbers increasing a little slightly greater.

But for the year, last year, the only time it had any incremental significance was in Q4 of last year and that’s when the contracts were fulfilled a lot by our customers. So it’s really not a big shift year-over-year..

But on an absolute basis, can we know what the Hemlock contribution was to equity earnings in Q4 and Q1 and kind of where you’re thinking about it in Q2? Just with normalization at least for a couple of quarters sequentially?.

Yes, I think that we could outline that to you we'll have and get that prepared for you if you want..

That'll be awesome..

It’s not very much money. Don’t get too excited by this..

I’m not. Just want to make sure that all the ideas are dotted.

On the -- when I believe you’ve mentioned that LCD pricing is -- can be significantly better in Q2 than it was in Q1, but not quite back to moderate levels, is that still related to the same issue that brought pricing down in Q1 or is that a different issue?.

I think that it’s moderate, they’re definitely moderate. It’s just not as moderate as our favorite quarters from last year, right. So it’s definitely no real issue. They moderated, but just like to do better by a point or two, that's all. So, we can’t have any particular thing to point at.

As you know very well, you’ve all sorts of dynamics working out of the competitors, but we’ve got not issue to point at, it’s gotten a lot better in Q2 from Q1. We just like to do better still.

That makes sense?.

That’s awesome. I wish you guys luck at that.

As you go through the different generations of Gorilla, I’m assuming that what could be growing a lot this year might be NBT? Does that change the margin profile or the pricing profile of Gorilla as you go through the different generations of Gorilla, specifically this year versus what you had in Q4 and Q1? And is it NBT that really will be providing a lot of this 30% plus growth?.

So, no, actually, NBT though it’s growing fast as Jim pointed out. It’s off a small number. So the primary drivers for us is that main line Gorilla product Gorilla Glass three and hopefully this year a new and improved version. So that will be the lion's share of the growth in those places where you’re used to us being.

We’re after some of these lower performance areas not so much about this year in what it can do but because it overtime as touch technology now proliferates every price point, we need to make sure we’ve got the right offering to go after those real-value segments and that’s still a work in process..

Okay, I appreciate it. Lastly on the balance sheet 3.3 billion in debt, 5.6 billion in cash.

I think you said 1.4 billion was in North America, what are your thoughts going forward with respect to continued -- where would you feel comfortable with that balance sheet? Could you get to a -- would you be comfortable with the net -- you generally have a lot of cash but would you be comfortable increasing the debt or lowering the cash to a point where you are sort of at net cash zero or do you like having basically a couple of billion in net cash, how do you look at that Jim?.

First of all, we have 1.4 billion in the United States not 4 billion, if I miss heard you..

But I meant 1.4, I’m sorry..

Okay, all right, now. We are going to be doing substantial repurchasing on the -- we still have about $600 million left. So obviously that will come out of U.S. cash. We have metrics around cash greater than that, doesn’t have to be as great as $2 billion.

I don’t think we’re likely to add to the leverage of the company, but I think the Board has demonstrated they are prepared to commit to shareholder returns to dividends and repurchase, and I’m sure that they will continue to focus on that after the current program ends.

And just one another comment, just want to remind you, we do put numbers on Hemlock in our queue every quarter..

Okay, I’ll make sure to have that. Thank you..

Next question today comes from the line of Brian White representing Cantor, please go ahead. .

Jim, I’m wondering if you could talk a little bit about the weakness in China fiber, is that more a market situation, obviously 4G is benefiting base stations, but it doesn’t sound like it’s benefiting fiber or is this a competitive situation.

And also with the ramp of some of these Chinese panel makers I’d be curious just how you feel Corning’s position and what are some of the trends you’re seeing with the specific Chinese panel makers. Thanks..

So on China fiber, it is on the volume side, it’s basically market driven. Because that market took a step down, we’ve also seen in terms of competitive dynamic a lot more action around price. But from a volume standpoint this is largely a market based pace.

As you pointed out, predicting the China markets, it’s a much more a command driven rather than market driven play in telecom CapEx. It’s a little hard to figure out, but as it becomes clearer as we go through the tenders for the year, you know I think our ability to predict is going to increase, all right. .

So relative to the panel makers in China, we have a very strong position with one of the large Chinese panel makers, we don’t have much position with the second largest but we think we’re doing quite well with the Chinese panel makers and continue to have discussions with them as they think about new capacity. .

I think the way Ray, to think about China, is our position there is superior to our position even in Taiwan, so we really like our hand in China and we have a broad based play really across the industry with leading positions in most of the players, so we feel really good. .

And just as a follow up, we’re not seeing China based LCD glass makers yet, is that correct?.

We do have LCD glass players who are China based. We just have a significant IP settlement with one of them, so we would anticipate like you always expect in China to have some local players enter as well, but so far they are struggling as everybody else who’s tried to enter this business struggles. .

Next we have a question from the line of Steven Fox representing Cross Research please go ahead..

Thanks good morning, just two questions from me, first of all on the yen, Jim is there a way to sort of sum up how much you’ve hedged versus say 2015 yen based revenues at this point, and then secondly with regard to thinning your glass further, as it works in to the integration plan, either looking at the total business or just the Korea based assets versus the previously wholly owned assets, can you just sort of give us an update on where you are on that process, whether it could accelerate this year or what kind of timeline you are for improving the average amount of thin glass in production.

Thanks. .

So on 2015, we're approaching having it fully hedged, I think we have about 30% at 93 and the remainder probably at 99, and then we have significant portions for 2016 and 2017 now hedged at 99. On the thickness of the glass, you want to comment Wendell, or if you want me to.

So we’re continuing to work with customers to build thinner as I’ve mentioned in the past, some customers are on their second or third round of going thinner on glass.

In Korea in particular, we have seen our largest customer there who really has not done much at thin, beginning to convert some of their capacity to thin, so we expect to see more capacity additions to our sales benefit and obviously cost reductions as they choose to go thinner. .

Yes, we like thin and we’d like to see it continue and we always do our best to try to enable that because what we -- if you look at us broadly, what we would like to do is use that to continue to drive our costs, lower our customers cost but also open up the opportunity for us to exploit new markets with assets that we’ve created purely through our own productivity, it’s just great for shareholders and great for our ability to develop new markets.

.

Operator, we have time for one more person’s question..

Thank you, our final question today will come from the line of Rod Hall with JPMorgan, please go ahead sir..

Hi, thanks for getting me in there, just a couple of questions, I wondered, Wendell could you comment on the linearity of that technical glass volume coming back on stream in Q2, like by, how does that flow over the quarter, is all of it back by the end of the quarter or the middle of the quarter, not sure if you qualify that in earlier comment and then, I don’t know if you could, could you tell us whether that an SEP is not hedged, have you done anything with that yet or is that still an open issue that you're consider to do with, and then lastly bonus question, I don’t know if I’ll get Jim to comment on this or Wendell, but could you guys talk about the -- it just feels like there has not been a lot of capacity added to the industry and yet volume demand just kind of keeps creeping up, up and up and up, and I wonder if you can just talk a little bit about capacity utilization at this point in the industry? Thanks..

So on the SCP, on the hedge portion for 2014, there is really nothing that we have done and likely to be able to do anything of any significance so, that just is flowing through us and can walk you through the impact on it -- on our results, but it kind of falls outside of court.

Relative capacity in the industry, we believe the industry is continuing to be relatively disciplined keeping capacity offline, obviously what is occurring is as you know that the market continues to grow as it does at retail and flows through the glassmakers and therefore capacity utilization has climbed a little.

On the other hand, we’re continuing, our competitors also see some benefit from thin, so there continues to be excess capacity, but we continue to see discipline by the entire industry of keeping that unneeded capacity offline, any comments in linearity?.

Sure, so, I wouldn’t count on linearity. There’s -- when you work in through one of these type of issues, then you get this complicated fishbone chart, both our product, what’s going on in their process. So as a result, these things are notoriously difficult to schedule.

I think you’re right in that our expectation is that we’re already feeling it come back in Q2 as we speak, but there is always room for the unknown as we work our way through these type of issues..

Wendell, are you pretty sure by Q3 you’ve got all that volume on board or I mean pretty sure being greater than 80% or do you still feel like there is a quite bit of risk if there is still little bit chunk outstanding?.

I feel pretty sure. My ops guys and tech guys, they’re really sharp. I think we’ll get this behind us pretty quickly, so I’m pretty sure..

Just a couple of wrap of comments. First of all from Investor Relations, we’re going to be appearing at quite a few places in the month of May.

We'll be at the Jefferies Conference on May 7th, the JPMorgan Conference on May 20th, the Bernstein Annual Strategic Decisions Conference on May 29th, and finally the Bank of America Conference at the beginning of June on June 3rd. Just to summarize the highlights of the call, we think we’re entering 2014 with a very strong start.

The integration of CPM is underway and delivering results and we look forward to achieving the synergies which would be part of the 350 million. We expect an additional MPAT for the full year. We grew sales in every business in Q1 and are on track to deliver sales and earnings growth in every business for the full year.

We think our optical communications environmental segments are poised for a very strong year. We continue to improve manufacturing efficiencies and control operating costs and we are going to continue to return cash to shareholders with our share repurchases.

So we feel really good about our first quarter and are confident we can deliver on our 2014 plan.

Ann?.

Thank you, Jim, and thank you all for joining us today. The playback of the call is available beginning at 11 a.m. eastern time today and will run until 5 p.m. Eastern Monday, May 12. To listen, dial 800-475-6701. The access code is 323571. The audio cast is available on our website during that time as well. Tom that concludes our call.

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