Welcome to the Corning Inc. Quarter Four 2021 Earnings Call. [Operator Instructions] It is my pleasure to introduce you, Ann Nicholson, Vice President of Investor Relations..

Thank you, Shannon. Good morning, everybody. Welcome to Corning’s quarter four 2021 earnings call.

With me today are Wendell Weeks, Chairman and Chief Executive Officer; Tony Tripeny, Executive Vice President and Chief Financial Officer; Jeff Evenson, Executive Vice President and Chief Strategy Officer; and Ed Schlesinger, currently serving as Senior Vice President and Corporate Controller.

I’d like to remind you that today’s remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the company’s financial reports.

You should also note that we will be discussing our consolidated results using core performance measures, unless we specifically indicate our comments related to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business.

For the fourth quarter, the largest differences between our GAAP and core results stem from non-cash mark-to-market gains associated with the company’s currency hedging contracts and non-cash impairment charges.

With respect to mark-to-market adjustments, GAAP accounting requires earnings translation hedge contracts and foreign debt settling in future periods to be mark-to-market and recorded at current value at the end of each quarter, even though those contracts will not be settled in the current quarter.

For us, this increased GAAP earnings in Q4 by $86 million. To be clear, this mark-to-market accounting has no impact on our cash flow.

Our currency hedges protect us economically from foreign exchange rate fluctuations and provide higher certainty for our earnings and cash flow, our ability to invest for growth and our future shareholder distributions.

Our non-GAAP or core results provide additional transparency into operations by using constant currency rates aligned with the economics of our underlying transactions. We are very pleased with our hedging program and the economic certainty it provides.

We have received more than $1.8 billion in cash under our hedge contracts since their inception more than 5 years ago. 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. We encourage you to follow along. They are also available on our website for downloading. And now, I will turn the call over to Wendell..

Thank you, Ann and good morning everyone. Today, we reported fourth quarter and full year 2021 results. We delivered another strong quarter of year-over-year growth. For the fourth quarter, sales were $3.7 billion, up 12% year-over-year. We generated EPS of $0.54 and free cash flow of $425 million.

For the full year, sales were $14.1 billion, up 23% year-over-year. We generated EPS of $2.07, up 49% year-over-year and we nearly doubled free cash flow. In addition, we achieved double-digit ROIC. We expanded our operating margin by 230 basis points.

We increased our dividend by 9% and we reduced our outstanding shares by 5% through the resumption of share repurchases. By leveraging our fundamental capabilities and our more Corning strategy, we are capturing a compelling set of short and long-term opportunities across our portfolio.

We are performing well in a challenging environment and we have momentum entering the year. Now all of that said, our gross margin is simply not where it should be.

As we said last quarter, throughout the pandemic, we have prioritized protecting our people and delivering for our customers in a complex inflationary environment and it has come at a cost.

Over the last several months, we have negotiated with customers to increase prices in our long-term contracts to more appropriately share the increased cost we are experiencing. We are focused on expanding our gross margin and expect improvement in 2022 as our sales growth and our price actions take hold throughout the year.

Last quarter, we also discussed our expectations for our display business. I am pleased to report we had another strong quarter of display revenues and profits in quarter four. Display glass pricing is expected to be flat sequentially in the first quarter. The supply demand balance for display glass is tight.

In 2022, we expect overall glass supply to remain tight to balanced and the pricing environment to remain favorable.

This morning, you will hear more on these and other priorities for 2022, our focus on how we intend to maintain our growth and positive momentum that Tony and Ed will discuss our results as well as our plan to enhance our profitability and overall financial strength. So let’s dive in. We have been delivering consistent growth.

Sales have been up for six quarters in a row. Since 2019, we have grown sales by 21% and EPS by 18%, with more balanced and consistent contributions across our businesses. Everything begins with our cohesive portfolio.

We are the world leader in glass science, ceramic science and optical physics along with our four proprietary manufacturing and engineering platforms. We focus our strategy on capturing synergies among these capabilities and applying them to create disruptive innovations.

Across multiple industries, we work closely with many of the most influential and successful companies to bring our world leading capabilities to bear on their toughest challenges. In the process, we help move the world forward.

As we partner with our customers to advance their visions, our probability of success increases as we combine our capabilities, reapply our talent and repurpose existing assets. This provides a powerful value creation lever by unlocking new ways to integrate more of our content into our customers’ ecosystems.

We aren’t exclusively relying on people buying more stuff. We are driving more Corning content into the products they are already buying. Our progress in 2021 illustrates the effectiveness of our approach and it gives us confidence that we are building on a strong foundation for additional growth in 2022.

In Optical Communications, we’ve returned to growth, with sales up 22% in 2021 and we expect strong growth to continue. Operators are expanding network capacity, capability and access.

The pace of data center construction is accelerating as more applications move to the cloud and data creation continues to soar and fiber-rich wireless deployments are underway.

Meanwhile, governments around the world are initiating plans to extend the reach of broadband to more people in more places as network access is increasingly viewed as a human right. For example, the recently passed U.S.

Infrastructure bill allocates $65 billion in new spending for broadband infrastructure, including $42 billion for new network builds. Our customers are stating their preferences for fiber to build these networks.

As the only large scale end-to-end manufacturer of optical solutions, Corning plays a vital role in driving the continued expansion of connectivity. We are working even more closely with industry players at the regional and national levels, including expanding our long-time collaboration with AT&T.

Stepping back, we are at the beginning of a large multiyear wave of growth for passive optical networks. Project momentum is strong across our customer base. And as U.S. infrastructure plans roll out, it could add as much as $1 billion a year to the market for 4 years, starting as early as 2023.

We believe private carrier and public infrastructure investments will push the market into double-digit growth over the next few years. In Life Sciences, we are delivering growth on multiple fronts, with sales up 24% in 2021. We are seeing ongoing demand in support of a global pandemic response.

Our inventions are also helping the industry advance the transition to cell and gene-based therapies. And we are making progress on our multibillion dollar content opportunity in our pharmaceutical packaging business. After introducing Valor Glass vials in 2017, we recently introduced Velocity vials.

These vials are helping industry leading drug makers increase efficiency and throughput to drive faster manufacturing of vaccines to help meet global demand. Velocity joins Valor and our glass tubing business as we build a comprehensive end-to-end pharmaceutical packaging portfolio.

In fact, our portfolio has enabled the delivery of nearly 5 billion doses of COVID-19 vaccines so far. And earlier this week, West Pharmaceutical Services, a global leader in injectable drug administration, announced a long-term supply agreement and technology investment in Corning to enhance injectable drug packaging systems.

In automotive, 2021 sales in our Environmental Technologies segment increased 16% to reach an all-time high $1.6 billion despite weakness in the automotive market related to chip shortages. We are pursuing a $100 per car content opportunity driven by trends that are reshaping the auto industry and re-imagining the car.

We delivered multiple proof points in 2021. Daimler launched the Hyperscreen dashboard display in the Mercedes-Benz EQS. The display features a Gorilla Glass cover nearly 5 feet wide. Building on this momentum, we entered a new automotive product category with our curved mirror solutions.

This innovation is enabling the augmented reality head-up display in Hyundai’s electric crossover, the IONIQ 5. And Jeep announced a product that brings our tough technical glass into their iconic vehicles. The new Jeep performance parts windshield featuring Gorilla Glass is now a factory installed option on the Wrangler and Gladiator.

Additionally, tighter emissions regulations continue to provide a strong content opportunity for our environmental solutions. Our newest generation of gasoline particulate filters helped vehicles including hybrids, achieve even lower levels of fine particulate tailpipe emissions.

The contributions of our GPF business provide a strong illustration of our more Corning strategy in action. Since 2017, Environmental Technologies sales have increased more than 40%, while global car sales have decreased by 20%.

Let’s turn to Mobile Consumer Electronics, where 2021 sales increased 7% and we surpassed the $2 billion in sales for the first time. Since 2016 specialty materials has added nearly $900 million on a base of $1.1 billion in a smartphone market that has been flat to down.

As we help our customers deliver new value to their users, more of our content is deployed in each device sold. That is another great illustration of more Corning in action. Our industry leading innovations continued to garner widespread accolades.

In fact, SaaS company named Corning the most innovative company in the consumer electronics category for 2021 touting Ceramic Shield, the world’s first transparent and color-free glass ceramic as close “virtually indestructible” and recognizing Gorilla Glass Victus as the toughest Gorilla Glass yet.

We continue to see strong demand for both of these premium products. In 2021, more than 125 devices, including smartphones, wearables, tablets and laptops, launched featuring Gorilla Glass. And we expanded our capabilities into a new category by introducing Gorilla Glass with DX and DX+ to optimize mobile phone cameras.

These composite products create an attractive opportunity to increase our revenue per device. Finally, in 2021, Apple awarded Corning an additional $45 million from its Advanced Manufacturing Fund. To-date, Corning has received $495 million in total from Apple’s fund.

We are investing in multiple new inventions and innovations for mobile consumer electronics and we are excited about the potential in 2022 and beyond. Turning to Display, our leadership in large glass puts us in a position of strength. 2021 sales grew 17% to $3.7 billion.

Our volume exceeded glass market growth as we ramp Gen 10.5 facilities that supply glass for large-sized TVs, which are expected to grow at a high-teens compound annual growth rate over the next several years. In 2022, we expect overall glass supply to remain tight to balanced and the pricing environment to remain favorable.

We continue to believe the retail market will grow, led by higher TV unit sales and growth in average screen size. Across our markets, long-term growth drivers are strong and our role is clear. We lead in capabilities that are vital to progress. Our approach provides exciting opportunities for Corning inventions to make a positive impact on the world.

And it underscores our commitment to moving the world forward in everything that we do. Now, let me give you some examples outside of the operational context. In 2021, we hosted COVID-19 vaccination clinics at Corning sites around the world.

In Reynosa, Mexico, for example, we helped administer more than 100,000 doses of vaccines and boosters to employees and community members. And we provided more than 200,000 diagnostic tests for employees around the world. We kicked off a 5-year $5.5 million partnership with the nation’s largest historically black university, North Carolina A&T.

Our work will prepare students for STEM careers. We engaged our Board of Directors to provide guidance and resources to our office of racial equality and social unity, utilizing our members’ diverse experience, gender, age and ethnicity to advance this new initiative.

We achieved gender pay equity globally for all salaried employees and we expanded the reach of our DE&I office with regional business counsels. And finally, we committed to greenhouse gas goals that align with the Paris agreement and we signed solar contracts at Hemlock that will help the world address its renewable energy goals.

I feel very good about our efforts to bolster equality inside and outside the company and our progress on our sustainability initiatives. Overall, we continue to build a stronger, more resilient company. We are in the early innings of exciting industry transformations and key trends are converging around our capabilities. You can see it in our results.

You can see it in our outlook for 2022 and advancement of new businesses towards significant commercial sales over the next few years. Of course, to keep advancing during Corning’s next 170 years, we must focus on growing and developing our leaders.

We have a new generation who are stepping up to guide this company to a very exciting phase of its history and into the future. And I am working closely with each of them. To that end, I want to recognize Tony as he prepares to hand over the reins to Ed in just a few weeks.

The strong position we are in today certainly reflects the many contributions he has made throughout more than three decades of excellent service to Corning. Tony, we thank you and wish you the very best in retirement. At the same time, I am excited to welcome Ed into the CFO role, which he starts on February 18.

Ed has long played a key role in the growth and financial strength of our company. Tony and I have worked closely with him during that time and I look forward to the important contributions he will make in this new position.

So, let me turn the call over to Tony and Ed, who will share more details on our results, our priorities and our outlook for 2022..

Retail demand, panel makers production and glass makers’ ability to supply panel makers. Our fourth quarter performance and first quarter outlook reaffirm our expectations. We continue to expect that glass at retail will grow in 2022 by high single digits, driven by TV unit and screen size growth.

We expect display glass pricing to be flat sequentially in the first quarter and supply-demand balance for display glass to be tight. We expect glass supply-demand to remain tight to balanced in 2022 and the pricing environment to remain favorable.

Overall, we are very pleased with Display’s performance in 2021, and we feel good about our outlook for 2022. We’re operating from a position of strength, and we intend to build on our momentum as we move forward. In Environmental Technologies, fourth quarter sales were $353 million, down 9% sequentially and 21% year-over-year.

Fourth quarter net income was $54 million, down 10% sequentially and 42% year-over-year on lower sales volume. These declines were driven by auto production constraints created by the semiconductor chip shortage that began in the second quarter of last year. As expected, this negatively impacted profitability for the segment and the company.

Now even with this temporary setback caused by the chip shortage, for the full year, we were able to deliver double-digit sales growth, enabled by our content-driven growth strategy. Full year sales were nearly $1.6 billion, up 16% year-over-year, primarily driven by strength in heavy-duty diesel and greater adoption of gas particulate filters.

For the full year, net income was $269 million, up 37% year-over-year. As we look ahead, we’re confident that our content-driven approach will continue to drive outperformance. And when the automotive market rebounds with the resolution of the chip shortage, we expect significant growth from current levels.

Turning to Specialty Materials, sales were $518 million, down 7% sequentially on normal seasonality. Sales were down 5% year-over-year versus a strong Q4 in 2020 following the launch of Ceramic Shield. Fourth quarter net income was $92 million, down sequentially and year-over-year, driven by the lower sales volume.

Full year sales were up 7% and exceeded $2 billion, driven by continued strong sales of premium cover materials. Demand also remains strong for advanced optics content used in semiconductor manufacturing as the broader end market continues to experience robust growth.

Despite sales being up, full year net income was down as we invested strongly in new innovations that will be commercialized in the coming year. We have grown sales every year since 2016 through our more Corning approach despite smartphone unit sales maturing. Over that 5-year period, we’ve added nearly $900 million in sales on a base of $1.1 billion.

Looking ahead, in 2022, we expect sales to grow faster than our underlying markets driven by continuing adoption of our innovations and growth in advanced optics specifically in products for EUV lithography. And as I mentioned here, we expect sales to increase from the seasonal low levels we expect in the first quarter.

And finally, turning to Life Sciences, we had a great year with total sales topping $1.2 billion, up 24% year-over-year. Fourth quarter sales were $317 million, up 16% year-over-year.

This strong performance was driven by ongoing demand to support the global pandemic response, continued recovery in academic and pharmaceutical research labs and strong demand for bioproduction vessels and diagnostic-related consumables. Full year net income was $194 million, up 40%. Fourth quarter net income was $49 million, up 17% year-over-year.

Looking ahead to 2022, we expect our strong growth to continue, driven by COVID-19 vaccine rollouts, strong research funding, lab utilization returning to pre-pandemic levels and growth in the bioproduction segment. I also want to spend a minute on our other segment.

As a reminder, the majority of sales in our other segment are in Hemlock Semiconductor Group. During the year, Hemlock saw new demand for solar-grade polysilicon. With the increased activity and interest in U.S.-based solar manufacturing, customers have turned to Hemlock, a leader in polysilicon manufacturing.

So in addition to selling polysilicon for use in semiconductors, Hemlock was able to sell solar polysilicon from inventory. Going forward, solar remains a strong revenue opportunity for Hemlock. In the fourth quarter, we signed long-term take-or-pay supply contracts with customer deposits that start to shift in 2022.

As a result, we restarted idle capacity with minimal capital investment to meet this demand. As I mentioned earlier, gross margins were impacted in the fourth quarter as we incurred temporary cost to restart solar polysilicon capacity. This will improve throughout the year as solar production increases.

Additionally, our auto glass and pharmaceutical packaging emerging businesses are also in the other segment. And both businesses significantly grew sales during the year as well. Stepping back, we made strong progress across all of our businesses in 2021.

We entered new product categories, announced collaboration with key industry leaders and contributed to significant industry advancements. We’re building a strong foundation for future growth.

This combined with our consistent focus on innovation and deep commitment to RD&E is what continues to fuel and sustain Corning’s leadership position across its markets. Looking ahead, we expect Corning sales and EPS to grow year-over-year in the first quarter.

We expect sales to be in the range of $3.5 billion to $3.7 billion and EPS in the range of $0.48 to $0.53. Sales are down sequentially due to typical seasonal volume declines. For the full year, we expect sales of approximately $15 billion and profit to grow faster than sales.

Before I turn things over to Ed, I’d like to take a moment to express my gratitude. First, to all Corning employees whose dedication and commitment to this great company is such an inspiration.

Second, to those of you on the call and all our shareholders, for being, with being on this journey with us, we’re working hard every day to maintain your trust and reward your confidence in us. And finally, I’d like to thank Wendell, Ed and my fellow members of Corning’s senior leadership team.

I’m proud to have played a role in building the strong foundation Corning has today. It’s truly been a wonderful journey. As Ed takes the reins in just a few weeks, I’m fully confident in his ability to build on this foundation and continue creating value for all our shareholders. With that, I’ll turn it over to Ed..

Thanks, Tony, and hello, everyone. I’m looking forward to connecting with you in the days and months ahead so we can expand on the thoughts I share today and address any questions you may have. Before I start, I’d like to say that it’s been an honor working alongside Tony all these years.

Under his tenure, we met or exceeded all the goals of our 4-year strategy and capital allocation framework. And today, we’re performing well against the subsequent goals we outlined in our strategy and growth framework in 2019. Our execution has created a stronger, more resilient Corning and that provided vital – proved vital as the pandemic unfolded.

Our solid footing enabled us to preserve our financial strength throughout 2020, and it kept us well positioned for growth in 2021. Throughout it all, Tony’s focus on financial stewardship has been central to our results, and I plan to sustain that disciplined approach.

So let me walk through my priorities as CFO as I work to ensure that Corning continues to be an excellent steward of capital. We expect another strong year of cash generation in 2022, and our financial priorities remain unchanged. We will continue to invest of cash to support organic growth, extend our leadership and reward shareholders.

First, we will continue to invest for growth, primarily through RD&E and CapEx. RD&E is fundamental to our long-term success and our allocation will be consistent with previous years. In 2022, we expect to keep CapEx consistent with 2021. Our investments include adding capacity to meet growing demand, introduce new innovations and improve productivity.

Shareholder returns also remain a key priority. In 2022, we expect to increase our dividend per share by approximately $0.10. And we expect to continue opportunistic share repurchases building on the 5% of outstanding shares we repurchased in 2021. In the near-term, improving gross margin is my top priority.

We expect improvement throughout 2022 as sales grow and our pricing actions take hold. Overall, I’ll close today saying that I’m optimistic about our growth trajectory for 2022 and excited to step into the CFO role. We’re building on a strong foundation. Our capabilities are relevant to major trends playing out across the industries we serve.

Our more Corning approach is working. And we’re executing effectively through some very volatile end markets, expanding relationships and commitments with our customers and extending our leadership position.

Based on the growth drivers and financial priorities you’ve heard this morning, I feel good about delivering on our expectation to grow sales to $15 billion in 2022 with EPS growing even faster. I look forward to updating you on our progress throughout the year. And with that, I’ll turn it back over to Ann for Q&A.

Ann?.

Thanks, Ed. Okay. Shannon, we are ready for the first question. And I ask that folks please try to keep it to one question, so we can get through as many as we can..

Thank you. [Operator Instructions] Our first question comes from Wamsi Mohan with Bank of America. Your line is open..

Yes, thank you.

When you look at your comments on long-term contracts where you’re negotiating pricing, can you give us some sense of what percent of your revenue is tied into these contracts? And how should investors think about the bridge to $15 billion in revenues? How much of that increase would you say is pricing versus content versus market growth? Thank you.

And Tony, thanks for all you’ve done for Corning. It’s been a pleasure working with you..

Thank you, Wamsi. I appreciate it..

So let’s deal with the pricing question first. So first, let’s pull out Display for a moment. We provide glass pricing guidance each and every quarter in Display. And you know that we expect the pricing environment to remain favorable.

And you just received both what happened in quarter four, which was flat sequential pricing in Display and our guide for flat sequential pricing in quarter one as well. As you look at – let’s take now take all of our other segments, Opto, Life Sciences, auto and MCE. If we take them as a whole, we expect price to be up in total dollars year-over-year.

Now each of the businesses is different. There is different types of contracts. And then within each of those, you have different customers and different positions. So it’s hard to reach a general statement. But I think as you think about it analytically, basically, we expect prices, as a whole, in those segments to go up.

Turning to the $15 billion, I think always for us, that you should be thinking about it primarily as being driven by our growth. The way – the sort of construct that you heard from Tony is that if you’ve looked back at this past year, our – we had cost inflation much higher than a normal year of increasing input costs.

And when we’re looking at the pricing is that we expect to share that more appropriately with our customers. And the price, together with our more robust cost reduction will put us in a position to offset the inflation we’ve already experienced as well as what we anticipate for 2022.

That allows the volume growth to drop to the gross margin line with our normal sort of robustness and without any sort of friction costs driven by excess inflation. So that’s the way we tend to think about the $15 billion.

That’s the way we think about price, cost and then how it turns into gross margin percentage gains as volume grows and the price actions take effect..

Thanks, Wendell..

Next question?.

Our next question from Tim Long with Barclays. Your line is open..

Thank you. I wanted to ask on the optical comms business, obviously, pretty strong in the quarter. Can you talk a little bit, have you already started to see the benefits from the renewed agreement with AT&T? And looking out at this business, it sounds like you think you can see double-digit growth in the next several years.

So could you talk a little bit about how you see the margin progression over time? Do you think net margins can get back to levels they were a few years ago given higher growth and pricing actions as well? Thank you..

Yes. I think the short answer to that is, for sure, we think that margins will expand in this business for all the reasons that Wendell just explained I mean. First, we are taking pricing actions here that’s where a lot of our long-term supply agreements are and those will roll out through the year.

And then secondly, when you combine it with the volume increase that we expect, so yes, we expect our margins to increase. And in terms of AT&T, obviously, they are a very important customer for us, and we continue to see the benefits from that relationship..

Okay. Thank you..

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

Hi. Thank you for taking my question.

Can we maybe talk about the cadence for price increase and their associated margin expansion for the majority of this year? And is there any one quarter where we should expect most of the pricing impact to be fully accounted for?.

Yes. I mean, it’s – Martin, I mean it’s clearly going to roll out at different times at different pace by customers. We would expect to see some of it start kicking-in in Q1 and then accelerate from there. What we would expect to have happen is Q1 being our lowest quarter from a gross margin standpoint.

And then when you add the sales volume increase that we expect, as we described how those dynamics work, we would expect gross margin to expand from there throughout the year..

The way we tend to think about it cycle-wise, is that first quarter will be the lowest amount of incremental price, then it builds as the year goes on, as more and more of the contracts and increased pricing go into effect and as it applies to more volume just following our normal sort of seasonal cycle in our businesses..

I guess I was trying to get at is, is there any potential for the price increase with customers, the effect of that to maybe lingering into 2023 also?.

It’s an excellent question. Like many things, when we wrestle with the issue of inflation, and we try to figure out how to deal with that problem, we learn things and we develop new tools. I would say that our customers have been very fair with us and they have been very favorable discussions.

There is a good mutual understanding that we rely on each other. We are real partners. We tend not to be transactional with our customers. And our customers are transactional with us. So, the good news is those long-term nature of those relationships mean that each and every time we evolve that relationship, it tends to last.

So, I think it all really depends on what happens with inflation going forward. The key thematic is that we will own our part with the type of rigorous cost reduction we normally do. But for these excess costs, this excess inflation, they have agreed to share that in a more appropriate fashion with us..

Got it. That’s perfectly fair. Thank you..

Next question..

Our next question comes from Steven Fox with Fox Advisors. Your line is open..

Thanks. Good morning. Tony, congrats on your retirement, and thanks for all your help over the years. Really appreciate it..

Thanks Steve..

In terms of my – thanks. In terms of my question, I guess I was wondering if you guys could dig into specialty materials a little bit more. It sounded like there were some new drivers that’s going to help sales growth this year.

Just trying to understand maybe the new versus the more typical growth of the recent years and then maybe its impact on gross margins for the coming year? Thanks..

Thanks, Steve. Thanks, especially for the comments on Tony. I think when you think about specialty, you are just seeing the inverse of what you see this year in terms of margin. We are investing in new programs that are stealth in nature.

As the spending has gone up, the investment has gone up as we begin to start to ramp some of those production assets, but they are not totally stable yet, and we are continuing to invest in the product technology.

And what we expect is as we work our way through this year, those products will get introduced, they will start generating revenue, we will get more efficient in making them, and therefore, they will turn into profit – year-over-year profit gains as we work our way through 2022..

So, more of a second half type thing you just said, Wendell?.

Yes. I think more on the second half which is, as you know, tends to be relatively typical in mobile consumer electronics..

Yes. Got it. Thank you..

Great. Next question..

Our next question comes from John Roberts with UBS. Your line is open..

Thanks. Best wishes as well, Tony, and welcome, Edward. Since we have so much CFO firepower here on this call, Corning met the earlier financial goals that were laid out, but they didn’t include an ROIC target. And if you look at Slide 38, again, ROIC is only 10%.

Do you think we will have a focus on that going forward? You have pivoted to focus on gross margin.

I don’t know if you are going to pivot maybe to focus on ROIC as well and maybe wrap the capital spending outlook in with that as well?.

Sure. I mean, I think that if you look back over the last several years, it’s actually been a pretty significant improvement in ROIC. And it was clearly one of our focuses, both on the original strategy and capital allocation framework.

But if you go back to what we talked about in 2019, it was a very specific commitment to get to at least above 10% level, which I am really proud of the fact that we accomplished that in 2021, especially when you think about the challenges from a pandemic standpoint.

But for sure, continuing to expand ROIC, which is kind of the ultimate measure of profitability is a real focus area for us. And so that also remains a high priority from a financial management standpoint..

Yes. I would add, John, that we expect to grow, as we have shared with you and expand our margins, and we gave you our capital guidance. So, we certainly are focused on ROIC and expect it to continue to be important for us as we go forward..

Thank you..

Next question..

Our next question is from Asiya Merchant with Citi. Your line is open..

Great. Thank you for the opportunity. And Tony, once again, thank you for all your help..

Thanks..

I had a quick question on margin. I mean you got some pushback this quarter. I think Tony mentioned there were some start-up costs that impacted margins this quarter, which as Wendell pointed out, were underwhelming relative to expectations.

My understanding was of those cost negotiations and inflationary pressures being passed on to customers were being negotiated in 4Q as well. So, where did you get the most pushback on that? And why do you feel so confident that these inflationary pressures should abate in ‘22 with the negotiated contract? Thank you..

So, it wasn’t so much – it’s really just a timing question. It wasn’t so much of what goes into effect exactly in Q4, who pushed against us and who did it. Really, it’s just – these are all long-term contract based.

And the reason we have these long-term contracts is that our core value creation comes from us making product and having a high transformation value driven by our factories. And the key thing we need to do to drive that ROIC up and to give good streams of earnings to our investors is to make sure we de-risk that capital investment.

So, the good news with that is that the way inflation works is that tends to put some dampening of the effective inflation on us because of our fixed cost structure being relatively high. But the downside is that those long-term contracts, you have to actually sit down and renegotiate them.

So, what gives us confidence is we have renegotiated them and reached a formal agreement with our customers on this is what their pricing will be. So, it takes time to do that, to reach agreement, what is the appropriate sharing. But the good news is, once you reach agreement, you have agreement and then now we just execute. And that’s where we are.

Now we are not close with everybody. There is more to do, and that’s another reason that some of it builds through the year..

Yes. Sorry, Asiya with regard to the start-up costs that you mentioned, that was primarily in Hemlock, and that’s actually a pretty exciting thing for us. As you know, when we did the transaction around Hemlock, in September of 2020, it was primarily based on the semiconductor market, and we looked at solar as an option.

That solar appears to be materializing, and we have signed long-term contracts, and that’s where the start-up costs came from..

Great. Next question..

Our next question is from Samik Chatterjee with JPMorgan. Your line is open..

Thank you. Hi. Thanks for taking my question and congrats to Tony and Ed. I was going to just ask on display here. Tony, you sounded optimistic about the retail TV environment in 2022.

At least in 4Q from the data we saw – I mean we haven’t seen any positive data points, at least the industry seemed a bit more bearish or sort of seeing a soft environment in terms of TV in 4Q.

So, what’s really driving in terms of data points and maybe what you are looking at driving that optimism about TV unit outlook in 2022? And separately, just on the screen size as well. I mean some of the recent data shows screen size increases aren’t going up as much as it used to.

Is there an inflation-driven change in consumer behavior where consumers are maybe pulling back a bit in terms of moving to higher screen sizes? Thank you..

Well, thanks for the question on display. We think it’s really – it’s an important area because what we have heard from investors is that a key factor weighing on our stock price is a concern that the current cycle of downward price in profits in the LCD panel industry would cause a significant glass price and profit squeeze for Corning.

Now what we said in quarter three is that we believe glass supply-demand balance will be tight. And therefore, the glass pricing environment will remain favorable and therefore, we did not expect a significant reduction in our profit stream. We now have a quarter four data. Glass price was flat sequentially.

Further, we guided that for quarter one, the glass price will be flat sequentially. Once again, glass supply demand remains tight. So, now we have a more confirmatory evidence to support our belief that the pricing environment will be favorable in 2022. That, I think is the core evidence that we are looking at.

Now, when you shift to thinking about the market, retail, full glass out in retail overall is like in the range of what we anticipated, right. And size, we actually expect to do quite well in the coming year.

One of the things that happened sort of during the pandemic is that a lot of smaller screens were sold, and that tends to be the place where the units we expected to drop off more and they have, which sort of has the effect of also accelerating, if anything, the diagonal growth on average. That’s the way we tend to think about size and retail.

Would you guys have anything to add on that?.

No, I think that’s exactly right. I mean our expectations for the year really haven’t changed. They are pretty well in line from a unit standpoint with what third-party people in the industry are looking at. And the screen size, we are very confident in. I mean, 1.5 inch has been pretty consistent for a very long period of time.

And when you look at the growth above 65 inches TVs over the last year, it just confirms that 1.5 inch. We feel very confident about that..

Okay. Thank you..

Next question..

Our next question comes from George Notter with Jefferies. Your line is open..

Hi guys. Thanks very much. I guess I wanted to ask about the optical business. Obviously, I think the bet there is just how fast you guys can expand manufacturing capacity. I saw you grew that business, obviously, about 6.5% sequentially. So, you are making progress.

But at the same time, we hear about how your lead times are nearly 2 years for high-count fiber cables. So, maybe you could talk about the gating items to expanding capacity there. Is it resin? Is it buildings and the draw towers? Just kind of walk us through what you see. And then last thing, congrats to Tony..

Thanks, George..

Like as you point out, I won’t comment on our specific backlog by product line, but as you point out, if we could make more, we could sell more. And that’s why we announced the capacity expansions that we did last year. And we expect those to ramp as the year goes on.

With each of those capacity expansions, we need to have in place long-term commitments from our customers. And we have those and that is ramping. So, the real bottleneck isn’t resin, isn’t raw materials, isn’t labor. It is just us being able to get into place capacity that is more appropriately balanced to the demand that we are experiencing..

Alright. Next question..

Our next question comes from Rod Hall with Goldman Sachs. Your line is open..

Yes. Thanks for fitting me in. Congrats, Tony, great working with you. Best of luck….

Thanks, Rod..

So, I had two questions, one on Hemlock. The Hemlock commentary on solar, I thought was pretty positive.

Do you have any ideas for growth there in ‘22 on ‘21, mid-single digits? Any kind of indication you could give us for that?.

Rod, we are not specifically giving guidance, but what I would say is we have signed a number of long-term multiyear agreements. We received cash upfront, their take-or-pay agreements. So, we are highly confident that we will be able to fill the capacity that we have coming online. So, you will see that expand through the year in 2022..

One of interesting dynamics that Ann could maybe sit down with you on afterwards Rod, is from a modeling standpoint.

When we did the Hemlock transaction, as you heard from Jeff, we really stood on the semiconductor business, but we picked up all of those solar capabilities that really is an option with that, with inventory that we also had is solar grade. And so just through this year, we sold down a hunk of that inventory, which generated cash nicely.

And then now you are really seeing new solar grade poly sign being made by us with the start-up that you are talking about. So, when you work through the modeling, let’s have – and sit down to provide a little bit of help on just sort of how that worked..

Okay. Great. Thanks, Wendell. And then the buyback is kind of back to the same level it was in December of 2019.

Should we be thinking like we are back into kind of a normalized buyback regime now?.

Well, for sure, Rod, our approach from a buyback standpoint is first, we generate very strong operating cash flow. And our first priority is to invest that in our business and our growth and sustained leadership. And then obviously, once we have done that, we want to return the cash to shareholders.

As Ed mentioned, we have increased the dividend in 2021, and we expect to increase the dividend in 2022. And then we will be opportunistic on buybacks. And we saw Q4 as a really great opportunity to buy back shares where the stock price was, and we will continue to pursue buybacks on an opportunistic basis..

Great. Okay. Thanks a lot Tony. Thank you..

Shannon, let’s take one more question, please..

Our last question is from Meta Marshall with Morgan Stanley. Your line is open..

Great. Thanks. Maybe just a question on environmental, I just wanted to get a sense of clearly, supply chain is an issue with autos right now, but we hear a lot of like cars that are basically ready to go and just need a chip.

And so just trying to get a sense of when you would expect to see environmental tick back up? Is it when the supply chain shortage kind of alleviates itself on the auto market, or you would need kind of a quarter or two quarters after that to work through kind of inventory that they may have? Thanks..

We don’t see a significant inventory sort of overhang for our product. One of the reason is that our demand supply was tight for that product to begin with as we work our way through the year and our content strategy has put a good amount of strain on our ability to supply.

So, in general, if you had a point of view on when chips started to come back for auto and as auto production scaled, we would expect to roughly follow that timing..

Great. Thank you..

Great. Thank you. Alright. Thank you all for joining us today. Before we close, I wanted to let everyone know that we will attend the SIG Analyst Annual Tech Conference on March 4th and Morgan Stanley Global Technology, Media and Telecom Conference on March 8th. We will also host management visits to investor offices in select cities.

Finally, a web replay of today’s call will be available on our site starting later this morning. So, thank you all for joining us. Shannon, that concludes our call. Please disconnect all lines..

This concludes today’s conference call. Thank you for participating. You may now disconnect..