Corning Incorporated (GLW) Q3 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Corning Incorporated Quarter 3 2012 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Director of Investor Relations Ann Nicholson. Please go ahead.

Thank you, Greg. And good morning. Welcome to Corning's Third Quarter Conference Call. Jim Flaws, Vice Chairman and Chief Financial Officer, will start the call with some prepared remarks. Wendell Weeks, Chairman and Chief Executive Officer, will join us for the Q&A. Before Jim begins, 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 SEC reports. Now I'd like to turn the call over to Jim.

Thanks, Ann. Good morning, everyone. As we enter the fourth quarter, I'd like to step back a little to reflect on the past 12 months for Corning before I cover the Q3 details and the Q4 outlook. Corning's identity and strategy have been in place for a number of years and remain unchanged. We are the world leader in specialty glass and ceramics. We grow primarily through internal innovation led by our R&D in material science and process engineering. This focus allows us to innovate and create keystone components that establish market-leading positions in a variety of industries. Now we pursue this vision by adhering to a strategic framework which guides our decisions and helps us navigate good times and their opportunities, as well as potential volatility of our industries in the macro environment. We emphasize different parts of this strategic framework in response to changes in our environment. The best current example of the framework helping us is our ability to push forward on innovation and develop new businesses, like Gorilla, and also fund shareholder-positive actions despite a weak macro environment and turmoil in the LCD and photovoltaic industries. Now one year ago, we entered the fourth quarter of 2011, we were experiencing significant changes. On the positive side, our financial health and declining need for capital expenditures led the board to act to return more money to shareholders, with a 50% increase in the dividend and starting a $1.5 billion share repurchase. We are also experiencing positive momentum in our telecom, environmental, Specialty Materials segments, led by increasing sales and improving margins. However, on the negative side, we had experienced a significant share loss of a large LCD customer in Korea, and also we are entering into what turned out to be a 2-quarter period of significant price…

Thank you, Jim. Operator, we'd now like to open the lines for questions.

[Operator Instructions] Your first question comes from the line of Mark Sue from RBC Capital.

Jim, if we consider LCD TV penetration rates, it appears future LCD demand will be increasingly driven by replacement. And more and more, it does seem the macro can extend replacement rates for LCD. And if we add to this the concerns on monitor demand, which is tied to PC units which has turned negative, I'm wondering if glass volumes may not grow next year unless the environment gets better. Maybe just your preliminary thoughts on just kind of volume growth as we move forward, that would be helpful.

So we're planning on volume growth next year in the business. Obviously, that's somewhat dependent on where the supply chain ends this year and the amount of inventory. As I indicated, they built quite a bit. But we believe that we'll see growth in the glass market next year. We think televisions will grow. We have to keep reminding everybody that size matters here. The fastest-growing segment is the 50-inch and above, and obviously that's a lot more glass for us. Actually, one thing that's very interesting about the television market this year: Sales of television below 30 inches, the units are actually negative year-over-year and that's making it look like the television unit growth is not as great. Obviously, it could be influenced by tablets. But when you look at the 30 to 40, 40 to 50, and 50 and above, we're seeing good growth rates. And if you take out small-sized, you are seeing good unit growth, and obviously the area is really helping us. So we are planning on the glass market growing next year and we'll give out a number in January after we see how the supply chain finished the year.

So I'd add to that. I think, if you take a look at this year, which certainly hasn't been the easiest economic environment ever. And it's easy to forget that, with the price moves down in LCD, because you're not seeing the revenue growth, volume growth is actually quite robust. And there's nothing about that dynamic other than you can have, in a given quarter or 2, supply chain moves one way or the other, the weakening changes going forward. There's going to be more displays sold in the future than there are now and it's going to continue to be robust. And the key thing is getting pricing stable and continuing to drive new apps.

And the pricing -- the changes that you just made, early on in the year, we made some price changes and we saw moderate price declines. You're going to see a dip in the near term with the new price agreements. How does that revert once we start the year? Does that kind of normalize and so the net of it for the full year is still a low or moderate rate of declines for overall pricing?

Well, we certainly hope so. Perhaps, it'll help if we explained it a little more detail of how it is our agreements with customers are working and what's changed. So let's start with the way we previous -- previous agreements worked. We would set a price, we would go out with a price. And then usually, competition would have to price under us to get share. Now over time, our premium would build up with this approach are leading to share volume and price volatility usually in times where supply and demand got a little bit off-kilter. So now let's talk about our approach now: What we've done with these new agreements is to set our market share and set a fixed relationship between our price and the market price. Now with the agreements that are starting in quarter 4, there'll be an initial correction to take into account the premium that it built up under the old agreements. And that is captured within the guidance you heard from James. Now let's talk about going forward. If you just think through the game theory and think through how these things actually work, logic would lead you to conclude that this new approach should give us steady share at the customers and allow us to smooth our operations, as well as reducing price volatility. Now, of course, the underlying foundation of -- for all of this is always managing glass supply to demand. Now as we look forward, barring supply chain motions in any given quarter, we expect very high utilization and we're not planning to expand our capacity beyond committed supply. And on the supply and demand, also I think something people don't always think through, is what we have done to create more balance. So first, we're getting the increased capacity to serve the growth in the display industry from increased productivity, a combination of thin as well as running better. So that has continued to improve the supply level, all right? Our costs tend to be by the pound and we sell by the square foot. Now as we increase our output of -- what we're doing is we're freeing up capacity to serve the high-growth Gorilla market, which we're also taking thinner. So this combination does a couple of things. First, it makes it possible for us to more closely match supply and demand, which aids in the pricing of LCD. Second and quite importantly, it enables us to grow our revenues without having to invest as much capital, which increases the cash returns for our shareholders and improves our return on investment. So as I describe the totality here, you see what we're trying to do is set the table to be able to have an environment of better price stability as well as better cash returns for our shareholders.

I see. So it does cap your market share near term but improves profitability longer term.

Well, I think cap is an interesting word. What we seek to do -- now let's take a look at what's happened over the last year. Basically, as Jim said in the opening, we had a series of motions at a particular customer where one of our competitors tried to significantly increase their share. Here we are, a year later, worldwide market shares are basically where they started before all that, okay? And what has happened is just a lot of motion underneath the water but we're back to pretty much where we were before this whole thing started. So we're not seeking to gain share overall as a company. We're happy in the leadership position that we're in. What we're seeking to do is have better stability of our volumes and to have a less-volatile environment. We think that's good for our customers and we think it's good for the industry.

Your next question comes from the line of Amir Rozwadowski from Barclays.

Just to follow up on, Wendell -- on some of the commentary around the sort of "set relationship in pricing versus market pricing." Does it still involve a premium to competitors? And does the mechanism adjust intra quarter? I mean, specifically, is there some sort of bend for market share? Or if a customer underperforms in a certain quarter, can they sort of have any sort of outlet for the extra glass supply? Just trying to understand the dynamics of the pricing structure.

Well, I'm not going to comment on the exact relationship between our price and the market price, for obvious competitive reasons, right? Now to the -- will we see intra-quarter motion? The idea behind the agreements is that the share is set, as well as the fixed relationships. So in any given quarter, even for the year, we should not see motion in the share figure. You can see motion in the price figure, and then of course overall market demand can move up or down, but our share figure locks down. So what that would mean is that most of the dynamic in our customer supply chain would be played out with the other glass suppliers, as opposed to us. Does that make sense?

That's very helpful. And then switching gears a bit away from pricing. You folks have been very proactive in terms of returning cash to shareholders, with the number of dividend increases, obviously getting towards the tail end of your buyback allocation. I was just wondering just in terms of, strategically, you mentioned CapEx is coming lower. Cash flow generation. It seems to be improving. Is buyback -- share buybacks part of the longer-term strategy for the company at this point? I mean, should we expect some sort of additional announcement sort of post the completion of the current allocation? I would love to hear some color from that standpoint.

So the board will consider returns to shareholders probably on a regular basis. As you saw in October, Amir, they moved the dividend up by 20%, and it's now up 80% over a 12-month period of time. I'm sure they will consider also our cash position and where the cash is and think about share repurchases again. But I would not anticipate an immediate announcement. But the board will continue to monitor this in -- on a regular basis.

Your next question comes from the line of Amitbah (sic) [Amitabh] Passi from UBS.

Just maybe a big picture question, Jim, Wendell, for either of you. I was curious, how did the quarter progress? Did you think trends got worse through the quarter? I'm just trying to get a sense. It looks like your year-over-year trends have improved but yet your tone, extremely cautious. And I was just trying to get a sense for whether you think the environment is worsening or do you think we're seeing some level of stability at these levels.

Well, clearly, as quarter 3 unfolded, we saw some step-downs in 2 of our businesses. And that really occurred primarily in August in telecom and environmental where, in environmental, we saw cutbacks in orders from heavy-duty truck makers. And in telecom, we just saw business not materializing that we expected. I would say environmental is continuing to get worse. Telecom has been relatively stable since that step-down in August.

And I think the reason that you see the mix is, on the other hand, display -- as the quarter moved its way through, both display and Gorilla were good. And Gorilla got extraordinarily good and it's continuing really strong momentum. So I think, when you step back and look at the total, the strength in our glass side more than offset any issues on telecom and environmental. So why you hear the mix in tone is that we are -- we want to make sure that we're cautious in the economic environment that we face, but at the same time, we're happy with the way in which we're playing out our hand in display. And in those areas where we've got big innovations, you're seeing them behave like big innovations which is, no matter what the wind, you tend to sail pretty fast.

And maybe just as a quick follow-up. Jim, the $50 million in restructuring you're taking in the fourth quarter, how should we think about the associated savings related to those cost-restructuring plans?

I'm not prepared to give you the number yet, but it clearly will be more than what the charge of the restructuring is. And by the way, that $50 million is -- we expect to be mostly cash. There's no asset write-offs in it.

Your next question comes from the line of Jagadish Iyer from Piper Jaffray.

Two questions, Jim. First, I'm trying to reconcile: You had made a commentary that panel makers' utilizations are improving. Why should pricing decline in such a scenario in Q4? Is that -- I just want to make sure that I understand it correctly. Is that for a single customer, or is it across the board?

So I think I made the comment that customer utilization has improved in Q3. We expect them, at best, to be similar in Q4, maybe slightly down. From price point of view, our perspective is that we're in a consumer electronics industry. Price is going to come down over time. We expect to -- our goal is to have price declines every quarter to be moderate, if we can. The increase in Q4 versus Q3 on prices, as Wendell indicated, are related to the new contracts and some catch-up. But our price declines are not just at one customer.

And if you take sort of at a base heartbeat of what we're seeing on the pricing in quarter 4, it is -- as Jim described, it is that moderate price-down that we seek, and that we think is going to continue going forward. And then it's just a matter of that switch in approach ends up with us having to overcome sort of that premium that just builds up over time under the old way.

And just as a follow-up. Jim, you had talked about that 6- to 7-year time frame were the product gets refreshed. Given the macro situation in terms of how we see the uncertainty, how much are -- how much conviction do you have that this is likely to materialize going forward into '13?

You're talking about the 6- to 7-year replacement rate?

Exactly.

We remain pretty confident about the replacement rate. Sometimes, we see events like, in Japan, where, thru the echo-point, they kind of pulled forward all their replacement rate into a concentrated period of time. But our evidence says that the replacement rate is continuing to be along with our expectations. Obviously, you have some places in the world where macro events can overwhelm that, if your economy is really terrible. And clearly in some of the Southern European countries that's obviously occurring. But in terms of the fundamental of people replacing LCDs, we're now starting to get to the point where, in some markets, LCDs are crossing over that 5-year age, and that's where we start to see it. And we are closely monitoring it, but we still think it's going to happen.

And I think the other place you've got to look to for replacement rate is the new technologies that are coming. Now it's really hard to tell what year they'll have an impact, right? Whether it's '13, '14, that's hard to tell. However, what's easy to tell is that they will. So in very-large-sized displays, you have a tremendous amount of innovation that you're not quite seeing yet, but we are because we're working with folks on it, that are going to change the way flat-panel displays -- the customers experience flat-panel displays. And that will help spur it. And then the other is take a look at -- notebooks is -- one thing we know with high degree of confidence is touch is going to come to notebooks, right? I've seen a lot of new product sets that people are working on to do that, and they're quite exciting. What we don't know is when the combination of Windows 8, the brands who are designing these new types of notebooks and Intel, with some of the processing fees, until it all comes together in a compelling package. Is that '13, is it '14? It's hard to tell. But what is pretty easy to tell is that is going to lead to us -- both a strong refresh cycle as well as nice new demand for us on both the touch and the monitor side.

Your next question comes from the line of Ehud Gelblum from Morgan Stanley.

A couple of quick things. The -- going back -- I apologize for this, but going back to the contracts -- the new contracts in display. Are all the glass providers -- so your competitors in Japan and other, are they -- have they agreed to similar contracts? So is this kind of an industry-wide thing, or is this something that Corning initiated separately? And does this go across all of your customers, including BOE and Samsung's new China business that you're supporting? And it was asked about intra-quarter pricing, but -- so you're -- just to understand the mechanism, you're guaranteed a certain percentage, I assume, or share of each one of these customers' requirements each quarter and they decide what the price is. And does it change from quarter-to-quarter? Just a little bit of flavor around that would be helpful. And then I have a follow-up on Gorilla.

Jim will probably help me through it because you have a lot of questions buried in there. First one was, what are our competitors doing? I don't know. You should ask them. The second one on sort of what customers have we reached these type of agreements with: the ones that we consider to be significant from a volume standpoint as well as how that particular dynamic is playing out in the customer on what they want to do and how they want to work their way through it. And each customer is a little bit different. The final one is asking on the mechanics, basically, of it, is -- what we would expect in any given quarter that -- once the market share already is set, guidance across that year. And then in any given quarter, our price is set with a fixed relationship to the market price, which we would expect to stay consistent for a given quarter, so there should not be significant inter-quarter moves, assuming that it all works the way we are planning for it to work. And that is the way the mechanics work. Did that make sense?

A little fuzzy. Who decides the market price? And how does that -- does it actually get changed from each quarter to each quarter?

So there'll be a level of detail underneath that I'm not going to want to go into. But it is, "What is the actual market price?" And that will be a fixed relationship between that and our price, which should account for any sort of noise but maybe in differential perception.

Okay, helpful. And then Jim, CapEx guidance, it was basically in line for 2013 but a little bit on the higher side of your previous guidance. With macro getting worse, could we see CapEx actually perhaps come down from that $1.9 billion for '13? And then kind of a big picture question, I guess, back to you, Wendell, is: Gorilla Glass and autos, that's always gotten me excited. How far away is that? You talked about that at your Analyst Day earlier in the year, but is that something we can look at in the next couple of years? Or is that more of 5 or 6 years away?

So Ehud, on the capital, you may have misspoken, but the $1.9 billion is this year. Our number for next year is $1.3 billion, that was our number that we've had for a while. In the July call, we said we had some risk that it might climb. We now think it won't climb so we're very confident about the $1.3 billion. It's possible it could be lower, but it's $1.3 billion for next year.

The automotive. We're getting some really nice pull and engagement actually as recently as this last month. So that's the good news. I think you just got to keep in mind that the automotive industry does not move like tech and consumer electronics. So even once you have a platform win, it's a while before that platform win turns into commercialization. So it's got a little bit slower heartbeat as much as both us and our customers probably wish it went a little faster.

Your next question comes from the line of Patrick Newton from Stifel, Nicolaus. Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division: I guess, the first one, I'm trying to understand the variance in display results from your very strong wholly owned business and the somewhat-weaker SCP results. And I was hoping you could discuss share at the problematic customer earlier this year and, I guess, later last year, whether that stabilized, grew or contracted sequentially and also your thoughts on share of that customer on a go-forward basis. And then additionally, Samsung announced, I believe it was on Monday of this week, that they've -- they're terminating their LCD contract with Apple. And I wanted to get your thoughts around how this announcement perhaps impacted SCP's 3Q results and how this could impact your wholly owned business on a go-forward basis, given your exposure to Apple's other qualified suppliers? And then I have a follow-up.

Okay, I'll try and take some of these. Maybe Wendell will take the Apple question. So our wholly owned business was quite strong, as we expected when we entered the quarter. That was driven primarily by increased utilization in Japan. You may recall, in Q2, our primary customer there had lowered their utilization quite a bit. We expect it to come back, and it did in Q3, and that really drove the larger increase because of that. We had good demand at our other wholly owned customers especially in China. For Samsung Corning Precision, basically, they have 2 customers. The utilization rate at those 2 customers didn't change very much during the quarter so we didn't really expect to see much change in demand there. Relative to the one customer, we announced that we had a -- the deal with them for the entire year. I think we made that announcement in the spring and so there really hasn't been any change with that customer since the spring. We obviously expect to continue to supply them. And we'll -- have not yet entered into negotiations for next year but will and hope to be a supplier with them and continuing what we've done for the last -- latter part of the 9 months of this year. Now Wendell, I'll turn it to you, to talk about Samsung and Apple.

For mental and physical health, we try never to talk much about anybody who lives in Cupertino or Seoul, so I don't want to comment on any of that dynamic. What I will do, though, is, at -- the core of your question sort of gets into, for very high-performance displays, do we have really nice channel to market either through a direct relationship with the brands or through the appropriate players in the panel display chain? And I'd say we feel good about that. And actually, with what's going on for us right now in high-performance displays or those very high-pixel-count displays as well as creating backplane engines for things like OLEDs, we are feeling stronger and stronger with every passing month rather than vice versa. Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division: Well, I guess, it was worth the try, Wendell. I guess, for my follow-on, Jim, I kind of want to ask the same kind of display pricing but in a different way, just looking at the P&L and on gross margin. And if we look at gross margin, I understand that the guidance for sequential decline as -- I think you said, is a -- pertains to a pricing reset in display in 4Q. But if I take your comments about, I guess, the preliminary expectation of volume growth in the display business in 2013, should we expect to see an improving gross margin trajectory as we kind of move through the year given that preliminary thought?

It'll obviously be a combination of what the volume is for next year and what pricing is for next year. We achieved what we hoped to on moderate pricing and have that carried for the entire year. And with the volume that we think it's possible, you might see a slight increase in display gross margins. And clearly, relative to the corporation, it will depend on what the other businesses are doing. The good news for us right now is Gorilla is well above the corporate average. And therefore, like we've experienced in years past with display, we are niche-pulling strong. It actually is helping drive our corporate number up. So in the future, when I talk about our corporate gross margins, it -- hopefully, they will be less all about display margins and about the impact of Gorilla helping out.

Your next question comes from the line of Steven Fox from Cross Research.

Two questions, please. First of all, with return to forward technology trends, I think Apple was highlighting on their new product introduction yesterday the use of thinner glass. And I was curious if that announcement in any way is accelerating the use of thin glass and if you could tie that into sort of where we are with the Willow development, whether you've had any progress during the quarter. And then just secondly, if we could just talk a little bit about diesel and Gorilla Glass gross margins. Putting aside the volumes for a second, can you talk about where operationally the gross margins are, whether there's more room to improve or you have them at optimal levels, that would be helpful.

Great. So on the forward tech, once again, we're going to follow our general rule of never talking about anybody who lives in Cupertino or Seoul. So I will now generalize. We're continuing to see really a trend that we started in glass, which is to push towards thinner, to gain more and more momentum. And you see that in a variety of different product offerings and it's really validating our strategy from a technical standpoint and from a productivity standpoint, so that's great. On Willow, Willow is a really big idea that we continue to make good progress on both in our ability to do it in commercial levels of production as well as market development. That being said, because it's a big idea, in any given quarter, it isn’t going to feel like there's a lot of progress on the outside because, until the fundamental supply chain -- it changes so much that it's going to take a while for a really strong obvious market pull to arrive. And then when it does, it will scale very rapidly. It will be one of our classic innovations where everybody will go, "What's going on? What's going on? I haven't heard a lot about Willow?" And then, it will turn on like a light switch and be really big. And which exact market it's going to hit first, this is hard for us to tell, but we certainly feel good about our progress so far on that. Jim, do you want to touch on margins? And then I'll build on the diesel.

So I would say, on Gorilla, we still feel the potential for margins to improve, they're really quite good right now. We are delighted by them but, we think, have potential to improve. On diesel, my -- I'll let Wendell comment. My own take is that, that we made quite a bit of improvement in diesel margins but I think we still have manufacturing projects that, when we have a volume, will allow our gross margins to improve, in diesel also.

I think [ph], without doubt, that's the case. We got a lot of momentum there. And now we just need the volume to come on back, which I think I'm certain that it will. When? It's hard to tell. But people are going to buy heavy-duty trucks again, right?

Your next question comes from the line of Simon Jankowski (sic) [Simona Jankowski] from Goldman Sachs.

So a couple of questions. First, when you talked about exiting the quarter with 15.5 weeks of inventory, can you just remind us how that compares to what would be a normal level of inventory heading into Q4 or, put another way, if you can just try to quantify the amount of excess inventory that you see right now and where those pockets are?

So we would say, normal is hard to judge in this business because of all the cycles we see, but I would say it's definitely more than what we expected to have -- be there. And I would say that we're -- from our perspective, we would say it's probably 50 million square feet, 50 to 70 million more than what we would have expected at this stage. The thing that's harder for us to judge is as the LCD business has grown rapidly in what I'll call the more emerging markets and then in China as it's expanded in more rural regions, is whether the supply chain is more inefficient, and therefore that's a reason why we may be seeing more inventory. But I would say that's my characterization of the risk of too much inventory right now heading into the fourth quarter.

And implicit in your guidance for Q4 is that you think some of that may get reduced, which is why you're taking a more conservative stance than what the panel guys are saying. Why do you think that you have that different view than the panel makers? Why are they not seeing the same dynamics as you are and why are they still planning to run at equal, if not slightly higher, utilization levels into Q4?

Well, this comes down to something we've been debating with ourselves, is we could fundamentally be wrong and there may be stronger demand that they're seeing that we're not. And therefore, they have good judgment of why they should keep running, and they're not going to end with that much inventory. That obviously would be a good news story for us that they don't end up with inventory, and retail is stronger. So we may be subject to our particular modeling and our solid experience with the volatility of the supply chain in the past. But they may be right, and if they are, we'd be happy to ship it to them. And we'd be delighted if they ended with less inventory and better retail.

Okay. And then just to follow up on the whole contract pricing discussion. You mentioned that you have done these contracts now with a number of your larger-volume customers but that some customers, like the -- one of your SCP customers, you're -- you have yet to renegotiate a contract into next year. Can you just give us a sense of roughly -- are you done with the majority of these at this point, or do we have another sizable chunk ahead? And the reason I ask is just trying to anticipate if we may see another pricing reset next quarter as kind of the next chunk of customers get into these kind of pricing readjustments.

So we wouldn't expect the sort of correction of premium to be a recurring theme because at the core of what we're doing is to have the set relationship. That being said, I think the key thing to watch for as we go forward is going to be supply, demand and balance, what's happening overall with the market. And I think that will be more of the leading theme, as well as, "Is the table that we have tried to set here, is that -- end up playing out the way that we would hope that it would?" And the logic would say it ought to.

And -- but just to be clear on why you would not expect the correction of a premium to occur to one more quarter. Is that because the amount of volume that at this point has been renegotiated is much larger than what remains to be negotiated? Or is it just because the one that remains, the potential adjustment, is much smaller?

I'd say the first is a more correct statement than the second.

Your next question comes from the line of John Roberts from Buckingham Research.

Does Dow Corning have its own restructuring plan in addition to what Corning is talking about here?

Well, Dow Corning does have their own restructuring plan. They've been reducing people ever since the second quarter, but we're not anticipating any special charge, they've been doing it on a consistent basis.

Scope it out for us at all? Will it be a -- does it -- will it turn their earnings, do you think? Do they exit that quarter still declining in terms of earnings?

It all depends, John, on Hemlock. And that's the wild card there, as you know, going into the polysilicon prices that occurred, actually, about this time a year ago. This is an extraordinarily profitable business, and pricing has plummeted and now we're seeing demand into China plummet with the trade wars. So that overwhelms. But I think that silicone margins are likely to grow slightly.

We have time for one more question, Greg.

Okay. That question comes from the line of Mehdi Hosseini from Susquehanna International.

Going back to earlier questions about the industry. How should I think about penetration of LEDs into the overall TV market? And I'm asking that because it seems to me that we're exiting 2012 with, like, a 70% penetration. And yes there's growth for the larger-sized LED TVs, but doesn't that imply that, despite inventories that are coming at -- under control, there could be below-average growth until the next catalyst for the replacement appears? Any thoughts you have will be great. And I have a follow-up.

Sure. On LED penetration, I'll just give you some statistics. Actually, the place where LED penetration is really low is the United States. It's only achieved slightly over 50%. Japan is the highest, but it's probably no surprise. It's in the 80s. And Europe has been moving up, but it's still only again 70%. So we think LED is an important part of the replacement factor. It makes what used to be a thin television, super thin. And as you see the ads for this upcoming holiday season, people aren't at the sizing can [ph]. So I think LED is still a driver, along with other improvements in the technology.

So what are you -- what is raw penetration worldwide as we exit 2012? Are you implying that it's actually well below 70%?

Yes, I do believe it's well below 70%.

Yes.

Got it. And then on the Gorilla and more on the mobile market, should we expect a typical seasonality into early next year, especially with some of OEM partners that are already out with their new products, they may take a pause until the next refresh comes in?

We don't have, unfortunately, a typical seasonality with Gorilla that we've been able to prove. Part of this is that the supply chain is actually far longer in the Gorilla cover glass business than it is in the LCD business. Obviously, that can be similar to customers who can have an influence when they do a big rollout, but we've seen customers do more frequent rollouts with models and so it's always possible we have a pause. But right now, we're having a hard time keeping up with our customer demands to Gorilla. Okay, so I'd like to wrap up. I just have a couple of comments here. First, from an IR point of view, we will be speaking at the UBS global technology conference in New York on November 14. And also, we will be at the Credit Suisse Technology Conference in Scottsdale on November 27 and we're delighted to see our investors there. In terms of summarizing some of the things we talked about today. We think we've made excellent progress on our plan to stabilize display and grow out earnings potential in the other businesses. In display, we're delighted with our new agreements with key customers and we think they will give us strong benefits in 2013. Demand for Gorilla is very strong and we expect it to continue into Q4. We've got very good operating cash flow. The board reacted by increasing the dividend 20%, increasing our 12-month increase in dividends to 80%. We obviously are feeling some effects of the macro economy, but the management is reacting quickly to control costs due to restructuring and will offset some of those impacts and hopefully allow us to grow earnings in 2013. Lastly, I'd like to make one comment, first of all on Ken Sofio. Ken continues to progress and appreciates very much people who emailed him. And second of all, I'd like to thank Ann, Linda and Kelly for stepping in and doing great job with IR over these past few months. And with that, I'll turn it back to you, Ann.

Okay. Thank you, Jim. Thank you, all, for joining us today. The playback of this call is available beginning at 10:30 a.m. today and will run until 5:00 p.m. both Eastern and Standard Time on Wednesday, November 7. To listen, dial (800) 475-6701. The access code is 266618. The audiocast, of course, is available on our website during that time. Operator, that concludes our call. Please disconnect all lines.

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