Good morning. Welcome to the Corning Incorporated second quarter 2013 earnings results. It is my pleasure to turn the call over to Ms. Ann Nicholson, division vice president of investor relations.

Thank you, operator, and good morning. Welcome to Corning's second quarter conference call. With me today is Jim Flaws, vice chairman and chief financial officer. Before Jim begins his 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 SEC reports. You should also note that this presentation contains a number of non-GAAP measures. A reconciliation can be found on our website. Now I'd like to turn the call over to Jim.

Thanks, Ann. Good morning everyone. Our priority over the last 18 months has been to reestablish positive momentum in our display technologies segment and also to grow our other businesses. We had a very strong second quarter, delivering our third consecutive quarter of year over year double digit EPS growth. We further stabilized our display technology business and achieved growth in our telecom, specialty materials, and life science businesses. Display continues to regain positive momentum. LCD glass price declines were less than in quarter one, and in the range we expected. Looking ahead, we expect Q3 price declines to be in the same moderate range as Q2, and our market share remains stable going forward. Combined with our new product developments and cost performance, we are delighted with display’s results in 2013, and we are growing our four other businesses. All four provided solid operation results, collectively contributing to sales growth and 40% higher net income on a year over year basis. In total, with sales and gross margin up and S&A down, we delivered an additional $0.06 of EPS to the bottom line year over year, despite the weaker equity company earnings. This is a significant achievement against our commitment to investors to return the company to earnings growth. We believe three consecutive quarters of double digit year over year growth and an outlook for continued year over year earnings growth in quarter three provides solid evidence that our strategy is working. Now, before we jump into the details, I’d like to remind you that last quarter we began reporting our results as core earnings in order to exclude non-performance-related items and increase the transparency of the operating results. It excludes two significant items, yen exchange rate fluctuations and the results of the polysilicon segment of Corning’s affiliate Dow…

Thank you, Jim. Operator, we’ll now open the lines for questions.

[Operator instructions.] We’ll go to Mark Sue with RBC Capital Markets. Your line is open.

Some of the programs you’ve initiated, such as capacity control and the move to thinner glass are helping to improve gross margins. So I’m trying to get a sense of the sustainability of your efforts. Are we at a point of diminishing returns? Or are there further efforts to tactically improve gross margins? And conversely, are we at a point where you’re now getting the premiums or the early signs of premiums, particularly as it relates to Gorilla Glass and the new applications, such as NBT. Maybe if you could help us there, please.

Mark, I assume you’re talking about our corporate gross margin. And as you know, that’s always a combination of the mix of our various businesses. But what we like about our business hand right now is gross margins in telecom, specialty materials, life sciences, and environmental are actually improving. The corporate mix will obviously be dependent on the mix of the sales of those businesses, but the fact that all are improving leads me to believe that we have the potential to continue to move our year over year gross margins up. Obviously the most important thing for us remains display, and we must have moderate price declines. We had good price downward movement in Q2, being less than Q1. We’re expecting Q3 to be in a similar range, but we continue to believe there’s potential for price declines to moderate even further as the quarters unfold. So I would say we’re not running into diminishing returns in terms of sustaining gross margins. It’s premature for me to talk about the premiums on our new products.

Now that we’re almost anniversarying your price change to Corning’s price and the market price, the thought is that the moderate price declines will prevail. How does that occur when you have a competitor that’s still adding capacity? Or is that just very localized, do you feel? And at the same time, as we move towards the back half of the year, are there annual price negotiations that are still variable, or are we at a point where the pricing change that you’ve made is going to be beneficial for the industry going forward?

Obviously I can’t speak for our competition, but we believe that price declines have moderated for the entire glass industry. And particularly with a benefit to our panel customers from the yen, we believe there’s potential for that to continue. In terms of the capacity additions by our competition, we believe only one of our competitors is adding capacity in Korea, and we believe even that is at a very moderate pace. We’ve learned that the capacity there is smaller tanks, so we’re hopeful that we’ll be able to have an industry environment where price declines continue to be at a moderate level. It’s premature for me to comment on price negotiations and contracts. We’ll give you an update on that in October.

Our next question will come from the line of Wamsi Mohan with Bank of America Merrill Lynch. Your line is open.

Jim, can you comment on the China deceleration in the back half as it pertains to display? I think you mentioned an area growth of 5% in the second half. What is the underlying unit assumption? And will your glass shipments match that level of growth? Or are inventory levels such that you might be undershipping that level?

We’re looking for our glass shipments to be consistent to up slightly. So units will be negative in China in Q3, but area will be only slightly negative. We’re looking for area to be up in Q4 in China. And remember, there are Chinese holidays, again, in the later part of the year.

And a quick follow up. On specialty materials, it looks like the revenue outlook was a little softer than most expected. Can you address if it’s an inventory correction related issue? Or is it weaker demand given the deceleration in tablets and to some extent in smartphones? And any update you might have for us on auto?

On auto, I don’t have any update for Gorilla at this stage. Relative to Gorilla for consumer electronics, we have been working hard on modeling the supply chain, and we believe that there was excess inventory built up by a number of customers from the fourth quarter. And that’s being worked off this year. And then the second thing, of course, is that we have seen yield improvements in the supply chain over the course of the year. So those two things have been maybe reflected in what you perceive as the softer demand for Gorilla. If you take those out, looking at the amount of Gorilla being pulled from the supply chain to go into phones and tablets going to retail, we think it’s growing nicely. Obviously it always depends somewhat on model launches in the phone business, but that’s what’s affecting it. But really we did have some excess inventory carried over this year.

Our next question comes from the line of Rod Hall with JPMorgan. Your line is open.

You just commented on the Chinese subsidy. You expect it may come back down again at the end of the year. Are you assuming that subsidy reduces in your guidance for Q3? Or are you assuming it’s static in Q3, and then we’ll wait and see what happens and decide how to guide for Q4? That’s my first question. And then the other thing is I know you normally don’t like to comment too much on capacity utilization, but it feels like utilization for glass capacity is getting relatively high, and I wonder if you could just comment on that, give us any color, on what you think capacity utilization looks like. And then also, for panel, just where are we with capacity utilization and where you think we’ll be as we get into the seasonally high month here heading into the back end of the year?

That’s a lot of questions. On our assumption on China demand, we’re assuming the subsidy has gone off. We’re not including anything coming back in our outlook for the remainder of the year. All we’ve heard is some rumors that there may be a new subsidy in the fourth quarter, but that’s not in our demand at this point in time. Relative to capacity utilization, our wholly-owned display business is relatively full. We’re delighted by that, as you saw the very strong shipments in quarter two. Gorilla, because of the inventory work off, is not as full right now. We have significant capacity still offline at SCP. Panel capacity, we think there’s adequate panel capacity to meet what we see as retail demand.

Our next question comes from the line of Patrick Newton of Stifel. Your line is open.

I wanted to dive a little bit into display inventory levels. You seem relatively comfortable with the 18 weeks of inventory level, but I’m curious, if we go by geography, are there any areas where inventories were more elevated or lean? And specifically focusing on China, given your expectation of lack of subsidies in the second half? And then do you have any concerns on inventory levels in tablets and smartphones relative to TVs?

I don’t have any detailed information on tablets/smartphone inventory. On display inventories, I wouldn’t characterize it as relatively comfortable. I’m always nervous when inventories get to an 18-week level. We have done a lot of work on trying to figure out is the items that I talked about with the more sizes really having an influence? We have some positive information that says that has been contributing, but I remain nervous about the 18 weeks. I don’t have a lot of geographic information. The only thing that I’ll comment on is that we believe that there has been an excess of 32-inch televisions built in China. And that’s the only place that I’m aware of where there’s a potentially significant problem, that’s localized.

And then I guess as a follow up, on the Gorilla Glass outlook, I’m trying to understand. You did make the comment that touch could be shipping, specifically the Gorilla Glass MBT, in the second half of ‘13. I was wondering if that is baked at all into your guidance for Q3. And then the comments that you made about cover glass for phones and tablets increasing about 30% year over year, but you have yield improvements and inventory heading into the year. I’m trying to circle that back to your previous guidance, I think, that Gorilla Glass would grow double digits year over year. Could you help us perhaps narrow that range between double digits and 30%?

I guess I would say that when we look at the amount of inventory and the amount of yield issues, that have occurred for this year, that we would have thought that the demand for Gorilla on us would be greater. And when we adjust for those two things, we would say that there definitely is greater than 30% growth, but those two items have harmed us, if you do a comparison year over year.

But still a double digit expectation for Gorilla Glass? Growth year over year?

Yes.

Okay. And then, I’m sorry, in the touch notebooks, that all baked into Gorilla Glass for Q3?

Yes, but very small levels. We’re still unsure about how fast the consumer acceptance will come on touch notebooks. I was delighted to see in the Best Buy circular last week quite a few advertised, but we put in a fairly low level right now.

Our next question comes from the line of Steven Fox with Cross Research. Your line is open.

One clarification and then one question on LCD glass. Just on the guidance you provided, you referenced year over year comparisons versus gross margins and expenses. Is that versus the restatements already provided, $0.29 and the 44% gross margins? Or is there something else that has to be restated out of that, as you also mentioned? And then secondly, just on the LCD glass, the two big dynamics seem to be China and average screen size increasing. Is there any sense for how much the China subsidies helped in terms of that 40% growth in the first half? And then in terms of average screen size increasing, you seem to be implying an acceleration in average screen size, even versus what you talked about at the analyst meeting. Any more color around how that’s helping, maybe in the second half of the year?

The screen size thing is becoming increasingly important. We really started seeing this large size impact start last year. We were uncertain whether it would continue to grow this year, but it definitely is, and seems to be accelerating. So you’re right about that. I think all of my statements on gross margin relate to our restated results from the prior year, and as I mentioned on our website we’ve done some updates on that, and many analysts asked us to do 2011 also. So we’re putting that on our website too.

And then just in terms of China, how much do you think the subsidies helped in the first half?

I don’t have a detailed number right now.

Our next question comes from the line of Brian White from Topeka. Your line is open.

When we think about Gorilla Glass on the notebook, I just want to be clear, are most of these wins primarily coming at the screen level? Or are you also providing Gorilla Glass for the back casing and the keyboard?

That’s a level of detail I just don’t know. I’m sorry.

And when we think about this ramp, you said obviously you have Dell, about how many other customers do you have? And is this more of a fourth quarter ramp? Or it really does start in earnest in the third quarter?

It starts in the third quarter, in earnest. I don’t have a list of the number of customers, but we think our market share on touch on notebooks has been climbing. Initially, our competition is really soda lime, for cost reasons. And we believe our market share on touch notebook wins is climbing every quarter. So we’re quite pleased by that. But we begin shipments in earnest this quarter. Again, as I mentioned in reply to an earlier questioner, what we’re just uncertain about is how well these notebooks will do at retail. Obviously pretty weak PC market. But definitely in terms of the models that will be out there, we’re increasing our market share.

So if I have a $500 notebook, this is a $50-100 price for the consumer? One to two percent is the cost of the Gorilla Glass.

No, 1-2% is like $5-10.

Our next question comes from the line of Jim Suva with Citigroup. Your line is open.

It sounds like you’re indeed building in a no return of the China subsidy into your outlook, which I think is a positive. Under the premise of if the China subsidy were to come back, do you have the capacity to ramp production? And if so, what’s a typical lead time for you to pour the glass, get it into the channel, and for it to make it onto the shelves for selling to the local Chinese citizen, if the subsidy were to return?

We do have capacity, and the lead time is relatively short, as we are in Asia, and it’s pretty easy for do that. So I would say definitely two months or less we can have capacity there.

Our next question comes from the line of Amitabh Passi with UBS. Your line is open.

I was wondering if you could comment on LCD demand trends in some of the other geographies, particularly Europe and North America.

North America has been good, driven by sizes, for the most part. Europe has been weak. Japan has fallen to a pretty low level. We think actually Japan television will probably be flat for the year now that we’ve anniversaried that. These are in terms of units. We’re seeing good growth in the other Asian markets in Latin America and the Middle East in terms of units.

I’m curious relative to expectations, are these geographies generally in line? Weaker? Better?

I’d say Europe is weaker. Most of the rest are in line in terms of units. And then size is ahead of our expectations.

And then just based on the stock buyback you did in the quarter, I would have expected a larger decrease in the share count. Should we expect some of that to show up in Q3, or were there some offsets?

Well, remember the stock buyback didn’t start until later in the quarter. We didn’t make the announcement until the end of at least one month had gone by.

Okay, so we should expect some of that to show up in the share count in Q3?

Yes.

And then just any help you can give us in terms of your appetite to sustain buyback for these levels of how you’re thinking about just capital allocation?

Well, we have a $2 billion program authorized by the board, and we expect to continue to buy back in Q3 probably similar to slightly higher levels maybe.

And fiber to the home, you talked about strength in North America. Just wondering where you’re seeing that. Is it with the tier ones, or some of the small operators? Any [insight into that] would be helpful.

That strength was mostly Canada.

Our next question comes from the line of Joseph Wolf with Barclays. Your line is open.

I wanted to come back to the inventory and the work that you’ve done on the global side, and the differences between China and the rest of the world, and where you are in terms of reading that, and how we can think about that going forward in terms of maybe even not talking about price declines moderating, but prices starting to stabilize and maybe improve.

I’m not sure I follow your question. Are you asking about inventory in the supply chain regionally?

Regionally and how that fits into, I guess you talked about a very strong demand in China and Korea kind of being consistent. So if there’s a global element to that inventory, and whether that will impact any pricing in 2014.

As of right now, I don’t have a reason to believe that we won’t stay on this moderate price decline that we experienced for these quarters. There’s nothing that we’re seeing right now in terms of the level of inventory. I don’t have a lot of details, as I mentioned in response to an earlier question, about where the inventory is. I did mention that in China there seems to be an excess of small sized televisions, 32s, but beyond that I don’t have a lot of detail. I think the worry that you’re probably touching on is if there’s a sudden inventory correction, then that could impact on pricing. But right now we’re not feeling that. Our order rate in July and our order rate for August has remained quite strong.

Our next question comes from the line of Simona Jankowski with Goldman Sachs. Your line is open.

I just had a question on display, and then a couple of followups on Gorilla. On display, you had ended Q1 with what you considered tight internal inventories and were air shipping some product. Is that still going on? Or do you feel like you’ve caught up now in terms of your own inventories and production? And also, did you convert any additional tanks to Gorilla in the second quarter? Or are you putting that on hold for now given the situation in Gorilla you talked about?

We’re not converting more tanks to Gorilla right now, as the supply chain works off some of the inventory. In terms of our own inventories, we actually remain tight. We did air ship in Q2. We hope to not air ship in Q3, but we’re still tight. We wouldn’t mind having more display inventory. Corporately, on inventories, we have built inventory. The build is the largest in telecom, where we built over $100 million inventory. And we have built some Gorilla inventory.

And then on Gorilla, where you talked about the perceived softness there in the guidance. You commented on thin glass. Is that impacting the revenue growth levels in Gorilla, in particular if that’s causing you to get a lower ASP per square area? And then I also wanted to get an update on your expectations for 3D glass, if that’s something that is going to ship this year, and is going to be a meaningful contributor. And then lastly, it seems that Asahi’s Dragontrail is gaining some traction in the market and is starting to get used as a second source. Is that impacting your Gorilla expectations?

I don’t think Dragontrail is really impacting our expectations. Clearly we don’t have quite as strong a share as what we had originally, but it’s still extraordinarily high. I don’t have an update on 3D, so I’m sorry, I’m not current on whether we’re going to ship anything this year or not. I know the program is continuing to move ahead.

And the thin glass in Gorilla?

Thin glass in Gorilla, it’s primarily an impact on our cost.

Okay, so it doesn’t change the ASP per square area?

Its primary impact is on our cost.

Our next question comes from the line of Ehud Gelblum with Morgan Stanley. Your line is open.

Quickly start on telecom. You mentioned an affiliate that you brought in house. Can you just give us a sense as to what it was, how large it was, and how much that impacted the numbers? And then you also mentioned in telecom that there were some delays in China and some large fiber deals. Do you have any color on what caused those delays? Was it the change in management that happened in a couple of Chinese carriers? And how far out did this get pushed? And I have some questions on LCD and Gorilla.

The small company was a previous joint venture that our Corning Cable Systems unit had. Its impact was about $5 million in Q2, and I think it will be almost $10 million in Q3 in terms of consolidated sales. It’s really relatively tiny. The telecom tenders, we were expecting tenders to happen earlier. I can’t tell you why they don’t. You probably heard me say in the past that we believe all of the telecom business in China is ultimately controlled by government policy. So whether it was the management changes or not, I can’t know for sure. But definitely tenders that we expected earlier have not happened yet. There is a tendering process right now. What we just don’t know is when it will be complete, and how much the volume will be. But definitely against our original expectations for China, this has been a slow down.

On LCD, obviously screen sizes have been growing for the last almost 18 months or so. To what extent do you think the significant fall-offs in glass pricing that we’ve seen over the last 18, 24 months, how much do you think that has contributed to people just buying larger TVs because the price points have come down, primarily because glass pricing has come down. And we’re now, in 2013, in an era of moderate price declines as we get into 2014 and beyond, do you think that maybe we’ll see an end to the larger screen sizes? You see what I’m saying? Maybe the larger sizes will link to the lower prices? When you [unintelligible] lower prices, you [unintelligible] larger screen sizes a little later too?

I don’t think the glass price declines have been the primary reason why pricing at retail has gone down. Obviously it contributed and for panel makers, also the fact that the yen has helped them on their profitability has gone up. I just think that the price points and the quality of televisions are so incredible that it’s hard to imagine people buying a small television now. I got up early this morning and read a whole bunch of retail television ads for the past month, and I just remain stunned by how low the price points are. So I’m not expecting price points to go back up on large televisions next year, and I think we’ll begin to see sometime next year 2k/4k showing up. Obviously that would be more expensive initially, but I don’t think there’s any going back on this size phenomenon.

Okay. So I don’t think prices will go up, I’m just wondering what you thought about the glass prices going down impacting the total price of retail. On the Gorilla side, you mentioned Dell. You said that there were other OEMs coming out as well, but are we to assume that Dell is the only one that really will be using Gorilla in any type of volume in 2013, and the rest of them are out in 2014? And then you had a previous comment, on the last conference call, previously, before that, that you expected, I believe, 10% of notebooks and laptops to be either touch or have cover glass. I was wondering what your current expectations are. Is it still in line with the 10%, and is that in line with the guidance now for Gorilla and specialty materials?

The guidance for the year was around 10. It will be higher in the fourth quarter. I won’t comment on customers. Dell’s the one that announced with us yesterday, but we expect to be on a number of notebook manufacturers.

In 2013?

Yes.

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

Two questions, Jim. I just want to understand, you said you don’t have any updates on the automotive segment. I just wanted to find out what is the gating item there in terms of the adoption of these specialty glasses for the [unintelligible] applications. And then I have a follow up.

Well, it’s always hard to get your first customer. You know, we had hopes that we would get on a certain model. That has not turned out right now. But we’re still trying very hard. But this is a fairly revolutionary new product for the automotive industry, and it’s always hard to win your first one. So beyond that, I can’t say. I mean, we haven’t stopped trying.

Would we have any timeline when we could potentially hear? Is it probably later this year, or maybe next year?

I don’t have a new timeline. I actually thought I would be already announcing. So we’re a little disappointed by that.

When do you think you’ll have some meaningful uptick of the Willow Glass in terms of you’re actively engaged with customers? When do you think we can expect to hear more on the traction on Willow Glass?

I think we’ll talk more about Willow in the October conference call. Okay, so we’ll wrap up here. I just have a couple of investor relations comments. First, in case you missed our announcement in June, we did officially appoint Ann Nicholson division VP, and she’ll be leading our investor relations function. We’re delighted to recognize Ann’s performance with this promotion. Our second announcement is we will be speaking at the Citi technology conference on September 4 in New York City. I’d like to summarize a few highlights of the call. First, we’ve made great progress on our plan to stabilize display and then return to positive momentum in this segment. Second, we’re executing our goal to grow earnings in our other businesses. In addition to volume growth, strong operational execution and cost reduction efforts have been a significant driver of profitably improvements. We grew our core earnings per share year over year by double digits for the last three quarters. We think this is strong evidence we’re marching up. Fourth, Dow Corning silicones are not improving year over year, and that’s a big disappointment to us. And finally, as we look forward to Q3, we’re confident that we will have our fourth consecutive quarter of year over year core earnings growth, despite the weak Dow Corning outlook. It will be driven by moderate glass declines in LCD, and growth in telecom, life sciences, and environmental. Ann?

Thank you, Jim, and thank you all for joining us today. A playback of the call is available beginning at 10:30 a.m. Eastern time today and will run until 5 p.m. Eastern time on Tuesday, August 13. To listen, dial 800-475-6701. The access code is 297023. The audio webcast, of course, is available on our website during that time. Operator, that concludes our call.