Welcome to the Corning Incorporated Quarter Two 2018 Earnings Call. As a reminder, today’s conference is being recorded. It’s my pleasure to turn the call over to Ann Nicholson, Division Vice President of Investor Relations.

Thank you, Amy, and good morning. Welcome to Corning’s Quarter Two 2018 Earnings Call. With me today are Wendell Weeks, Chairman and Chief Executive Officer; Tony Tripeny, Senior Vice President and Chief Financial Officer; and Jeff Evenson, Senior Vice President and Chief Strategy Officer. I’d like to remind you that today’s remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the Company’s financial reports. You should also note that we will be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. 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’re also available on our website for downloading. And now, I’ll turn the call over to Wendell.

Thank you, Ann, and good morning, everyone. This morning, we reported strong second quarter results and raised our full-year 2018 outlook. All businesses met or exceeded expectations for the quarter with year-over-year sales growth in each. Highlights include. Optical sales were up 16% year-over-year, and we are increasing our expectations for full-year organic sales growth. Environmental sales were up 21% year-over-year, and we have also increased our full-year outlook. Specialty Materials performed better than expected. We anticipate year-over-year sales growth in quarter three and for the full-year, driven by strong shipments of innovative new products. And finally, progress towards stable returns in Display continued with sales and net income in line with expectations. The pricing environment in Display is the best it has been in more than a decade. We expect to reach the important milestone of annual price declines improving to a mid-single-digit percentage in quarter three. In total, for the quarter, sales were $2.8 billion, up 9% year-over-year; net income was $359 million; and EPS was $0.38. We completed a strong second quarter in terms of financial performance and progress on our investments. As planned, we undertook a phase of intense operating and capital investments to help us meet committed demand and capture new opportunities. We have now reached an inflection point where those investments are yielding clear benefits, including increased sales and greater profitability. Several of our largest projects have exited the startup phase, and production and efficiency rates are climbing. So, we are on track to meet increased demand, grow sales, and significantly improve profitability in quarter three and beyond. Specifically, we expect to expand margins and reach approximately $11.3 billion in full-year 2018 sales, up 10% year-over-year and an increase from our prior expectation of $11 billion. So, we feel great about both, the back…

Thank you, Wendell, and good morning. Our second quarter results set the foundation for stronger than expected 2018. Each of our businesses grew sales year-over-year. After investing to support near and long-term growth and to extend our market leadership, we are well-positioned and expect to reach approximately $11.3 billion in full-year sales, up from our earlier guidance of $11 billion. We expect to see sales and profitability improve significantly in Q3, and we plan to build on that going forward. Before I get into the details of our performance and results, I want to note that the primary difference between our GAAP and core results is again a non-cash mark-to-market adjustment for our currency hedge contracts. As we’ve discussed before, GAAP accounting requires earnings translation hedge contracts 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 resulted in an after tax GAAP gain of $387 million for the second quarter. 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 a constant currency rate, aligned with the economics of our underlying transactions. We’re very pleased with our hedging program and the economic certainty it provides. We’ve issued $1.6 billion in cash under our hedge contracts since our inception, slightly over five years ago. That brings me to our results and outlook. Our second quarter core sales were up 9% year-over-year and EPS was $0.38. The intensive operating and capital…

Thanks, Tony. Operator, we’re ready for our first question.

Mehdi Hosseini, Please go ahead. Mr. Hosseini, your line is open.

Thanks for taking my call. I want to go back to comment regarding Gorilla use in auto. It’s encouraging to see investment taking place, especially in Hefei. How should we think about incremental revenue contribution? It will be great if you give us some milestones looking into the next year and 2020. And then, I have a follow-up regarding display. You talked about the best pricing environment, I think, you said ever. When I hear the best pricing environment, it kind of makes me worried because can it get even better from here or can it roll over from here? It will be great if you could elaborate how you see the sustainability of the current pricing environment. Thank you.

So, let’s start with your first question on Gorilla and auto. We’re not quite ready to give insight onto how much revenues we’d expect next year in Gorilla and auto. What I will say is we’ve already got awarded business for hundreds of millions of dollars spread out over time to same platforms. How that timing breaks down, what our ability to supply will be relative to demand, all those things are things we’re working through. So, we’re not quite ready to cycle that and figure out exactly when that’s going to be delivered for each vehicle platform. We’re going to try to get there as we work through the end of this year, so we could be helpful to you going into next year.

Maybe let me take your question on display pricing. We feel really good about display pricing and the trends that we’ve seen. It is the best pricing we’ve seen in more than a decade. And we do expect -- we expect to hit the important milestone in mid-single-digit year-over-year declines in the third quarter. And we think that improvement trend continues into 2019. There is really three reasons for that. I mean, the first, we have supply and demand in balance or even tight from a glass maker standpoint. Secondly, our competitors face profitability challenges at current pricing levels. Therefore, we expect their price declines will slow further as they try to remain profitable. And then, the third item is LCD glass manufacturing requires ongoing investments. And to generate acceptable returns on those investments, glass pricing will need to improve further. So, overall, we feel very good about where we are.

We really don’t need everything to continue to improve and improve. What we need to do is just have rate of decline to continue to slow. As long as that rate of decline continues to slow, our productivity will more than offset those price declines. So, that’s what we are aiming for.

We have a question from Vijay Bhagavath with Deutsche Bank. Please go ahead.

Yes. Hey, good morning. Yes. Hey, Wendell, I have a bigger picture question. The Company has been investing in multiple capital expansion projects. I mean, I could count to maybe 20 and then I gave up. So, my question is, you’re going through this kind of meaningful investment cycle. What’s the timeframe you have in mind for subsequent investments in manufacturing capacity expansions and then the harvesting time when you start monetizing these investments?

Vijay, that’s a great question. First of all, you are doing a good job on counting. We do have over 20 significant plant expansions, including a number of -- included in that are a number of Greenfield builds. So, we are in this pretty intense operating and capital investment cycle is the good news. I think, you’re going to start to see the harvest begin now. We expect and that we’re in a inflection point in this quarter, and that you are going to see growing sales from those capacity investments and expanding profitability from them. So, I do not think we need to wait long. I think, we’re going to start seeing that right in quarter three and quarter four and beyond. Is that responsive to your question, Vijay?

You know it does. Yes. Thanks, Wendell.

Our next question is from Steven Fox with Cross Research. Please go ahead.

Just on the capacity expansions to-date and looking ahead. Wendell and Tony, you mentioned a few times that you have committed customer support for a lot of these expansions. Can you just give us an idea of how you’re managing that risk? Obviously, the customer forecast can change going forward and how that would affect you. And then, secondly, how do we get comfortable with the idea that what you went through in the first half of the year was unique, and we don’t see another sort of mini capital bursts next year or the year after as you continue to innovate? Thanks.

I’ll take the first one and Tony can address the second. So, we mitigate our risk with these investments a number of different ways, and it really depends on the business and the customer relationships. Sometimes, we actually insist that the customer fund or put their money by our side in our capital. That significantly mitigates our shareholders’ exposure to any overcapacity risk. Another way we do it is long-term contracts with firm levels of revenue commitment; sometimes those are very public, sometimes they are not. The best example of this would be what you saw from Verizon with their long-term commitment to revenue from us for $1 billion to help underpin that investment in fiber and cable. And we have all sorts of variations really in between. Our core philosophy here is since what do is so important to our customers, we want to do it in tandem with them. Now, that doesn’t mean that our customers are always right and that the demand always comes in as we both anticipate, but it does mean that we’re sharing the risk in an equitable way that allows us to provide our unique products and ability to supply to help make their vision for they are trying to deliver in their business model, possible.

And I think from a going forward basis, Steve, I think the important thing to keep in mind is, is that we’re going through a period where we’re seeing growth in all of our market-access platforms. And the good news is that that growth is showing up right now. As Wendell said, the infection point is today. And our second half revenue is going to be annualized at closer to $12 billion as opposed to the first half closer to $10 billion. So, we’re seeing very significant growth in the payoffs, are really happening in the near term. As we look forward, of course we’re going to continue to invest where that growth is. I think the probabilities of all of our market-access platforms growing at the same time is probably less than what we’ve experienced right now. And on top of it, whatever that investment, it is going to be on a much bigger than what were even six months ago. So, as we look for both of those things, I think we feel pretty good about how we think about that on a going forward basis.

Next question is from Samik Chatterjee with JP Morgan.

I just wanted to start off with the display glass segment, and you mentioned you expect pricing to continue to improve in 2019. What are you hearing from your panel maker customers because panel prices are being down significantly in 2Q? Are you expecting any sort of cutbacks in capacity from them that might limit some growth in area in 2019? And then, I had a minor clarification on the gross margin guidance for the second half. I think, the language you used last quarter was that gross margin would exceed 42% on a quarterly basis from the back half. And today, I think you mentioned 42. So, is there any change in the gross margin expectation for the back half?

No. There is no change in the gross margin expectation for the back half. We feel very good about bringing the capacity on and the expansion that we’re going to see versus what we’ve performed in the last three quarters. In terms -- from the panel maker standpoint, demand and what at the end of the what really matters here is the retail demand. And the retail demand has been very strong. As we mentioned, viewing area was up over 20% on a year-over-year basis in the second quarter. And then, we’re seeing indications from panel makers that they are buying panels to prepare for what is really the big season, which is in the fourth quarter and that that’s happening right now. So, we expect panel maker utilizations to stay about where they have been in the first half of the year and that’s going to translate to a strong glass demand. And then, we expect the market to be up in the mid single digits from a glass standpoint. And of course, we will grow faster than that because of the ramp of the Gen 10.5 factory at BOE.

And our next question is from Rob Cihra with Guggenheim Partners.

Just on Gorilla Glass, I know you noted you are benefitting from the increase in content per phone, like with the double sided, which is great. And I believe you also get a price premium when you launch something like Gorilla Glass 6. I’m just wondering, I guess first, how much the Gorilla Glass 6 price premium. I mean, is that a noticeable health in the second half? And more broadly, it seems to me and I am not even sure if it’s the case, it seems the Gorilla Glass pricing has been better than it was a couple of years ago where it was pretty brutal. And I’m just wondering, I mean, is that the case and has Gorilla Glass pricing stabilized? If that’s the case, why?

So, you are correct in that, Gorilla Glass pricing trends have been very good. And what’s causing that has been a really strong cycles of innovation from us. And those innovations are yielding much better products. And customers value those products more and are willing to give us a higher price for them. So, you are noticing, in the numbers that fundamental strategy playing out. I’m sorry, but I’m not willing at this time to give you specific guidance on Gorilla Glass 6 pricing. That will be between us and our customers and some here shortly. [Ph] But, I think you are correct on the overall trends out.

And our next question is from Rod Hall with Goldman Sachs. Please go ahead.

I just wanted to come back to this auto glass plant in Hefei and ask what you guys think the utilization of that plant is likely to be, once you get it done. I mean, are you expecting it to be mostly utilized or do you think that it just incrementally gets utilized over time, you’re just kind of at a point where you need capacity. And then, secondly, I wanted to -- I noticed that the R&D to sales guidance is up a little bit. And I just wanted to double check what’s driving that, why you decided to make that slight change in R&D to sales.

Let me adjust the first one and I’ll leave the second one for Tony. So, what’s happening to us is as we’ve shared previously is the demand for our innovations in auto glass interiors has surprised us in a positive direction. So, as a result, at this point in time, we are having a difficult time keeping up with what our customers want us to do. So, if we could have had this plant six months earlier be up and running, we would have it full. So, we expect the utilization to run pretty high. I think, it’s just worth pausing here a moment, though, so you understand what type of capacity this is. You shouldn’t think of this as melting capacity. We don’t need to add any Gorilla Glass manufacturing capacity to facilitate our entry into the automotive class market. We plan to meet all that demand with our continued productivity improvements on the fusion platform for today’s Gorilla Glass business as well as display. What this plant is going to do is going to be applying some of our vapor deposition technology to be able do advanced optical treatments; it’s going to be able to do shaping of the product; it’s going to be able to do the declaration of the product, cutting it exactly the right way, so with the value add parts on top of it. So, as a result of that you’re not going to see a typical utilization effects you’d be used to thinking about in a big time class factory. The capital intensity of this is much less. So, that’s what this capacity is. Is that responsive to your question, Rod.

Yes. Thanks. It was super helpful. I appreciate it.

And Rod on the RD&E, there really isn’t a change there. We expect to spend about the same amount in the second half as we spent in the first half. The actual spending always depends a little bit on pacing of projects. But, the amount that we’re guiding is in the normal range that we’ve been guiding for a while.

Our next question is from George Notter with Jefferies. Please go ahead.

Hi, guys. Thanks very much. I guess, I wanted to dig into display segment margins a bit. So, I heard what you said certainly on the BOE expansion ramping and now the reskinning of tanks and improved utilization. Where do you think we could get segment net income margins to go to? And if I look back at those numbers, I think there is some 30% numbers if I look back to last year and the year before; if I go way, way back, I can even see 40% segment net income margin types numbers. Where do you think we can go with these improvements in utilization and BOE? Thanks.

George, I think, it’s important to realize that what we’re all about in display is stabilizing the profitability in that business. And we do that with continued what we’re seeing from a pricing standpoint. As Wendell, we don’t need any further pricing improvements than where we are today. But, with that along with volume growth, along with our manufacturing improvements, we’re all about getting that bottom line to essentially be the same, and that’s what our objective is. And that also means that sales will be about the same. And so, once we get to that point, the operating margin will be about where it is today. But, obviously, that’s a significant improvement over the last few years, but we’ve seen that decline for several years where we’ve seen significant decline in display profitability.

And our next questioner is James Faucette with Morgan Stanley. Please go ahead.

I guess maybe I’d relay probably one of the most common questions we’ve gotten recently and that has to do with capital allocation. As we kind of drive [ph] towards the end of 2018, we see how that’s likely to be divided up, et cetera. At what point should we expect to see a new plan or further forward outlook on capital allocation? And can you give us a general outline in terms of your preferences for dividends versus buybacks et cetera?

I think, James, it’s important to note that we have more than a year to go in our current Framework. And so, what we’re really focused on is delivering our four-year plan. The good news is all of our existing business, especially Display is generating strong operating cash flow and we expect that to continue. The other piece of good news is we have multiple large opportunities for growth in all of our market-access platforms. So, we’re going to continue to invest in those opportunities, especially those because they generate attractive return on invested capital to our shareholders. And as has been our practice is that anything beyond that, we’re going to return to our shareholders. So, that’s how we think about it going forward. But, in terms of specifics and how things are going to look beyond 2019, we are just going to wait until we get closer to the end of the current plan, before we share the next set of specifics.

Amy we have time for a couple of more questions.

Thank you. Our next questioner is Wamsi Mohan from Bank of America.

Wendell, I was wondering if you can talk a little bit about the dynamics in Specialty as it pertains to Gorilla. Some of your larger smartphone customers are not showing as much cyclicality as in prior cycles. And I was wondering if that is giving you more supply chain visibility as it pertains to Gorilla and is it changing the nature of lead times for Gorilla.

That’s an excellent question. We have noticed some of those trends that you’re outlining. But they just haven’t been around long enough for us to be able to say with a high degree of confidence that we see a strong improvement in visibility. That’s mainly fact as you know just tends to be in which quarter we actually tend to see the sale. So, it doesn’t really impact us from a long-term financial standpoint, but it certainly is valuable from an operational standpoint. So, more to come on this topic. If this continues, then, I think your logic is very sound, but it needs to continue further for us to establish good, strong, mathematical modeling and conclusions.

If I could follow up just with one quick question on TV, and I’m sorry if you already addressed this. But, I was wondering, given the panel price declines and the magnitude of those panel price declines, how simulative has that been to large screen TV demand, and are you expecting -- what are you expecting for retail sellout trends in the back half of the year?

Wamsi, I think, it’s been quite simulative and it’s been very strong from the retail demand standpoint. Glass viewing area was over 20% in the first half of the year and we expect it to continue to be very strong in the second half of the year. That’s why we’re quite confident that the glass market will grow mid single digits on a year-over-year basis and we’ll grow faster than that because of the ramp of our BOE Gen 10.5 factory.

And just to build on that. I think, one of the main things that people can lose sight of is, in the end what really matters is how many television sets people buy and how much is sold through the whole system. And we’ve certainly been in a cycle where the panel market went from incredibly high utilization and rising prices and then, I think that probably caused television demand to be a little suppressed from where we want to be. Now, we’re moving to another cycle that you’re seeing with display panel prices having fallen, now flowing through to the end customer. And I think this ebb and flow will continue to work its way out. We really like to sell through data we’re seeing. And of course we would hope that panel prices will continue to stabilize and improve over time and that in turn of course that the glass supply and demand dynamics continue to work towards the path of us improving our pricing performance year-by-year. So, that’s sort of the way we take a look at industry overall.

And our last questioner is Joseph Wolf with Barclays.

I just had a question, I guess the continuation a little bit on the mobile market. Given some of the move to OLED and Corning’s participation in both parts of the market, just can you give us some perspective on what you’re seeing on the design side? There has been some talk about flexible applications. And while I know there is nothing customer-specific you can share, can you talk about what flexible designs might mean for the Gorilla Glass cover market?

So, first let’s do OLED, and then, we will do flexible. So, as you know, we made pretty significant amount of innovation efforts to put us in the spot to be a very strong supplier into the polyimide OLED market. For those of you on the call who don’t know, even though the polyimide OLED isn’t made of glass, to make it, you consume a lot of glass. Actually you consume more glass than is consumed in making a display of the same size using active-matrix LCD technology. And it’s special glass, it’s glass we develop for that application. So, with that being said, that I think is what we predicted, I think, quite accurately. We could see that becoming -- even though it’s a small market, a significant force from Mobile Consumer Electronics devices. What has been in the press really now for a number of years and it’s been hyped for a number of years is the idea of a truly flexible device, which is in flexible display. And what the idea is, could we basically make something small that then you could fold it out and it becomes something big. And that therefore, you could fit more display area in a smaller volume area. So, that has real interest. We’ve been engaged for a number of years in trying to solve some those really hard technical problems to be able to make a product that bends to very tight bend radius but at the same time, when something is dropped on it or experiences any sort of sharp event, it doesn’t damage easily or scratch easily. These two things in terms of material science tend to push opposite from one another, and it’s been the core of our innovation of this. I think that ultimately, if foldables are going to be important, we are going to need to solve that problem for the cover. We are already -- there are still problems to solve in the display, but ultimately we have to solve that problem. I don’t think it’s solved yet. So, I think some of the first devices you’ll see to try to market out will be products that are compromising on durability in one direction or the other. But, I think, it’s just the stage of the thread. I think people will want to introduce it to get a feel for will consumers really get interested in it, can they make even a form factor that’s compelling. These are really big questions. But, at the core, we still don’t yet -- we haven’t yet seen the cover material out of any material that combines all the required attributes for this to become a significant device. But, it takes a good amount of effort on our part. We’re still working on it. We are working closely with our Mobile Consumer Electronics customers. They really want us to invent something, but we’re still on it. Sorry for the long answer.

Thanks, Joseph and thank you, Wendell. And thank you all for joining us this morning. Before we close, I wanted to let everyone know that we will be at the Jefferies Semiconductor Hardware and Communications Summit on August 30th and the Deutsche Bank Technology Conference on September 12th. We’ll also be posting some virtual presentations and webcast on business topics. Finally, the web replay of today’s call will be available on our site, starting later this morning. There also is a telephone replay available for the next two weeks and you can contact IR for the details. Once again, thank you all for joining us. Amy, that concludes our call. Please disconnect all lines.