Corning's Management Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript)

Mar. 4.14 | About: Corning Inc. (GLW)

Corning Incorporated (NYSE:GLW)

Morgan Stanley Technology, Media & Telecom Conference Call

March 04, 2014, 12:30 pm ET

Executives

James Flaws - Chief Financial Officer

Tony Tripeny - Principal Accounting Officer, Senior Vice President, Corporate Controller

Analysts

James Fawcett - Morgan Stanley

James Fawcett - Morgan Stanley

All right. We are going to go ahead and get started here. We are actually running a minute or so late. So I apologize for that. My name is James Fawcett. I have recently joined Morgan Stanley as one of their senior analysts here. I will actually be doing networking equipment.

And I am very pleased today to have Corning. We are going to spend the next 38, 39 minutes or so according to this clock talking to them about a range of things. I have got some prepared questions here, but obviously we want to just set the pace for you and this meeting is for you. So if anybody has any questions from the floor, we want to be sure to get to those. So just give me an indication that you would like to ask a question and we will do that.

So then to introduce Corning today, on your far right or my far left we have Jim Flaws, the CFO, accompanying him here on stage is Tony Tripeny, the Corporate Controller and then in the back we have Ann Nicholson and Steve (inaudible), both of IR. They are sitting in the back. They can watch everybody. So nobody goes or arrives. Just everybody behave yourselves, please.

So before we kick off though, I think I want to turn it over to Tony. I think you had a few remarks you were going to make before we get started?

Tony Tripeny

Yes. Thanks, James. It's great to be here. In fact it is great to be anywhere where the temperatures are above 30 degrees. Before we get into questions, I would like to refresh the audience on some of the key data points from the quarter, and of course as a reminder, my comments contain forward-looking information and actual results may differ materially.

I really want to talk about four things. First of all, in the display business. We still believe that price declines for LCD glass will return to moderate levels in Q2 and for the rest of the year. There is really three reasons for that. First, the higher price declines in Q1 were driven by a specific event that we do not believe will repeat. Secondly, our stable share agreements will continue to assist in moderate price declines. Then finally our competitors' operating margins are such that they don't have much room to lower price before reaching breakeven profitability.

For the rest of the display business, I am happy to report that retail demand continues to meet our expectations. On a worldwide basis, we believe the supply chain inventory is in the healthy range. So we haven't changed our outlook for retail glass market which we expect to grow in the mid to high single digits in 2014. I am also happy to report that the integration of our Corning Precision Materials businesses has gotten underway and so far things are going well and we are very happy with that acquisition.

A second business to talk briefly about is our Telecom Business. We are on track to deliver strong year-over-year sales growth in Q1. We had guided in the mid-teens and we certainly expect that to happen. A lot of that's driven in the carrier market by fiber-to-the-home, including at NBN where we are continuing to deploy, but also in fiber-to-the-home in North America, Europe and Latin America. We also expect nice growth in the Enterprise Networks business, really driven by data centers and we think we will see double-digit growth in Wireless Business.

The third thing to note is in our Environmental Business. Many of you may not seen, but on Monday, the EPA announced an order to move to tighter vehicle emissions and fuel standards called the Tier 3 program and these rules require an additional 75% drop in mobile emissions beginning in 2016. As most of you may know, Corning pioneered the first cellular ceramic solution for mobile emission controls in the 70s and we are proud to once again play a leading role in the next generation of technology to meet the Tier 3 standards. And at our investor day, we talked about two specific technologies, one for cold start and one for gasoline direct injection engines. And we are working closely with OEMs to make those happen. We are hopeful that we have announcements on both of those sometime in 2014.

The final thing to note is that hopefully you all saw this morning that we did announce a new $1.25 billion accelerated stock repurchase program. When you take this $1.25 billion along with the shares that we have repurchased year-to-date in our open market program, we have effectively offset the delusion that came with the CPM transaction. At the time we announced the CPM transaction, we said we would do a $2 billion share repurchase program and we would do it quickly. Hopefully, you will see that we did do that.

Question-and-Answer Session

James Fawcett - Morgan Stanley

You have preemptively answered all my questions.

Tony Tripeny

Excellent.

James Fawcett - Morgan Stanley

Audience? No. So let me just get started. I do have a few things to go on. So maybe Jim or Tony, you guys can take this however you guys want to split things up, but I want to spend a little bit of the time talking about the Samsung Corning Precision. Hopefully, you can just elaborate what was the motivation to buy the piece again and I know you have talked a lot about this but just for the benefit of all of us, including me, can just reiterate why you wanted to buy the piece that you didn't own? And I think there has been some confusion. Some people think that's add capacity. I think you made the case that it doesn't. Can you just explain what the real capacity for Corning will be like, as you close the transaction?

James Flaws

Sure. Why don't I take a shot at this? I think, from a capacity standpoint, this fundamentally doesn't change the capacity that's in the industry or the capacity that was part of Corning. What he does is, it give us flexibility to use that capacity in a different way. So there was always capacity that was available in Korea. A lot of that capacity was offline. It was offline when our SCP business last year had LG back in 2011 and it has remained offline. It is very difficult for that capacity to be used for any other business because it was jointly owned and it was designed for the Korean market and it was just designed for LCD glass.

So what this transaction allows us to do is to use that capacity on a global basis for global customers for Gorilla Glass, for LCD glass or any of the glass that we develop. So one of the synergies that we get from this transaction is our ability to use that capacity which is at a lower cost, and so we will move from higher cost capacity to lower cost capacity as part of our overall synergy plan. In fact, we are projecting $460 million of pretax synergies over the next four years, and that's certainly an important piece of that.

James Fawcett - Morgan Stanley

So if I can fill it, maybe just correct me if I am wrong, but it sounds like this was an important transaction for Corning to do because you had capacity there that you couldn't really utilize the way that the ownership was structured and now that you are going to own the piece of that business that you didn't, now you can apply that capacity to other projects?

James Flaws

That's absolutely right. That's one of the important reasons for doing it, but there are a number of other important reasons. It did give us access to incremental cash flow. We expect $2 billion dollars of cash flow over the next four years from this transaction. It also gave us access to about $1 billion, $4 billion or $5 billion that was on the balance sheet of SCP that was very difficult to get at. We would often come to these investor meetings and people would say when are you going to get those dividends, and in a joint venture it was very difficult to do. Clearly that money is why we been able to do the repurchases that I talked about before. It's a great financial transaction. About 20% accretion in 2014, $350 million more in impact, good synergies, lower capital spending over the next few years, but probably the most important strategic item is it evolved our relationship with Samsung, a leading electronics supplier and it comes with a 10 year supply agreement, which is also pretty good from a commercial standpoint.

James Fawcett - Morgan Stanley

Absolutely. So on being able to apply that capacity to other areas, like why couldn't you do that under the joint ownership?

Tony Tripeny

Well, that that capacity, it is very difficult to do because that capacity was aimed for the Korean market, and was aimed only for LCD glass. Now there were some cases, long time followers may remember when we were out of capacity in Gorilla Glass in 2011 and 2011, they did manufacture some Gorilla Glass. They sold it to Corning and then Corning sold it onto the end customers. That can happen, but it was a very difficult thing to actually have occur. The ability to actually take one of your higher cost plant and move it to a lower cost plant was very difficult when half of it is owned by Corning and half of it is owned by somebody else. So it totally changes the operating environment that you are working in from an operation standpoint. It gives you lots of opportunities in terms of savings and synergies.

James Fawcett - Morgan Stanley

That's great. So speaking of Gorilla Glass, you talked recently about your expectations for surging growth in Gorilla Glass this year in 2014. What is driving that growth, particularly when it seems like we are seeing a plateauing of high-end handset unit volumes and their larger sizes and in particular at least one manufacturer, people suspect is looking to move to an alternative in Sapphire?

Tony Tripeny

So I think the underlying fundamental growth there is what's happening in smartphones and tablets. We expect smartphones to grow about 22%, tablets to grow 30% and touch on notebook, we think, could double in 2014. So that's the underlying driver. We didn't see that in 2013, because at the end of 2012, there was a large amount of inventory that was built in the supply chain. It took most of the year consume that inventory but we felt like glass used on devices grew by 27% in 2013 and we think they are going to grow somewhere that same neighborhood in 2014.

James Fawcett - Morgan Stanley

Great, and then on the touch on notebooks, you refreshed my memory but it sounded like you fell like about 10% of units over that last year.

James Flaws

Okay, '12 or '13? What was the number?

Tony Tripeny

It is around 10%.

James Fawcett - Morgan Stanley

Yes, it's around 10%. Maybe a little but more and by doubling you mean as a percentage or you are anticipating growth on your underlying notebook market?

James Flaws

No, as a percentage of the notebooks.

James Fawcett - Morgan Stanley

Okay, got it. So we mentioned Sapphire and obviously, there is one large handset and device maker that people suspect maybe looking at Sapphire. From your perspective, does it make sense for device makers of any ilk to be looking at Sapphire? And at least from a Corning perspective, where the puts and takes of Sapphire versus glass?

Tony Tripeny

When we look at it, we see a lot of disadvantages of Sapphire versus Gorilla Glass. It's about 10 times more expensive. It's about 1.6 times heavier. It's environmentally unfriendly. It takes about 100 times more energy to generate a Sapphire crystal than it does glass. It transmits less light which it means either dimmer devices or shorter battery life. It continues to break. I think while it's scratch resistant product it still breaks and our testing says that Gorilla Glass, about 2.5 times more pressure that it can take than Sapphire on. So when we look at it, we think from an overall industry and trend that is not attractive in consumer electronics.

The other thing that we are doing here clearly is, is making sure that we continue to evolve our Gorilla Glass. We talked about it at our investor meeting, a next generation of Gorilla Glass for the high-end market and we would expect going that something there in 2014.

James Fawcett - Morgan Stanley

So it sounds like the only advantage that you mentioned that Sapphire might have over Gorilla Glass is that's perhaps a little more scratch resistant. Is there anything else that might factor into the consideration at all very?

Tony Tripeny

It has got a very sexy name. Sapphire.

James Fawcett - Morgan Stanley

That is true. It is.

Tony Tripeny

Yes. Marketing matters.

James Fawcett - Morgan Stanley

Yes. That's true. I never thought about that. Sort of like with everything I do. Sapphire, diamond, whatever.

Tony Tripeny

So I think in general, in consumer electronics, cost really matters. We have a 10 times cost differential. I think that's really tough. So we think that, combined with performance actually we will, over time, win the day, but obviously we have prove that. As we announced a couple of weeks ago, we are trying to launch of new version of Gorilla later this year, primarily to have better drop performance.

James Fawcett - Morgan Stanley

Got it. So when we look at your outlook for Gorilla Glass this year, obviously tablets and notebooks have much larger screen sizes. That's great for you guys and your production but I am going to probably reveal too much of my own naïveté about glass production right now but when your growth is driven by larger screen devices like tablets and touch enabled notebooks, do your yields drop versus phone screens? Do screen sizes impact margins much?

Tony Tripeny

They don't, because for the most part, we sell large pieces of glass and then the people we sell them to, the finishers, they are the ones that actually cut them up.

James Fawcett - Morgan Stanley

Okay.

Tony Tripeny

So from our standpoint, it doesn't matter. It does, of course, from the finisher's standpoint. One thing that we do, is spend time with them to make sure that they have efficient production cycles also. And one thing that we do is really unique is we actually have a finishing factory and we sell some to the next level of customer. We actually do some parts manufacturing. The reason we do that is, is that it gives us an opportunity to really understand what that next customer in the supply chain is dealing with. So we have made a lot of innovations over the last several years that had made them more efficient. But from our standpoint, we tend to sell them large pieces of glass.

James Fawcett - Morgan Stanley

So for your own finishing operations, there maybe a little bit of yield but that's --

Tony Tripeny

It's not significant. In general, the finishing part doesn't carry the same some sort of margin but it is incremental profitability and it gives us a lot of insight to be able to develop products and help our customers, which is why we do it.

James Fawcett - Morgan Stanley

Right, got it. So one just quickly on competition in Gorilla Glass. Actually a few minutes ago you talked about how you fixed the inventory absorption and some of these other things really tamped coming growth in Gorilla Glass. So is there any thing from a competitive standpoint or pricing standpoint that also hurt growth last year that you are seeing relief from or was it largely just a supply issue?

Tony Tripeny

It was largely a supply issue. The area that we have not had as much success is in very low-end mobile devices, primarily in China, third tier brands. but we are not losing that business to others specialty glass. We are losing that business to continuing to do soda lime glass and one of our big initiatives, we started in 2013 but carried it through to 2014 is to develop a different composition of glass. It's not Gorilla Glass but it's also not soda lime glass to compete successfully there.

So that's a part of the market where most of the medium to high-end devices, we have a very, very large market share. We don't have as high as market share in those devices and we are working on that. But it's not that we are losing to other specialty glass makers. We are losing it to soda lime.

James Fawcett - Morgan Stanley

So break the soda lime with your new initiatives, when should we expect you to start to deliver products and what do you think a reasonable market share ambition in that segment will be once you are delivering?

Tony Tripeny

We certainly would expect to deliver a product this year and we always want to be the market leader in any market we are. That's true in this case too.

James Fawcett - Morgan Stanley

Yes. Go ahead. There is a microphone. If there is not, I can just resay the question.

Unidentified Analyst

(inaudible).

James Fawcett - Morgan Stanley

So I will just resay the question for the benefit of those that couldn't hear it. So first on Sapphire you said that it's not 10x more expensive. What's inherently more expensive about Sapphire? Is there something the material or is this just a volume game? If you could bring up Sapphire production that that they would drop the price significantly and be more competitive with Gorilla Glass?

Then the second question is just, if it proves to be popular or successful, what kind of IP impediments might there be to Corning looking at that market and the like? Did I resay those okay?

Tony Tripeny

So from the last question, I will probably answer that first. Clearly, Corning has been in the crystal manufacturing business for a very long time, both directly and also through our joint venture, Dow Corning. So our knowledge of this has a lot to do with our knowledge about round crystal manufacturing. If it was a business that was attractive to enter into, we certainly would be able to do that.

On the first question, I think it's really a combination of three things. The formation takes about 4,000 times longer than Gorilla Glass at a significantly higher melting temperature. Its hardness makes machining more difficult and costly. Then the cost per unit increases exponentially because when you have defects in boundaries in the crystal growth process, you essentially cut them out and so unlike glass where we have developed technologies so that we can have very large pristine pieces of glass, when you have that on crystals, what you end up doing is always having a yield issue. So it is really those items that make things more expensive.

James Fawcett - Morgan Stanley

Great. Yes?

Unidentified Analyst

Thank you. Talking about Gorilla Glass, moving on to non-electronic uses, could you speak to uses of Gorilla Glass or similar glasses that you might have, for automobile windshields, probably windows. I am surprised that more of that hasn't happened yet, given the characteristics of Gorilla Glass.

Tony Tripeny

So we are very excited about the opportunities on the automotive side. Gorilla Glass or equivalent specialty glasses are a lot lighter than soda lime glass, which is both a benefit from a mileage standpoint, but is also a benefit from a safety standpoint, lower center of gravity. So we have a lot of initiatives in that area to try to win business. We have, and we talked about this at our investor meeting. We do have one win at BMW. A very nice expensive car but we would expect to be able to announce more in that area in 2014. We clearly think it is a growth area for us. One thing to keep in mind is that you don't win that business in April and start shipping in July. It's not the same as in consumer electronics. So when you actually see the sales, it will take longer but we do think it's a good growth opportunity.

Unidentified Analyst

And how about something simple like specialty glasses for homes or for things like the doors, interior doors and things like that? The shatterproofness, I think that must be a useful characteristic.

Tony Tripeny

So there a number of initiatives that we have going on, both in home and high-end office environments. We talked about some of those. David Morse talked about some of those at Investor Relations pitch in February. What we are attempting to do is try to cover as many of those as we can to see which ones actually have a take, which ones are economical, there is a real value proposition that a customer is willing to pay for and to make sure that those are the cases. I think we see more of that maybe in the office environment, whiteboards, for example, or elevated declarations and the like. Then we have, in some of the home appliances, but we are clearly looking at both of those.

Unidentified Analyst

And then my last question. On the Sapphire glass, I know there is a lot of hubba bubba about this, but in your estimation, this Sapphire glass work by one of your customers, do you think this really is a cover glass for iPhones and iPads? I just see a cover glass for a watch.

Tony Tripeny

I actually don't have knowledge of that.

James Fawcett - Morgan Stanley

All right. So we have got a question on the front.

Unidentified Analyst

Hi. Can you also perhaps talk a little bit about the opportunities you had in the solar industry, both polysilicon-based and also maybe perhaps on the thin film side as well? Also I guess related industries, are there opportunities for you in LED industry? That's related to Sapphire as well, I guess.

Tony Tripeny

I think in the photovoltaic industry, we thought that was a big growth opportunity for probably those who were here about four years ago, we did talk or at any of our investor meetings we talked more about that, but that industry is clearly in a tremendous amount of turmoil as photovoltaics. So we don't see that as much from thin-film standpoint as an opportunity today. We have moved our initiatives there to some of the other initiatives from a growth standpoint.

Now from a polysilicon standpoint, we are the half owner of Dow Corning, which is the majority owner of Hemlock Semiconductor. We continue to make polysilicons both for the semiconductor industry and, to some degree, to the photovoltaic industry. There are probably some opportunities there as that industry recovers, but I don't think we see that as a near-term growth opportunity.

James Fawcett - Morgan Stanley

So just to be clear --

Unidentified Analyst

(inaudible)

Tony Tripeny

Yes.

Unidentified Analyst

(inaudible)

James Fawcett - Morgan Stanley

So I guess it's a follow-up on that comment. So the question that I would have is, you mentioned the disruption has made that less attractive. Has hat there been technology change up there in technology path that in the long run makes it less attractive for Corning and your products or is it just that this has been an uncertain industry, up and down, and so as a growth driver it doesn't make sense, but if we saw some stabilization technology wise and material wise, it could still make sense?

Tony Tripeny

What happened for the glass and thin-film was that our glass is more expensive, but had an efficiency gain. What happened is the falling prices of polysilicon made that less economic for someone to do. We are fully prepared to do this. It's not a hard glass for us to make. We have the capacity. We could do it. So if you are right and that market comes back, we could reenter that. We had glass for multiple solutions there.

Unidentified Analyst

(inaudible)

Tony Tripeny

Yes, and we haven't --

Unidentified Analyst

(inaudible)

Tony Tripeny

Right, and we have a glass for polysilicon also. It's like an encapsulating glass. That's one of the places where we think our Willow glass may play which is the ultra thin, bendable glass. So we have not given up on solar at all. In fact, Hemlock, I am on the board of Dow Corning and Hemlock business is improving. So the primary issue was China because of the trade war, but the Hemlock solar business is actually improving. We have not given up on what you are talking about it. We are fully prepared to be in that business.

James Fawcett - Morgan Stanley

So I know there is --

Unidentified Analyst

(inaudible)

James Fawcett - Morgan Stanley

Sorry, they will be around but we have only about 12 minutes left on, be sure to get to the clock. I know we had a question here, real quick.

Unidentified Analyst

Yes. I was just wondering a little bit about your developments or your work with using pulsing lasers to cut glass and what opportunity that might or might not have, that I understand a lot of people are working on some interesting dynamics going there? Is there anything of any significance in terms of cost savings or flexibility or allowing Corning or your customers to do more interesting things with lasers?

Tony Tripeny

So, yes. We have acquired a laser cutting company in Germany. We are marketing that product that helps our customers and ourselves. It's a very innovative technology. I am now at the limit of my understanding of it. So stop there.

Unidentified Analyst

So you developed the laser internally?

Tony Tripeny

No. We acquired it.

James Fawcett - Morgan Stanley

Okay. So I am going to move on. So just I want to hear a few other key pieces for Corning which there is a tremendous amount of. Can you talk primarily about end product, end market and product right now? I am going to come back to it in a minute but I want to be sure that we head down on the P&L and you guys are doing a lot to reduce your cost and that kind of thing. Can you just refresh us, what the current components of those cost reduction plans are? And I guess more importantly, what do you see as potential threats to those cost reduction plans?

Tony Tripeny

Well, I think the biggest area that people ask about is in our glass businesses, I think there is a couple of things there. Clearly our objective always is to push more products through the tanks that we currently have and you do that in a couple of ways. You can improve yields, you can go at a faster pace with more pressure through the tanks or you can take the products thinner. A lot of our cost reductions over the last several years have come from being able to take products thinner and we expect that to continue.

In fact one of our largest customer, Samsung, has never really made the investment to go as thin as some of their competitors. We believe they are going to do that over the next couple of years. So there is a lot of opportunities from a cost reduction standpoint. We have successfully brought cost down over time, about 12% to 14% a year. We expect to be able to continue to do that and we especially feel good about that over the next couple of years where we also have the ability to move from higher cost to lower class cost platforms with the CPM acquisition.

James Fawcett - Morgan Stanley

I guess, the second part of that question is like what do you worry about or what can be disruptive to that process of bringing down cost?

James Flaws

Well, certainly the years when we haven't been able to do that, it's almost been always driven disruption in volume. So in 2008, the global recession certainly had a big impact on that. In 2011, at our SCP business, when we loss some market share. But anything that would disrupt us from a volume standpoint is probably be the biggest thing, but assuming that that isn't the case, our ability to deliver on this, I greatly oversimplify because there a lot of hundred of people who work hard on this, but we certainly have a proven ability to do that and we feel pretty confident to be able to do that well into the future.

James Fawcett - Morgan Stanley

It is really easy for people up here to trivialize.

James Flaws

Yes.

James Fawcett - Morgan Stanley

People who like to work as an analyst.

James Flaws

Yes, absolutely.

James Fawcett - Morgan Stanley

So, also a point of leverage for you, at least last year, was optical communications and you kind of mentioned that. How are we starting this year? And do you really see carriers persistently driving their spending in optical? Or is this just going to be kind of an ongoing roller coaster? How do you plan business-wise for that?

James Flaws

So we are starting the year very strong. We said that we thought we would be at the mid-teens in terms of sales growth on a year-over-year basis. We feel very good about it.

James Fawcett - Morgan Stanley

Which is an acceleration from last year, is that right?

James Flaws

Yes.

James Fawcett - Morgan Stanley

Okay, great.

James Flaws

So we do feel good about that. We see a strong business in the carrier, the enterprise and the wireless area. A lot of that is driven by moving bandwidth closer to the home. Yes, there will be ups and downs in that but for the most part, we have the capacity in place in that business that we need. So it's a question of running at that capacity efficiently as opposed to a business where we are trying to catch-up from a capacity standpoint. That makes the operational side of that easy.

James Fawcett - Morgan Stanley

So when you said you have the capacity in place and there are always going to be ups and downs in that business. How much bigger would that business have to get before you really have to think about moving that range up?

James Flaws

Well, we expect that business over time to grow about twice the amount of the capital spending in the carrier arena. I think in any given piece of that business, we could spend some on capacity but the difference here is that the most expensive part of that is in the fiber making and we have got good capacity there. We have several years before we would have to expand from the fiber making capacity and the difference today than say 10 or 15 years ago, the incremental cost of that fiber capacity is less expensive. We added some capacity in the late 2000s in that business. It didn't really stand out in our capital spending plans like adding capacity say, in display.

James Fawcett - Morgan Stanley

Got it. Then I just wanted to turn quickly to, you mentioned display channel inventory. You characterized it as still you feel like its healthy. That there is good end demand. So if I remember correctly, at least recently you have talked about that channel inventory being at about in the 17 week range, which you consider normal, but if we go back a few years, that might have been considered the high-end of the range. So what drove that increase in the normal range or drove that to a higher level, firstly? And where do we go from here? And what would cause that normal range to shrink again?

James Flaws

So you are right. I think there was a time when we thought 14, 15 weeks was probably in the healthier range. It's moved out to 16 to 18 weeks which is where it has been in the last five quarters. I think there is probably a lot of factors of this. I think the number of TV sizes and the more SKUs, that drives the need for more inventory. In general, the panel makers have better cash positions and so they are more willing to invest in the inventory as opposed to lose the sale. And also as you move out in to emerging regions, those supply chain are less efficient. So it requires you to have more inventory. I think the biggest threat here would again be some sort of economics threat that would cause everybody to think twice about where the business is. That could put pressure too.

James Fawcett - Morgan Stanley

So Samsung would stop doing 20 SKUs for every single retailer that they are at, does that have that much of an impact?

James Flaws

Things like that clearly happen to.

James Fawcett - Morgan Stanley

Okay. So, all right. Then finally, as we look at competition and the competitors, like how many key competitors really are there in the market right now and are we at the end of a phase of consolidation of competition? I guess the reason I am asking is because it always seems like once we get the end of a consolidation phase, there will be a new wave of aspiring entrants to the market that will, at least, try to disrupt things.

James Flaws

Well, I think for the last three or four years, there have been two places that we have been, and investors have been, concerned relative to competition, both in new entrants. One is in companies that like LG Chemical, but clearly LG Chemical has only one tank operating. They are way behind on the second tank that they are planning to put in place. That has been consistently the answer for a number of years. So we don't see that.

The other place where the new entrants are, the glassmakers in China. We have seen them grow, but its all at smaller gem sizes and where we compete is mostly in the larger gem sizes. So I think from a new entrant standpoint, we feel pretty good about our position there and where the industry is and that's seeing a whole lot of impact from any of those new entrants.

In terms of the rest of the dynamics, probably not much I can say about that.

James Fawcett - Morgan Stanley

Great. Time for a couple more questions. So wait for the microphone.

Unidentified Analyst

Just a little bit more about your comment about the panel makers feeling a little bit more flush. I just haven't been following very well. Did they all get financed better so that they want more inventory? And a completely different question is, what's happening with size of TVs? What are you projecting the average size will be this year compared to last? And then next year compared to this or something like that?

Tony Tripeny

So flush probably isn't the way I should have described that. I think the key is, is that the tighter you are in terms of your cash margins, then the less likely if you are given a choice between buying some inventory to create a potential sale or going short on it and maybe lose the sale, and I think when things really tight in this industry, you found a lot of stockouts because people weren't willing to take the chance on getting the inventory and I think that has changed. So when you go back to the time when you had 14 to 15 weeks to today, I think that is a factor.

In terms of screen size, we do expect street screen size to continue to grow. Although I don't recall what that number is but maybe either Jim or Ann does. Jim?

James Flaws

We expect it to grow about just a little over an inch this year like it did last year. So we expect to the growth come again. Actually over the last three years, we have seen about slightly over an inch in terms of average screen size.

Unidentified Analyst

What is the average?

James Flaws

37.4, I think. Last year, it was 37.2.

James Fawcett - Morgan Stanley

Well, sorry. We have got a question with the microphone already over here. They will be around afterwards. Go ahead.

Unidentified Analyst

Corning is really good about frequent updates and full disclosure and every time Corning's been asked about this Sapphire issue, you have extolled the virtues of Gorilla Glass and all the problems with Sapphire. So in your financial guidance, what have you assumed for that company going forward?

James Flaws

So our assumption is that we are not going to lose a significant share to Sapphire in 2014. That's the only guidance we have given about this business, but we don't believe we are going to lose any significant share to Sapphire this year, and that's what our guidance of Gorilla volume growing over 30% this year.

James Fawcett - Morgan Stanley

One last question. You have got 40 seconds. Go ahead.

Unidentified Analyst

Could you talk about the consolidation in the business and potential pricing power in the core business, nothing's Sapphire related, versus some of the price declines you guys talked about in the last earning call?

James Flaws

I am not quite sure I heard your question. Could you just speak louder?

Unidentified Analyst

Could you talk about increasing -- sorry. Could you talk about just how consolidation in the business may increase pricing power?

James Flaws

In the LCD business?

Unidentified Analyst

Yes.

James Flaws

So I am not sure that we see much change statement coming around in terms of consolidation. The base, fundamentally, three glassmakers have 95% of the market. There is really not going to be a change statement, I think among those three. So it's not clear to me that there is any pricing power for glassmakers but our customers are relatively consolidated anyway. I mean there aren't really new entrants from a panel maker point of view. So I do not think that there is a lot of pricing power shifts coming up. I think the one that's the most important is really relative to our competition. They are rapidly approaching breakeven. So the question is, will they behave economically when that occurs.

James Fawcett - Morgan Stanley

That's great. That's all the time we have. Thank you very much to the Corning team. Give them a round of applause. Then if you have follow-up questions, please do it in the hallways, because there is another session starting in about four minutes. Thank you.

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