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Corning Incorporated (NYSE:GLW)

Sanford C. Bernstein Thirtieth Annual Strategic Decisions Conference 2014

May 29, 2014 10:00 AM ET

Executives

Wendell P. Weeks – Chairman, Chief Executive Officer, and President

James B. Flaws – Vice Chairman and Chief Financial Officer

Analysts

Alberto Moel – Sanford C. Bernstein & Co. LLC

Alberto Moel – Sanford C. Bernstein & Co. LLC

Good morning, my name is Alberto Moel, and I am the Asian IT hardware analyst, I can live in Hong Kong and I cover Corning from Hong Kong, so it’s a long distance, but it works just fine.

Today I have the pleasure to host Wendell Weeks, Chairman and CEO of Corning for our presentation at SCC. And we have the added benefit of Vice Chairman and CFO, Jim Flaws, also available will be at the Q&A session afterwards. As usual you all know, if you have any questions please fill out the little slide cards and then pass into the center then we’ll call open up here to read them and ask lots of questions after formal remarks are finished, so without further ado, you’re on.

Wendell P. Weeks

Thank you, Alberto. Good morning everyone. Before I begin I’d like to remind you that these remarks contain forward-looking statements and that actual results could differ materially, our detailed risk factors and additional information can be found in our SEC filings.

Today what I’d like to do is share our primary goals for the corporation in 2014, update you on our progress, and then describe how we are thinking about the evolution of the company over the next several years.

We have four primary goals for 2014. We want to continue display positive momentum, we want to integrate CPM and realize those synergies quickly. We want to grow sales and profits in our other segments. And we want to continue returning cash to shareholders through our dividend and buyback programs. Now, we are off to a good start this year, and I’d like to now summarize our progress on each goal.

First, we made significant progress on restoring positive momentum in display during 2013, and we believe we can sustain the momentum in 2014 despite some additional price pressure in quarter one. As you can see on the left side of this chart and as we discussed in our earnings calls, the first quarter price declines for standard LCD glass were more than moderate.

Price declines in the second quarter are more moderate and we expect to return to the consistently moderate price decline ranges of 2013 in the second half. Corning’s global market share in the LCD segment should be consistent with 2013. As illustrated in the middle column, high performance display is a rapidly growing segment that will make increasingly meaningful contributions to our momentum. Improvements in color reproduction and higher pixel count create the need for even more advanced glass. And our new Lotus family of glasses offers industry leading performance for OLEDs and high pixel count LCDs. We expect our share to continue increasing in the high performance segment.

Relationships are another important element of sustaining momentum in the display business. Parallel innovation in glass, display design and display fabrication continues to be essential for advancing image quality, improving form factors as well as reducing costs.

We invest significant technical resources in these collaborations with leading display customers. And I personally spend a significant amount of time with the leaders of these companies. We expect this investment to produce continued innovation in glass and a sustained Corning’s leadership.

Now in January, we closed the transaction that moves our ownership of LCD assets in Korea from 50% to 100%. We call our new business Corning Precision Materials and it promises significant benefits, including accelerated cost reduction and reduced capital spending. We will deliver meaningful synergies from CPM even this year and expect annual synergies to ramp up over the next several years.

We are off to an excellent start and we will update you further in the July earnings call. We remain the lowest cost manufacturer of LCD glass by a significant margin. With the addition of CPM, we can accelerate cost reductions to 12% to 14% annually, over the next several years.

Additionally, gaining full control of the Korean assets enables capital spending avoids in total, we expect $350 million of reduced capital spend over the next four years. At the reduced level, we expect to meet not only the growing demand for LCD glass, but also to create capacity for new applications such as automotive.

Turning to our other segments. We expect to grow sales and earnings meaningfully in 2014. In Optical, we expect to grow twice the rate of telecom CapEx driven by our leading positions in fiber-to-the home, data centers and wireless infrastructure. We are growing faster than the industry, both because our products align with priority spending areas like faster access, cloud and mobility, and because optical is becoming more widely used in these areas.

For the full year, we expect telecom revenue to be up mid-to-high single-digits. Net income is expected to be up double-digits driven by volume growth and by positive mix.

In Environmental, new and tighter regulations per heavy duty diesel will deliver a new growth base that is only in the very early stage. Already in the first quarter, year-over-year sales and earnings were up 21% and 59% respectively. We expect double-digit profit growth for the full-year.

In Specialty, we expect good growth of the covered glass market for the next several years. We expect Gorilla Glass this year to be up more than 30% in volume, which is higher than consumption growth due to the inventory work off in 2013. We continue to innovate and enjoy outstanding customer relationships, which we believe will allow us to remain the leader in mobile covers from many, many years.

In Life Sciences, government spending has suppressed sales growth, but we expect to see the impact of increased NIH funding in the second half.

Our fourth goal in 2014 is sustaining our program to return cash to shareholders. We entered a period of increased free cash flow in 2011, and began taking additional actions to return excess cash. From October 2011 through December 2013, we doubled the dividend and repurchased 13% of the outstanding shares.

We remained active in the first quarter by completing our 2013 share repurchase program and we’ve launched a new $2 billion program associated with the SCP transaction. Going forward, we expect continued strong free cash flow and consider additional share repurchases and/or dividend increases. So that’s my overview of the 2014 goals and our progress towards meeting those goals.

Let’s turn to the more distant future. First, you need to understand what makes optics. The three sentences on this exhibit speak to our rich history of creating life changing innovations and we remain driven to innovate profitably.

Corning’s leadership in materials science is based not only on a detailed understanding of glass ceramics and customer requirements, but also on underlying confidences like measurement, process control and equipment design.

At Corning very little is off the shelf. We devote significant efforts and investments to developing custom and proprietary research towards equipment and manufacturing processes. Our integration from material formulation to manufacturing process provides a unique advantage in a world that increasingly outsources. Our materials deck is becoming even more relevant to consumer electronics, communications, life sciences as well as other markets positioning Corning well for another growth search.

Now let’s just take a look at a few examples of where we can expect to create entirely new revenue and earning streams.

First, we are introducing Gorilla Glass into the automotive market. We have our first platform win with BMW’s i8 and several other OEMs are evaluating Gorilla for windows, windshield as well as sun roofs. The auto glass market is 5.5 billion square feet with laminates accounting for 60%. Gorilla Glass offers both reduced weight and improved performance. So we really like our hand at attacking this market.

Second, the market opportunity for commercial windows exceeds 25 billion square feet and we think dynamic windows will capture meaningful share. The pristine surface quality and mechanical stability of our glass enables superior electrochromic performance while increasing yields and lowering production costs. We are collaborating with few and innovative startup and our JVA is both ahead of schedule and delivering strong results.

Next in January we launched the world’s first antimicrobial cover glass which combines all the benefits of Gorilla Glass with an antimicrobial agent that inhibits the growth of bacteria, mould and mildew. And we have a next generation glass in our labs that kills 99.99% of bacteria. We see multiple applications, they are more than a billion touch devices sold annually and they are perhaps more importantly opportunities in healthcare, restaurants appliances and even resale kiosks.

Let’s turn to Willow, our new ultra-slim flexible glass. Global shipments of flexible displays are expected to reach almost 800 million units in 2020, up from effectively zero today. We believe the Willow will be a key enabler of this growth. Willow also appeals to designers outside of consumer electronics, which we expect to create some significant growth overtime.

As the last example for today, let’s look a wireless. We continue to be encouraged by the market’s response to our recently launched all-optical distributed antenna systems to one wireless platform. Our solution enables clear signals and maximum bandwidth even in really tough indoor environments, by convention standards and supports variance.

We have numerous engagements with hotel, healthcare and university CIOs about the value and capabilities that one provides by unifying cellular Wi-Fi and Ethernet onto a single optical network. We expect several prominent deployments in the second half of 2014.

So obviously we are excited about our portfolio. We don’t know for sure when we’ll see significant earnings from these programs. And we know not all will evolve as planned but we do believe our unique capabilities, our collaborative culture and our drive to make life changing innovations will lead to our next growth surge or surges.

To summarize, we believe we will continue to deliver value to shareholders in three fundamental ways: first, we offer the strength and stability to succeed at innovation over the long-term. We have a strong balance sheet. We have the market, the technology and the cost leader in each of our segments. Collectively, our segments offer diverse opportunities with meaningful synergies for growing new products.

Second, we expect continued earnings growth and strong cash flow that help support the option for additional dividend and share buybacks. Third, we expect profitable top line growth in 2014 and for the next several years, driven by Optical Communications, Environmental, Specialty and Life Sciences. We are confident in our ability to create Corning’s next growth surge and deliver value over the long-term by delivering entirely new sales and earnings streams.

And now, I’ll turn it over to Alberto for the Q&A.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Thank you. As you all know, just fill out the cards and pass these somehow. We’ll arrange for that. I do have a lot of questions to start with in the meantime, while people are arranging and thinking about their questions. I have a few questions to start off with one on so many touched on, which is Willow. I’ve been cracking Willow. I’ve been – because the Harrisburg Plant. I’ve seen the machine that makes Willow. What is stopping Willow from being, like you said, 800 million displays, the flexible displays, what are the barriers to Willow adoption and what are the alternatives, and say plastic and how do we see that progressing? What’s the timeline on that? If you have some comments on that.

Wendell P. Weeks

So what needs to be in place for Willow to really take off?

Alberto Moel – Sanford C. Bernstein & Co. LLC

Yes.

Wendell P. Weeks

So look at it in two different pieces. The first is the one you name, which is consumer electronics for flexible displays. So, the main achievement that needs to be accomplished to enable flexible displays is a flexible durable display. So the problem is, is what we want to do is, I think something like get notebook out of your pocket and then you open it up and this entire area becomes a display.

And then much like I see people taking notes, you could pull out a little stylish and write on this whole display. You can do touch technology and you are no longer constrained by the size of your pocket to go with the size of your display. That’s the idea of flexible displays, is probably most compelling.

Our customers would really like to do this because today to differentiate it’s hard, because everything sort of looks like a glass rectangle and then with touch technology. So they would like something very differential.

There are three major problems to solve. I’m just going to talk about the ones that we got to solve, which is what you therefore want a material to do. It’s transparent that you can open and close 200,000 times and won’t puncture when you put something sharp on it and won’t scratch. So the problem with plastic is that if you do 200,000 times a plastic you craze it and it’s very easy to puncture and very easy to be able to scratch.

Problem with glass is traditionally the way people think about it is you can’t open and close glass 200,000 times without a breaking, but it’s great on puncture resistance and it’s great on scratch. So the innovation that we need to provide to enable this, is a transparent material that meet those requirements, I believe we can do that and it’s one of my personal projects that I work on at the core technology level but we have to complete that invention. It’s going to use the Willow platform.

There is other issues which has to do with those things that tend to carry electrons well, cannot or like to do this either, right. So those are some problems to solve. So I think there is both problems for the display makers to solve as well as device makers as well as I.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Okay thank you. So at this point, timeline is still up in the air…

Wendell P. Weeks

Our customers would like to see product within 24 months.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Okay 24, okay.

Wendell P. Weeks

That’s what they would like to see. Scheduling invention is not always the easiest thing to do however, what’s easy to scheduling is just having to deliver on the schedule but that’s what people would like.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Here is an easier question for you, diesel, particularly filters and then environmental technology, you didn’t talk much about that but did very well for the quarter. There is lot of expectation, give us more color on where that’s coming from and how that’s moving?

Wendell P. Weeks

Great, so the growth in diesel particularly filters is being driven by new regulation adoption in Europe and in China as well as to beginnings of a recovery of U.S. heavy duty diesel truck demand. We see our continued adaption of ever and ever tighter regulations around particularly to be continuing and all I think that's ahead of us that we still got to determine is how strictly will China enforce.

Right now what we are hearing from their environment – actually their main environmental folks have said they want to enforce right away but now they’ve got the backing of the NDRC and other powerful economic entities to say they are going to start enforcing strictly in January 2015.

So if China enforces, Europe is going to enforce for sure, in the U.S. it’s all about truck demand. I think that’s the near-term drivers. Longer term, I think you’re going to see even in gas particularly for direct conjunction engines are going to have to adapt a particular technology, which is going to add yet another revenue stream for us, all driven by environmental regulation and health concerns.

So we feel really good about this business’ ability to deliver very strong growth over the coming years or you can’t have periods because these are capital goods, trucks or capital goods where you can get some volatility, but the overall swing-ups is pretty predictable because it’s regulated.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Thank you. So moving on to the other element of where that’s been a strong growth is the fiber optic business, your optoelectronics business. I know you have both a short-haul fiber portfolio and a long-haul fiber portfolio, and it sounds to me like it’s a short-haul fiber that’s now really kicking gears, if you got some more color and where that’s coming from, is it local loops, is it data centers.

Wendell P. Weeks

Yes, you compelled it, I mean, I don’t think I can explain it any better than you just did it. So what’s driving our business is that people are investing in access right. So you see these announcements continue in the U.S., but also throughout Europe, throughout the Western World people are putting fiber-to-the-home and you get some unique advantages there because we have a very unique system for putting it in that almost every time people do fiber-to-the-home, you are using our system. So it’s fabulous, right it’s great for us.

Then you have cloud computing, it’s such a powerful force that means strong demand in data centers, and optical and data centers we have a unique product set is doing really well there.

And then finally is wireless especially for inside building because coverage is so poor and convergence is going to happen between your Wi-Fi cellular Ethernet, all those things coming together in one platform, where once again optical offers some unique benefits. So the way we look at it is in those areas where there is going to be wins of investment, we have the advantage products and we’re on the right side of the technology substitution curve. So that's given us some added look.

Alberto Moel – Sanford C. Bernstein & Co. LLC

So maybe we can go other questions, one is on I think Gorilla and automotive, there is a couple of questions on that. Didn’t you try, Corning try Gorilla Glass when it was invented 50 years ago in auto windows and you found that it was too hard meaning people were injured for type of didn’t break and what is different now, why is it usable now.

Wendell P. Weeks

Got some historians in the room, right. So, it is indeed true, that one of the requirements for automotive, if you are going to do a windshield is that unlike your cellphone that if your head hit that you would like it to breakaway, right. So that’s an important design feature of the glass. So, we don’t try to make the glass as strong as we can. The beauty is the size has moved on so much.

We now know exactly how to dial-in is called a headform contact, which is a fancy way of saying, if your head bashes into the windshield, it doesn’t break, all right, your head doesn’t break, the glass does. And so we can actually dial that in. I think what creates the more interesting market now is, if you want to have great energy efficiency either for electrical vehicles or for gas, light weighting is tremendously important. And what we basically offer is an ability to a laminate structure that's very thin and very light where you can reduce up to 40% of the weight of glazing wherever you put this.

That translates into tremendous increases in range for electrical vehicles or for gasoline vehicles plus it’s above the belt line. So just the physics of that means that weight is worth a lot more to the car’s performance than weight is below the belt line.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Thank you. There are a couple of questions here on auto back to Gorilla. Question is on pricing. What is the pricing differential? Is it better, higher, lower same thing in commercial, so basically the question is Gorilla in general outside of display what is the profitability of that business?

Wendell P. Weeks

It’s still too early to be able to portray the profitability. What is our desire is that we believe that we’ll be able to address these markets very profitably. It won’t be the exact same glass as we use in a super high performance mobile device that is going to get dropped on asphalt. It will be a different glass that will design for the performance requirements and the economic requirements of what the price point is and what our cost structure will be, so that we can generate a nice profit stream.

Also, important to remember that one of the things that makes it still attractive to us and why would you see us attacking these various markets, is the way we lower our cost in display is we produce more volume, across the same asset base. So what’s happening is we are constantly creating free capacity up our same asset base. So we can attack these markets without spending any capital. So that also makes for a very attractive economic picture for us. We are always trying to generate revenue relative to the asset base we already have in place.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Thank you. Related question is, if this auto business of the year that could be a architectural glass business is so materially large. When would you expect that to be –when that materially to come in? And second, given the sizes and the areas required would that involve incremental capacity additions that are going to again require major CapEx.

Wendell P. Weeks

So we believe, so first of all, auto is not consumer electronics, right. Auto does not move like tech, it doesn’t move like opto and tech. It doesn’t move like our tech businesses. Decisions happen slowly in automotive and it seldom sneaks up on you. You win a platform today and then you’ll realize the revenue from that platform three to four years out. So that never sneaks up on you. What you can expect is sometimes you will hear upon some customer about platform awards, some like to keep the platform awards quiet. But what you should expect from us is we will start building those platform wins over this next 24 months that then turn into revenue subsequently.

What we believe is that we will be able to address this market without any significant amount of capital spending because we are designing the product to be able to be made on our display assets as those create productivity much like we did with base Gorilla. So that is what our plan is, and it ties overall to our ability to continue to generate really strong cash flow that allows us to go pursue innovation while we pursue a return strategy to our shareholders.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Okay. I got a question relating again to specialty materials, is that how would we be using commercial buildings, what are the applications there.

Wendell P. Weeks

Say that again.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Our specialty glass will be used in commercial buildings.

Wendell P. Weeks

Commercial buildings, right. Okay. So today if you just, so those windows have window treatments, I don’t know much of window treatments either. I guess those are good window treatments. What the idea of electrochromics are dynamic glasses is and things like this so on things like automotive is that rather than having shades, pulling, closing which you should be able to do is variably adjust your life throughput with electrons.

So that’s what electrochromic is, a special film that you run electrons through and it changes from transparent to dark.

We believe that there is a significant opportunity in commercial buildings because of the energy savings involved here. That we can build up a pretty substantial market in this or our customers can in these idea of dynamic architectural windows. What do we do with this specialty glass side is actually, it looks just like what we did with LCD to make that electrochromic work well without pinholes to make it lower cost, yield higher, they get thinner and more light weight. There is a great opportunity for specialty glass. They can once again basically be made up of our LCD assets and that’s why we are working with companies like View to do just that.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Thank you. And actually related to that is the part of the MCP question I just came up before, does the ACP acquisition, now MCP eliminates the need for income rental CapEx in display glass for the next three to five years or not?

Wendell P. Weeks

So, yes it does, the only exception to that I think for display glass will be, you can have regional differences so as China grows, depending on what the display size is et cetera, it could be more productive to have assets closer to our customer base there. So other than regional differences let’s say the answer is yes.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Okay, thank you. So another question on relating to the TV business. What percentage of revenue slash earnings associated with the TV business and is that expected to decline over the next few years.

Wendell P. Weeks

I leave that to our CFO.

James B. Flaws

So approximately two-thirds of our display glass goes to the television market and obviously LCD and display represents about 70% of the company’s profits. So you can get an idea about television. We don’t expect television to decline in fact it probably has the largest sustainable growth rate outside of tablets right now for the next five years. And we think we are moving into a cycle of a faster replacement cycle coming up.

We reached a point last year where half of all televisions installed are LCD’s or flat, but mostly LCD and we are now reaching the point where a significant number of them are now starting to move to be older than five years and we know that once television gets past five years, it’s when you begin to see the replacement cycle start. And we think it will be faster for flat screens than it was for CRTs. So we think television remains a big part of the demand in the display business for quite a period of time and we are delighted by the potential upside with the fast replacement cycle.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Thank you. Probably, another question for the CFO, talk about the yen hedging where we are yen hedging…

Wendell P. Weeks

Terrific.

James B. Flaws

So on the yen, we price our glass in display business in yen, by the way we priced Gorilla in dollars, important distinction there. When the yen suddenly weakened in late 2012, basically over about a five week period of time, it went from about 82% to low 90%s. We made a choice shortly after that to hedge the translation of display sales. We would have preferred to go to U.S. dollar, pricing is actually something we had been working on in 2012. But we realized that we are unlikely to get that quickly and so we hedged initially 2013 and 2014.

As we have been examining the ability to get to U.S. dollar pricing, we actually extended those hedges into 2015. We’ve now come to the conclusion that it’s going to be really hard to get the display industry and the glass industry to convert over to U.S. dollar pricing in the current environment.

So what we have done is begun hedging for the rest of 2015, 2016, 2017 and are evaluating 2018 to put in place, what I like to call, protection for the company and for investors against a further weakening of the yen. That basically has gone in place at 99. We haven’t decided on our core reporting rate for 2015 yet. 2015, actually we have quite a bit of hedges that were done at 93. So we have to think through that. But fundamentally, given the predominance of people’s expectations that the yen weakens, we’ve tried to put in place protection for the company for the next 3.5 years.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Thank you. So moving on to – I think there’s probably another question for the CFO, but maybe both of you can take it. How do you think about long-term Dow Corning? Would all of Dow Corning JV be of significant interest to Corning at some future point or maybe spinning off would be the option?

Wendell P. Weeks

So for us the way we think, first of all, stuff like what we think about our whole portfolio, we tend to look at three things: first, are we the absolute leader in the business, meaning are we growing our sales faster than our competition, are we growing our profits faster than the competition with the low-cost producer and the technology leader.

And the second thing we look to do to stay in our portfolio is can we bring our other assets there, especially our technology’s band to create entirely new revenue streams in that market segment. And then the final area is can we use that asset set to attack other market segments, much like you see us do with display glass attacking Gorilla et cetera. So if something fits all three of those, it’s a no-brainer. We totally want it in our portfolio. If it fails all three, it’s a no-brainer. We don’t want it in our portfolio. Then you have judgment on the rest.

Dow Corning is the leader in their space. They are growing sales and profitability faster. So that’s great. However, we’ve yet to prove. We run experiments on it all the time that we can bring more of our technology to there on Dow Corning and their space and then we run experiments all the time we have yet to find a major new revenue source being created by using Dow Corning’s assets in the rest of our market segments. So that basically means that for us we view this as an asset that if the right price, that we would be willing to examine options with.

At the same time we’re not in the great hurry, because this meets the first criteria, which is it’s the number one player. And then the real question is, what is our partner want to do. We love being partners with Dow. We have really liked Dow Corning’s management. And the real question is, is it worth more to them or to us or some other avenue, but we’re open always to consider those things that enhance shareholder value. Would you add anything to that, James?

James B. Flaws

No, it’s great. Thank you.

Alberto Moel – Sanford C. Bernstein & Co. LLC

So back to display glass, question here, in fact more a broader question is how is your long-term supply support contracting going like you – you have these contracts that are share based and so do you expect to resign back the re-dash time, I hope you display in Korea and how is that going for this year and next year in terms of resigning new clients to the agreement?

Wendell P. Weeks

So, in Korea we’re under contract with all of our customers in Korea. So that’s good. I think it’s too early to tell what we’ll do in the other areas of the world especially Taiwan, I go in the next week or two.

I think it’s too early to tell our intention would be that we’ll want to accomplish the same things strategically that we have which is we’re just looking to maintain the stability of our market share, and we would like to create a type of environment of high degree of predictability for our customers and our sales and our shareholders. So our strategic intend remains the same little modifications we want or our customers would want as they go forward that is still ahead of us. That’s the summer’s work.

Alberto Moel – Sanford C. Bernstein & Co. LLC

And related question is, are you expected to increase capacity utilization for PC end market?

Wendell P. Weeks

For PC market.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Yes, as PC sort of comeback from the debt.

Wendell P. Weeks

Yes. PC has comeback a little bit. But it’s just not enough that we feel it right. So yes, we follow the market closely, but it’s not a huge dynamic for us. It’s not a significant for instance to how TV is, but it is coming back I would share that observations.

Alberto Moel – Sanford C. Bernstein & Co. LLC

I have one more question that you probably going to ask 350 times but maybe latest update is the sapphire, big controversy where is the status of, any evidence that sapphire will be forth coming in the next generation of Apple products or not…

Wendell P. Weeks

I won’t discuss Apple at all, which should not be a shock right, for anybody who lives in Cupertino know, I won’t discuss that. So, but I can talk about some materials science standpoint, so sapphire is the legitimate to cover glass choice. The question we faced was, should we invest in sapphire or not? Why sapphire legitimate? Sapphire is legitimate because it’s transparent and it’s hard to scratch.

As we looked at it, we would rather invest in next generation glasses and other material sets because sapphire also comes as a material science challenges. First, its cost it’s about 10 times more expensive even after you cost reduce the headcount. Second, its energy use, it takes about a 100 times more energy to create than glass does. So, just from a good environmental steward gave us some issues.

Its drop performance is worse, so yes, it’s scratch is better but because it’s a crystalline structure, if it has any little abrasions on it and then you drop it. It will break way more frequently than glass. So we looked at that and said, where should we best spend our press to shareholders resources is that in doing new and novel things in a material set that is lower cost, has better drop performance and trying to just soft scratch or should we try to open up a new platform.

So that’s what led to our decision at this stage at least to invest continue to invest in the glass platform rather than doing sapphire, which is legitimate for us. We used to make a lot of sapphire and we’re really great in crystalline materials. So it’s all well within our reach. This didn’t seem to us to be a great investment of our shareholders’ resources.

Alberto Moel – Sanford C. Bernstein & Co. LLC

It is a very tough question. I don’t have an answer and you implied only that or you can probably give some comments. Are you developing products using glass as a substrate as opposed to making it then having sensors the low end, basically glass as a substrate material as opposed to just as a platform or you grow…

Wendell P. Weeks

As a congestive material.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Yes.

Wendell P. Weeks

So it is a longstanding dream of ours, because glass is fundamentally dielectric is that if you could have a transparent material that actually conducted electrons, and for decades and decades and decades we’ve tried different things that do that. We have yet to found a way to cost-effectively generate electron flow through glass. I wouldn’t say it would be wicked cool, because it would be wicked cool, but we’re fighting some real fundamental material, signs, problems and it would take me delving into quantum mechanics to explain why, but I’ll try not to bore everybody with that.

Alberto Moel – Sanford C. Bernstein & Co. LLC

So I got a new glass which is at the process glass. You take a piece of display glass of some form and you pattern it with the electrochromic material.

Wendell P. Weeks

With that electrochromic?

Alberto Moel – Sanford C. Bernstein & Co. LLC

Yes.

Wendell P. Weeks

You put much like LCD, you put another material on that is fundamentally conductive, right and it’s just the thin film process for electrochromic, pretty darn and expensive, right. And LCD or transistor based technology; it’s a little more expensive because you have to actually write the transistor pattern on a very fine way. Electrochromic, you’re just trying to get a film that conducts electricity and that changes as a material in its opacity in the presence or absence of electrons.

Alberto Moel – Sanford C. Bernstein & Co. LLC

So we have one last question, which you could probably take 45 minutes to answer, but we have four.

Wendell P. Weeks

Okay.

Alberto Moel – Sanford C. Bernstein & Co. LLC

What is your competitor advantage in glass and why is it sustainable?

Wendell P. Weeks

Competitive advantage in glass and why is it sustainable? I’ll start with our existing competitive advantage. So we’re the lowest-cost producer and we’re the product technology leader. The reason it’s sustainable is the reason we’re lowest-cost producer and the technology leader, which is we invent from scratch a whole material set and a manufacturing process that didn’t exist before into a combinatorial nature to create a first in the world product set. The advantage of that means that the equipment is all of our own design, the measurements are out of our own design, the composition is out of our own design and so everything is proprietary. So when we get that right, it makes for very sustainable advantages.

The downside is that the innovation is not cheap when everything is bespoke, which is why you see so much emphasis from us trying to attack some other markets with assets that we developed in a unique way to serve LCD. How do we attack these other markets where we can really save a substantial amount of that innovation budget, the consumer vending brand new manufacturing processes, but it’s sustainable because we created all from scratch and that leaves a sustainable advantage. Like I said the downside is, it’s not cheap.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Is there any more questions, if not, do you have some closing comments or call it a day. Terrific, yes, okay, thank you very much.

Wendell P. Weeks

Thank you all, thanks Alberto.

Alberto Moel – Sanford C. Bernstein & Co. LLC

Thank you, for coming.

Question-and-Answer Session

[No Q&A session for this event]

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Source: Corning's CEO Presents at Sanford C. Bernstein Thirtieth Annual Strategic Decisions 2014 Conference (Transcript)
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