Ladies and gentlemen, good morning. Thank you for standing by as today's conference assembled and welcome to the Corning Incorporated Quarter Two 2014 Earnings Results. At this time, all lines are in a listen-only mode. There will be an opportunity for your questions and instructions will be given at that time. (Operator Instructions) And as a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to our host, Division Vice President Investor Relations, Ms. Ann Nicholson. Please go ahead.

Thank you, Tom and good morning. Welcome to Corning's second quarter conference call. With me today is Jim Flaws, Vice Chairman and Chief Financial Officer. Before we begin our formal comments, I'd like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially. These factors are detailed in the company's SEC report. You should also note that this presentation contains a number of non-GAAP measures. A reconciliation can be found on our Web site. Now I'll turn the call over to Jim.

Thanks Ann and good morning everyone. We are at the halfway mark for the year and as I think about where we have been and what lies ahead of us, I’ll note that we have accomplished a great deal already and we are poised to deliver a full year of strong earnings growth. I'm delighted with our core performance results and the momentum we have created entering the second half. We told you in February that we had four key items in our formula for success in 2014. They were number one, to continue the positive momentum in display technologies; number two to integrate Corning precision materials and execute on our synergy plan. Number three, the gross sales and profits of other segments and number four, to return cash to shareholders. Reflecting on these now, we are mostly on track and even where we are not, there are some improving trends. In Display, the end market retail is on track and we are seeing excellent volume in cost performance. We are recovering from the product issue that we had and most importantly pricing is moderating after the speed bump in Q1. Our CPM integration is going well and we think the synergies will come earlier than our plan that we shared with you last October. And in our other segments, we are seeing excellent growth in environmental optical communications actually stronger than our plan. Our only disappointment is the slower growth in the cover glass market and I will speak in more detail on this in our outlook. And finally, we are executing on the cash to shareholder goal through our repurchase program. So now, let's get to the second quarter results. In the second quarter, we had our seventh consecutive quarter of core earnings growth with earnings per share…

Thanks Jim. Okay, Tom, we will now open the lines for questions.

Thank you. (Operator Instructions) And our first question today comes from the line of Rod Hall representing CIP Morning [JPMorgan]. Please go ahead.

Also representing JPMorgan.

I’m glad you didn't change jobs?

Yes. No. We haven't changed the firm name either. So I had two quick questions for you Jim. One, that I wondered, I mean it sounds like the Gorilla, the weaker Gorilla guidance really all comes down to tablet demand and not really smartphones, so I just wanted to make sure that I would like you to comment on – color on alternative materials that have been discussed for smartphones and whether there is any impact at all from that that you see in Q3 and beyond at least this year anyway. I also wanted, we were kind of surprised the display guidance was a little bit weaker, we thought that 4K demand probably would start to pick-up in the back end of the year, so I would be curious to hear your commentary around 4K demand and how you see that playing out this year, are you still as optimistic about it as maybe you were at the beginning of the year? Thanks.

So on Display, I'm disappointed that you're disappointed because Display is doing fine. Just a reminder, Q2 was stronger so it makes a sequential outlook as they are going into Q3. But, we think the Display market is behaving nicely and in line with our general expectations. Relative to the 4K televisions, we never expected very much of that this year, we just don't think the price points are at the level, we could be surprised obviously with the holiday season maybe some people lowering more than we are expecting. But, we really think 4K or ultrahigh def is really a 2015 and 2016 phenomenon. But we feel very good about the display market, the television market, World Cup was very good. So we feel overall very good about the market. On Gorilla, you are correct, I mean the – if you look at our expectations and our forecast by type of product, it is tablets that is the big change statement. We just got that really wrong about what was happening in the tablet market. And we have adjusted down our forecast for that dramatically compared to our original expectation that is overwhelming the impact in reduction of what we expected for growth for Gorilla this year. In terms of smartphones, I will comment on specific customers and materials, but we continue to believe that Gorilla is going to be the material of choice for branded smartphones and I remind you that we are launching Gorilla 4 late this year. And we already won models with that product.

Okay. And Jim, can I have one follow-up which is on the yen hedge, I wonder if you could – you are waiting for their commentary there, can you give us any – I'm not sure I caught what you are thinking we should therefore be modeling in terms of the hedge rate, I know that that continue to come up every quarter. And you kind of been differing on what the – what the average hedge rate ought to look like in 2015. But any further, can you just clarify your commentary around that and help us understand maybe – if you were us what you would be modeling there?

So for this year, I would – we are not going to change the rate 2014. What we have had you should continue model that. I think to help investors right now, I would model next year at the same rate and then mostly likely at the end of third quarter, we will give you the rate for next year. Our reported results next year will – we will restate 2014 to whatever the new rate is. Obviously, we are not hiding from investors the fact that the yen going forward is lower and we have given you the amount of money that net income is. But, I would continue to model at the 93 rate for the remainder of this year and to help investors so you can understand the volume growth and other things I would just use 93 right now for 2015. And then when we announce our Q3 results we are going to give you a rate for the next year.

Okay. Thanks a lot, Jim.

Our next question today comes from the line of Mark Sue representing RBC Capital Markets. Please go ahead.

Yes. Thank you. This is Amit calling on behalf of Mark Sue. How should we think about sort of the annual pricing contracts for LCD glass along with them, believe they are set to be renewed in 3Q any preliminary thoughts there would be helpful? And you are lowering your CapEx expectations for the year, just going forward how should we think about CapEx as a metric maybe a percentage of sales or something?

So on the ladder on CapEx, we don't think about it as percentage of sales because the company as a level of maintenance, which probably is around $800 million and then rest is for expansion and that can vary depending on the pace of projects. We haven't updated our outlook for 2015 on CapEx yet I will do that in the quarter three call. But, I would not expect that the fact we lowered this year it means that we are pushing projects to next year. Relative to the pricing contracts, the contracts remain in place; many of them have automatic renewals unless somebody chooses to exit and so we have contracts that go into next year already. And we think that they are continuing to do what we expect and we think our customers are quite pleased with it.

Okay. Thank you. And good luck folks.

Thank you.

Our next question is from Wamsi Mohan with Bank of America Merrill Lynch. Please go ahead.

Hi. Yes, thank you. Jim on Gorilla, could you just clarify in the press release you know that's one of the reasons for the weaker 2Q as lower than expected sales for plan new models. Is that impact also related primarily to tablets from a dollar basis or is there some smartphone also in there?

That's primarily smartphones on new models.

Okay. Thank you. And then your gross margin of 45% was slightly below your expectations, can you reconcile that with the statement that the synergies are actually coming in earlier than planned. And then can you talk about what's driving the higher synergies in the outer years for CPM? Thanks.

So the gross margin impact versus our originally expectations was due to the shortfall in Gorilla sales, you may recall Gorilla glass itself not parts is the highest gross margin product the company has. So that's why we missed our expectation. Display is doing fine and gross margin improved quarter two over quarter one. I would say that the primary reason that the synergies are coming in faster is we are having an incredibly effective integration. The management of CPM has embraced working with our display team led by Jim Clappin. And we are delighted with the progress we have made. We are finding more opportunities. I think the biggest we are finding is we can move faster than we originally thought. So we are delighted with the pace of integration. And you always a little apprehensive when you do something of this size, but it's going terrific and I think our team both our CPM employees and our Display employees are doing a great job.

Thanks Jim. And just one final clarification on the Gorilla, when you mentioned the short-fall related to smartphone, the new products, is the timing driven for you or is it sort of demand driven and is it broad based or fairly narrow in terms of customer scope? Thank you.

I won't comment on customer scope. We think its timing based. It's always been difficult for us when people have new models to know exactly when they are going to be pulling. The difficulty for us is because of the length of the supply chain. And so we generally know the models. And we have a forecast but exactly how the supply chain pulls, it's very difficult for us to forecast.

Thank you, Jim.

And we will go to the line of Amitabh Passi with UBS. Please go ahead.

Hi, good morning everybody. Jim, I was wondering on the Display gross margin improvement from 1Q to 2Q. Can you give us some sense of the magnitude; was it a couple of hundred basis points or greater, lower?

I think I don't have every number memorized, but it was I think about 1.5 points.

Okay. That's helpful. Thank you. And then given the fact that you are seeing some recovery in Gorilla glass sales going to the calendar 3Q, should we expect company gross margin and to trend maybe closer back to the 46% you have expected in 2Q or any help in terms of thinking about GM?

Yes. That is our expectation 46%.

Okay. Got it. And I guess, my final question for you is, just any help on the telecom strength, you cited fiber-to-the-home in North America and Europe, is this Tier-1, is it broader based across Tier-2, Tier-3 as well, any comment inside that would be appreciated.

It's very exciting for us. We are talking about yesterday that it's a very broad based. We are seeing good growth from our -- Tier-1 customers are very large customers. In fact even some who we thought had finished up more are continuing to buy. We unfortunately can't name all our customers here but it is very broad based. And I think it's really vindicating what we basically said a decade ago, which was fiber-to-the-home, it's going to be a very powerful force in the market and the fact that it's so broad based, we are very excited by that. And just one last comment on that. We actually saw a little bit of an uptick in the NBN project which has been undergone some changes with change of government down there. But, there was good demand on that in the most recent quarter.

Okay. Thank you. I will step back in queue.

We have a question from Simona Jankowski with Goldman Sachs. Please go ahead.

Hi. Thank you. I just had a couple of my follow ups on Gorilla glass. Just the first one, whether the – it sounded like you expected some delay on Gorilla 4, and I just wanted to understand if that was impacting your out quarter guidance. And also that will still coming out in time to capture some of the major products that you are expecting to be in the second half?

Yes. Our new version of Gorilla is not being delayed. We are in production we are already shipping some product in Q3. We have one model. So there is no delay relative to that.

Okay. And then it sounded like you did not change your expectations for smartphone cover glass demand for the market as a whole for this year but you seem to be embedding some slowdown in product sales for the second half within the smartphone category. So is that a function of what you expect for your own products into some of your customers or for some of your customer sales?

So we believe that it has a little bit – smartphones had a little bit of an impact on our sales in – our sales in Q2 because some customer sales were not as strong as what they had originally expected. But overall, we are not changing the market for the year for smartphones.

And then just lastly you mentioned your expectations for higher TV sizes now than previously, can you just quantify that?

Sim, I think you have seen me carry around the special chart that I have that I do for just myself on greater than 30 inches television than versus where we came into the year. We moved up, just a little less than about half an inch on that one. So which delighted me because I think that's the most important metric. I'm actually quite surprised with smaller cell televisions for the first time we were negative. They grew this past quarter. But, as you know the most important one for me is the average about 30.

Okay. Thank you.

And we have a question from Mehdi Hosseini with FIG. Please go ahead.

Thank you. Jim, sorry to going back to Gorilla, but just have a clarification. Do we have a sense of what Chinese handset OEMs are using for cover glass; do you think that your market share there is comparable to other regions?

We do have numbers there on market share is less but our market share is improving there first now of luminous silica glass which is what we call family of Gorilla glasses or specialty glasses is moving up as a percentage of overall phones there in our share of luminous silica improved also.

Okay. So it is really documented that the big Korean OEM didn't lose market share in Q2, their results were disappointing and that to large extent explains what happened to your Gorilla sales in Q2. Is that a fair assessment like Korea OEM versus Chinese OEMs?

I will not comment on any specific customers.

Okay. And then moving on to the operating margin, if you could just remind me again, did you say that Gorilla revenue will be up 20% in calendar 2014, or did I misunderstand you?

Gorilla volume is up 20% more.

20%. Okay. So if your operating margin was 17% for specialty material in 2013, how should we think about a margin expansion here with volume up 12%?

We have priced down significantly which we talked about in Q1. So you are not going to see the operating margin expansion.

Okay. So even with volume up 20% margins you suggest margins is going to be just flattish?

Yes.

Okay. Thank you.

Our next question is from the line of Joseph Wolf with Barclays. Please go ahead.

Thanks. Just -- first question is an elaboration on the last one, if you think about the lower end then you talked about your strategies there and telling us a little bit more about that. Have you increased or sped up the timetable for addressing some of that lower end of the cover glass market given the market dynamics. And with that involved any new kinds of spending?

We really haven't made a final decision about something we talked earlier in the year about whether we should have a different version of strength in glass to go after the low end of the market in China. We still are evaluating that. We are spending quite a bit on new cover glass materials. But I don't think that would materially change our operating expense, which we chose to pursue that.

Okay. And then just on the cash side, you brought down the CapEx and said probably we won't get added to next year, could you talk about areas of focus things that you have pulled back and where the reduction in your CapEx forecast comes from. And then if you circle back to the cash buyback, can we look for an increase in that $400 million as you move to the second half of the year given the strength of the free cash flow?

So the reduction in CapEx occurred because we after going through all the plans at CPM, we determine that some other projects did not need to proceed. And then the other area was in what we call – our [TAS] (ph) capital where projects – we are going to spend a little bit less on that. Relative to shareholder purchases there is no change in the shareholder purchase on our existing program as I said we have approximately $400 million. And our plan is to spend that money this year and anything beyond that would take the Board of Directors putting together new program and historically the way to we finish the program before they start a new one.

Okay. Great. Thanks Jim.

And we will go to the line of Patrick Newton with Stifel. Please go ahead.

Thank you for taking my questions. Good morning, Jim. Two different questions, one on pricing, I guess one on optical communications. On the pricing side, you talked about panel pricing trends in the quarter remaining relatively healthy. I'm curious as your thoughts on whether the tie capacity trends are somewhat sustainable in the intermediate term or whether you think it's due to perhaps some temporary drivers in the quarter which should be the World Cup strength that you alluded to or maybe some benefits from the IP refresh due to the end of life of Windows XP?

So what our display commercial team believes and what they are hearing from customers that the type and this is going to continue into the fourth quarter, I'm noting some of the panel makers who have been announcing in the last couple of days making similar comments. So we have to take that as a word that they are continuing to run at a strong level and they are giving us indications they are going to do that into the fourth quarter. We think that IT thing has been a pleasant surprise basically all year along we think it's more than just the Windows thing. We know that corporations have extended, they refreshed cycles but that can't go on forever. And some of our IT customer contacts actually flag this to us earlier back in the spring that they thought – that the IT portion of the market was going to be stronger and actually tight. So we feel generally overall quite good about the panel utilization the tightness that leading to firm panel prices and that continuing.

And any concern that this tight utilization could led to some capacity builds?

I won't comment on our customers building panel fabs, as you know there are number under construction in China. But, suddenly someone making a sudden decision to build a panel fab is not – you are talking about that showing up in a year and a half later. So I would tap out to be the case. I think there is no real plans of expansion in China, frankly that's the only place there is any panel expansion really at this point in time.

All right, thank you. And then just shifting gears to communications, can you help us understand the contribution that you are seeing from datacenters or your visibility in the datacenter builds or upgrades. And then you mentioned NBN kicking in a little bit in the current quarter. Could you remind us where you stand on the project as far as the duration remaining and the percentage of completion from a Corning perspective?

The duration still is quite long. But they are still evaluating whether they are going to take the pure fiber-to-the-home technology all the way that they originally planned. I mean we have had some favorable comments that maybe that they will do better than more than what they had said last October. But, I don't have any percentage of completion. I don't have the data center numbers with me. That's been good this year, but I don't have any specific numbers but I know enterprise was up in, I think about 10% in quarter two.

All right, thank you. Good luck.

Our next question is from the line of Ehud Gelblum with Citigroup. Please go ahead.

Hey, guys. Good morning, thank you. Appreciate Jim. Couple of questions, just on enterprising and LCD and Gorilla for a second. In calculation the low teens volume growth is it right to assume that pricing in LCD was down around 6% to 7%?

That is too high.

Okay. So low teens is barely, barely, barely low teens.

That's too much.

Okay. I just wonder…

That said hedged into.

Right. I heard that but just want to make sure it wasn't hedge – but that makes a lot more sense. And then your expectations for Q4 given that you managed to get your pricing contracts for Q3 back in the moderate range of 2013. Should we essentially be expecting that to continue into Q4, or there are reasons you would not be comfortable taking that far ahead?

I'm thinking that far ahead and we think all of those things that are going on in the industry would lead us to have the confidence that we will be able to have another moderate quarter in Q4.

Okay. That's helpful. Going back to previous question on Gorilla and your comments of delays in variability and some product launches, were you implying or talking about launches in Q2 they are not getting pushed out into second half, some customers are you talking about launch that you expected for Q3, they are getting pushed out later in Q3 or into Q4?

I was talking about launches in the second half of the year that we – because of the length of supply chain. We some time knew we would be getting all in product shipping in the May, June timeframe and that has been was less then what we had expected against our forecast in the month of July which are obviously almost finished. We are seeing pull on that front.

Okay. And with LCD inventory weeks, I believe you said around 17 weeks right now, can you give us a sense as to what Gorilla inventory weeks look like in the channel from your shipment on through?

Like I said, LCD was at 18 weeks. Ehud Gelblum – Citigroup: Okay.

In Q2 and I don't have any information on Gorilla in the supply chain. It is very difficult to get information on the number of weeks.

Do you think it's contracting or is it staying roughly where it is, I assume that's higher than 18?

I just said I don't have information on the supply chain for Gorilla, so I can't give you the number of weeks.

Okay. I appreciate that. Last thing, I want to just explore a little bit was Hemlock, it sound obviously back in the equity earnings as of Q1. From the guidance it looks like you expected it to be relatively flat and then up in Q4. Can you give us just a little overview on the trends going on there, how should we be modeling that going forward?

We actually disclosed in our Q1, the Hemlock numbers were last year, so on quarter two last year we made some money, so but in quarter three we didn't make any money last year in Hemlock. So it's very uneven – unevenness comes about by how the customers who are on the contracts pull their product. But in general our experience last year was Q4 is very strong because that's – it must meet their contractual demand, they can delay for a couple of quarters. But they have to take it. I mean overall, I think we see very positive trends right now in probably silicon market spot prices have moved up quite a bit from where we were. But downside would be that we just had announcement on Friday by the U.S. Government about more anti-damping regulations, so we don't know how that will impact the growth of the market. But fundamentally, we are not really shipping into China today so it doesn't really affect Hemlock very much.

Okay. Appreciate it. Thank you.

We have a question from the line of Steven Fox with Cross Research. Please go ahead.

Thanks. Good morning. First question, just going back on the CPM synergies, so Jim if you are pulling forward some of this synergy expected in 2017 and 2016 and we look at the $90 million for the full year this year. Is it a straight line in terms of how we should think about synergies for 2015 more back end loaded and any color you can provide there would be helpful? Then I have a follow-up.

I don't have the synergies handy broken quarter-by-quarter, so I doubt that there is a lot of variabilities that goes through. But, I just don't have that level of precision.

Okay. And then just secondly, just getting back to the – unbranded cover market – cover glass market, given the growth opportunity there, I don't know if there is any more color you can provide in terms of where you are actually getting some of the growth from. And I know you addressed some of this in some earlier comments. But, just trying to understand anything you could do to maybe accelerate your penetration, if not by the end of this year, but into 2015 and what that opportunity looks like? Thanks.

I'm not sure what you mean by unbranded Steve, could you help me with it?

Yes, I'm sorry. On that unbranded tablet market where you are selling cover glass, right now, you mentioned that the only growth you are seeing from tablets right now is unbranded OEM?

We have shared. We do quite well with that. It's just that we don't have the same shares what we have in some branded ones that you are very familiar with in the United States. And we are always trying to demonstrate that our Gorilla products, our better quality product and provide damage resistance. So I think that's really our approach. And combined with marketing which we do small amount of and tend to continue to do that. We shifted more of our marketing spend to Asia going forward. So I think those are the things we could do.

Okay. Thank you very much.

And our next question today comes from the line of Brian White with Cantor Fitzgerald. Please go ahead.

Yes. I'm wondering, if you could talk a little bit about pricing for Gorilla glass. So given the slowdown, what has happened to pricing in the quarter and as you look forward into the September quarter?

So the sequential price declines Q2 to Q1 were almost immaterial I would say and we have the big step down that we talked about in Q1 but really nothing of any significance in Q2 maybe I think we have a minor amount in Q3 in one of our contracts. I think the next big change statement would likely be because most of these contracts are annual will be Q1 of next year. And frankly it's a little earlier for me to know what that would be. But, I don't think you expect price to be a big play for the remainder of this year.

Okay. And Jim in the December quarter, we should expect the Gorilla glass to grow sequentially given some of these delays, we should see a little bit of growth in the December quarter or not?

It's really hard for me to judge right now. I think it would be – my general feeling is that it might be flattish volume Q3 versus Q4 a lot will depend on the fall of these models. But, the big step up from where we have been running of course in Q3 in terms of volume.

Okay. And just finally, if you could just give us a general direction how important the tablet market is to Gorilla. I mean is it 20%, 30% some ballpark range would be great.

So the tablet market is about 40% of our demand.

Great. Thank you.

We obviously expected it to be more in that originally in the year.

Okay, fantastic. Thanks.

Our next question is from the line of Andrew Abrams with JG Capital. Please go ahead.

Hi. Just a quick question on the TV market, you mentioned about some pull-in from the World Cup, would you expect that to have a material impact on what you would have expected for third quarter in terms of TV demand or is it insignificant enough not to make a difference?

I think it falls into the insignificance. We were just delighted by – some times we get people overly focused on sporting events but for example in Europe in the month of May televisions were up 13% whereas four months prior to that up or down in the single digits. And in South America in the month of April up 25%, 64% in the month of May but really it's not going to change our numbers overall.

Got it. Okay. And lastly just one, your plans for the assets from SEP, I know you are doing some conversions in Korea toward Gorilla glass based on your outlook for Gorilla glass on a general basis, are those plans going to change or is that more locational than volume wise?

Well, obviously, we don't have need as much Gorilla right now. But our plans still remains as plants in Japan reached the end of their life on Gorilla. They will go down permanently and then we will shift that demand over to Korea. Pace maybe slightly slower but I know that we have a couple of tanks that were throwing the light on Gorilla at the end of the quarter three heading into quarter four.

Got it. Thanks very much.

Tom, we got time for one more question.

Thank you. Our final question today will come from the line of Alberto Moel with Sanford Bernstein. Please go ahead.

Hi. Good morning, Jim. Just a question on the downstream Gorilla business as you sell blanks to the customers and then they finish them, but I understand that there is some work that you have been doing in downstream. You bought laser company for laser cutting, and so and forth if you have some update on where that fitting and where that business is heading, curious to know if you have any color on that. Thanks.

On the downstream business, the parts the business has quite a bit of variability to it quarter-by-quarter, so I don't have much of an update. The laser business is going quite well. I think shipments will be quite strong in quarter three. I don't have the list of the customers. So I can't really help you on that. But, parts business varies up and down in the quarter. But, in the mainstream for us in Gorilla is selling glass.

Thank you.

Okay. So we will wrap up. I have got one IR announcement. We will be appearing at the Citi Conference on September 3rd in New York City. I will just remind you a couple of highlights. Our most recent quarter was our seventh consecutive quarter of year-over-year earnings growth. We are absolutely delighted by the LCD glass price declines. In the third quarter they moderated further and I think very important to us is we are back to the rates that we saw for most of 2013. The integration of Corning Precision materials is going very well, delivering results and will be better than original plan trying to achieve that $90 million synergies this year part of our additional $350 million impact for the year. I think optical communications environmental segments are having fabulous years particularly environmental we are delighted by that. And we think we are on track to deliver sales and earnings growth in every business for the full year. Feel really good about our first half results and are confident that we can deliver on the plan. Ann?

Thank you, Jim. And thank you all for joining us today. Playback of this call is available beginning at 11 AM Eastern today and will run until 5 PM Eastern Tuesday August 12th. To listen, dial 800-475-6701, the access code is 330195. The audio cast of course is available on our Web site during that time as well. Operator that concludes our call, please disconnect all lines.

Thank you. Ladies and gentlemen, it does conclude our conference for today. We thank you for your participation and using the AT&T Executive Teleconference. You may now disconnect.