Corning Incorporated
Q1 2013 Earnings Call Transcript

Published: 24 Apr 2013

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Corning Incorporated Quarter 1 2013 Earnings Results. It's my pleasure to turn the call over to Ms. Ann Nicholson, Director of Investor Relations. Please go ahead.

[Ann H. S. Nicholson:]

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

[Wendell P. Weeks:]

Thanks, Ann. Good morning, everyone. At our Investor Day in February, we explained to investors why we believe Corning is a strong investment. We highlighted growth in our existing businesses, our expectations for solid cash generation and a rich R&D portfolio with the potential to create entirely new businesses. We reminded investors of our goal to return to earnings growth. We outlined the progress we made in 2012, and we noted that our fourth quarter results provided evidence that our strategy was working. I am very pleased to say that we started off 2013 with a strong quarter, exceeding analyst consensus. Our first quarter core earnings per diluted share were up 15% year-over-year and up double digits year-over-year for the second quarter in a row. You may recall that early in 2012 we identified 2 priorities for returning to earnings growth

[James B. Flaws:]

Thanks, Wendell, and good morning. I hope you've had a chance to read our quarter 1 earnings press release this morning. In it, you'll see our results reported as core earnings. I'd like to begin my comments by explaining to you our rationale for changing the core earnings and its major components. In February, we said that we wanted to clearly show you our performance so you could directly assess the status of our plan to return to earnings growth. Core earnings excludes nonperformance-related items from our results so you're better able to see operating results. Similar to our prior reporting, it also excludes special items, like nonoperating charges and certain accruals. Core earnings measures the performance of the company without 2 significant external factors

[Ann H. S. Nicholson:]

Thank you, Jim. John, now we're ready to take questions.

[Operator:]

[Operator Instructions] And first, we'll go to Jim Suva with Citi.

[Jim Suva:]

If we just take a step back and look at the big picture of how you kind of see the macro supply demand balance shaking out kind of currently, as well as looking forward to stay for the rest of the year, can you help us understand the supply, demand dynamics? We know Corning, I believe, has, in the past year or so, opened up a couple of plants and have some more efficiency gains, not only from Corning, but also competitors to either improve our increase in supply. But then on the demand front, we are seeing TV unit growth, which I think is kind of in the mid-single to upper-mid-single digit growth, and then service area is increase in the TVs. Can you just maybe take a step back and let us know the supply/demand equilibrium today and looking forward, how you see it there at Corning?

[Wendell P. Weeks:]

Sure, Jim. Basically, things look relatively in balance right now. It's just that simple. There's, of course, going forward, there's always dynamics on both the supply and demand side, but our opinion right now is things look relatively in balance, which helps in addition to our contracts that we've entered into and the weakening yen with our view of a relatively more benign price environment.

[James B. Flaws:]

I'd like to add on to that if I could, and that is I think that the market is in balance partially because of the discipline that Corning Incorporated is doing and some of the other manufacturers are. As you know, we continue to keep capacity offline in Korea, and we will do that to make sure that we stay in balance.

[Operator:]

And next, we'll go to Wamsi Mohan with Bank of America.

[Wamsi Mohan:]

Jim, I think you said the yen has hedged out for 2 years and settled quarterly. Can you talk about the cost to implement this collar? And I have a follow-up.

[James B. Flaws:]

Yes, the cost was about $100 million for the 2 years.

[Wamsi Mohan:]

And that would be realized all as the hedge continues? Those will be implemented over the course of the 2 years?

[James B. Flaws:]

No, it's spread over the 2 years.

[Wamsi Mohan:]

Okay, great. And then can you talk a little bit about some of the new capacity that's anticipated to come online this year? And if LG Chem's early shipments are changing, anything at all from a pricing dynamic or share dynamic?

[James B. Flaws:]

In terms of new capacity coming online for us?

[Wamsi Mohan:]

For the market. So NEG have some capacity coming online and LG Chem too.

[James B. Flaws:]

So NEG has capacity coming online. They've announced that they're building a tank in Korea, and I believe their expectations are that for the back half of the year. They have said in the original announcement that they will be shutting down capacity in Japan when that occurs, and we're taking that as their stated announcement. Their second tank is not until sometime late next year per their statements. LG Chem has 1 tank running, and it's actually been running almost 2 years now. And the second tank, as far as our surveillance says, consists of only a few steel pilings in the ground, but we are not feeling LG Chem is a significant supplier in the industry.

[Operator:]

And next, we go to Patrick Newton with Stifel.

[Patrick M. Newton:]

I guess, sticking to the hedge question, you talked about taking care of translation exposure between 87 and 93 on the yen exchange rate, but you still have transaction exposure. So I guess if we look at your 10-K and take that as a base, I think previously and prior to these hedges, a 10% move in the yen dollar FX rate would impact net income by about 6%. So using that metric, where would that stand post your hedge?

[James B. Flaws:]

Well, you have no further impact. I mean, that amount between JPY 93 and JPY 87, you would see that impact of about -- I think it's about $5 million per yen on an annualized basis. So you could calculate that between JPY 93 and JPY 87 if you want, but we're reporting basically at JPY 93.

[Wendell P. Weeks:]

And the key element to what we sought to accomplish with the yen hedge is to basically take the risk off the table for the next couple of years, right? So that capping the exposure at JPY 93, it puts us in a spot where it gives us much more stable earnings pattern going forward. The relative degree of gain on that hedge or not will depend on what the yen actually performs like. One of the reasons we did it, why we moved the core earnings in Q1, was because it really didn't impact quarter 1 earnings per share because our hedge rate and the actual yen in quarter 1 are close to the same thing. So that no matter how you looked at our earnings, GAAP, our normal way of x specials or core earnings, we're significantly better than consensus. As we go forward, if the yen stays where it is right now for quarter 2 and it's closer to JPY 100 to the dollar, we'd experience some significant gains on the hedge, which would offset any of the translation loss of bringing on yen-based pricing deterioration in the yen factor back into dollars. Does that make sense?

[Patrick M. Newton:]

Yes, that makes sense. So in essence, though, no transaction exposure at the yen-dollar level?

[James B. Flaws:]

That's what you should be -- that's what you will see in our results.

[Wendell P. Weeks:]

Right.

[Patrick M. Newton:]

Okay, perfect. And then, I guess, something, Jim, it seem like in your prepared remarks, you kind of inflected in your voice that LCD prices are currently priced at yen. Maybe I'm reading too much into that, but I'd love you to discuss the likelihood of changing the price into U.S. dollars, the thoughts on could that happen within kind of this 2-year hedge window, and the pros and cons of what has kept to you from changing the past and perhaps with the change in FX rate, what makes it more attractive in the future?

[James B. Flaws:]

So it clearly is a possibility, as we talked about in our IR Day in February, that we could convert over to U.S. dollar pricing. And clearly, it could occur during this 2-year hedge period of time. It's obviously a complex shift because you have to figure out what rate you're going to do it at, and you've got to get your customers to agree, and of course, we also have to think about what our competition will do. But I didn't mean to imply anything with my inflection, but clearly, I will state to you that the possibility of us going to U.S. dollar pricing for our display business is very real.

[Wendell P. Weeks:]

To add to it, I would agree with James' statements. When we told you at the beginning of the year that our time and attention was going to the yen and making sure that we would be taking the appropriate action, we look both at commercial changes, like shifting to the dollar in the near term, as well as doing what we did in the hedge. What we did is cover this next 2 years. It would give us time to figure out what the appropriate commercial change is, as well as opportunities to reach very considered opinions on how we should handle the yen going forward.

[Operator:]

And next, we'll go to Mark Sue with RBC Capital Markets.

[Mark Sue:]

Gentlemen, the pricing change, as it relates to market share, it's good to see that things are stabilizing in price. What's the staying power and what's been the competitive response, if any? And are we getting indications that rationality for the display industry can prevail on a going forward basis just as we move through the back half of the year and into next year?

[Wendell P. Weeks:]

Well, clearly, what we're seeking to accomplish is just that or we really control are our actions. And what we've done with the series of agreements we put in place is to stabilize our share, to develop a fixed relationship between our price and market price, which should make for economic decision-making by all the players involved. We're encouraged by the progress that we've made in quarter 1, as well as quarter 2. Only time will tell how this all turns out, but we're encouraged.

[Mark Sue:]

Will it be a quarter or so, what you could kind of call a success to the change in pricing, or is this an ongoing thing that we have to kind of monitor?

[Wendell P. Weeks:]

Clearly, getting another quarter under our belt with this continued moderation, we feel even better. But at the core of it, pricing and pricing strategy is always going to be important in this business. So we think we can reduce the volatility, and we're making some progress toward just that, but it will continue to take a good amount of time and attention.

[Mark Sue:]

Okay, understood. And then separately, if the regional demand for display continues to change around the world, does that make you reconsider your CapEx by region? I understand the plans for this year at $1.3 billion, just thinking about if things move around in 2014 and beyond.

[James B. Flaws:]

I'm not quite sure I follow your question, Mark, about regionally. You're asking about spending in glass business?

[Mark Sue:]

That's in display as you try to move closer to your end customers. So we understand the plans you're making for this year in China, for example. Do things change the following leap [ph] year? Do you concentrate your progression in capacity in certain regions and does that require changes in CapEx longer term?

[James B. Flaws:]

No, I don't think in 2014 you should expect to see much change in the company's capital spending for our glass business. We're really at what we would call more of a maintenance level in the display area now. And because of the result we've seen, we think we're in good shape there, and we feel that we can regionally supply very effectively between Taiwan, Japan and Korea, and so we don't feel that the fact that China is growing very rapidly causes us problem. I mean, we've been shipping glass to China for a long time. So capital spending, you should feel pretty good about the $1.3 billion this year. And right now is, as I think we've told you, we think it's $1.3 billion again next year, and display is not a big good portion of that. It really is driven by some spending in our other business, including environmental.

[Wendell P. Weeks:]

Yes, we're pretty happy with our asset platform in China as well. It's all been previously announced what we're doing. The productivity there looks really good.

[Operator:]

Our next question is from Amitabh Passi with UBS.

[Amitabh Passi:]

I just had a couple of questions. Jim, on the $2 billion buyback plan you announced, from a funding perspective, will you need to repatriate any cash? Or do you think you can fund that based on what you have onshore? And I just wanted to clarify your gross margin of 42.4% came in about 200 basis points above, I think, your expectations. Again, I think, given all the restatements, can you just help me understand is that a "clean number"? How does it compare to last year's gross margin? It seems like it was flattish, and then I had one other follow-up.

[James B. Flaws:]

So on gross margin, the 200 basis point improvement was driven by very strong manufacturing within, particularly, telecom and Gorilla, really drove the improvement in expectations, and I can't remember what last year's number is. Maybe Ann can look it up in the script. I just can't remember off the top of my head. Your first question was on?

[Amitabh Passi:]

Just the funding mechanism of the $2 billion buyback plan, would you need to repatriate any cash? Or do you think you have enough onshore to fund the $2 billion buyback if you chose to go through the entire amount?

[James B. Flaws:]

We don't have a need to repatriate the cash. We are not changing our assertion that it's permanently invested during the timeframe that we're talking about.

[Amitabh Passi:]

Okay. And then just as a quick follow-up, maybe one for you, Wendell. The sequential growth in telecom and Gorilla Glass, can you give us any insight in terms of what the drivers are, where you're seeing that sequential growth coming from?

[Wendell P. Weeks:]

Definitely, and I'll add quick -- briefly to Jim's previous comment. So I think your question was right on, on are these results clean? And given our move to core earnings, it's great question and they are. It's one of the reasons we're doing it this quarter, and to try to match going forward, the economic reality of being hedged out at JPY 93 ought to be able to help us and help you all be able to get a nice, clean forward-looking forecast as well. So now on to that forecast in sequentials; in telecom, we would expect the sequential ups to be driven by a season output; normal, it's a little bit above normal seasonality increases out of China especially, as well as some uptick in our enterprise business. In specialty and in Gorilla, we'll see that uptick be linked more to new product launches, and we'd expect that to ramp through the year. For example, something like the Galaxy S4, which is just going to start really ramping up their supply chain in quarter 2 with Gorilla Glass 3.

[James B. Flaws:]

Just a follow-up on your gross margin question, Ann tells me quarter 1 of the year-ago was 42%.

[Operator:]

The next question is from Steven Fox of Cross Research.

[Steven Bryant Fox:]

A couple of questions for me. Just following up on that last question, could you talk about SG&A in a similar manner? It looks like it came in, by my count, $30 million, $35 million less than you guys were originally guiding to now, and I was curious if that's sustainable. And then secondly, Jim, just on the equity earnings line, that came in greater than expected. How much was that related to, not including the solar polysilicon results in the numbers? And by not including it, is that sort of an admission that we're definitely going to see a write-down of those assets?

[James B. Flaws:]

On the latter, I think it was $5 million. So Hemlock was not a significant exclusion, and no, it's not an admission. It really was our choice on taking Hemlock out. I really feel it's got -- it's so much influenced by what's happening on the trade war between China, the United States and Europe, that you really run the risk of the results being affected by that rather than really what we focus on, which is making and selling product. We do not have a ruling for MOFCOM. They delayed it. Again, we now think it's going to be in June. We don't know what it's going to be so we're not predicting that, but we just decided it would be easier for you to not have the potential swings in Hemlock in our results, but in quarter 1, it was a very tiny amount. I think some of the SG&A gain is sustainable from quarter 1, but not all of it.

[Steven Bryant Fox:]

And then just one quick follow-up on the equity earnings line. So just a little bit more color around Dow Corning. It looks like, I guess, the core silicones business is improving more. Is that -- can you just talk about your outlook now for that business recovering as the year goes on?

[James B. Flaws:]

Yes, we're expecting it to improve again in quarter 2. Silicone does go through a cycle. The cycle is driven somewhat by capacity adds in the industry. Dow Corning did that, as well as some of our competition. There has been raw material pressure but -- so 2012 probably was a low point if you look at silicone margins. And we think we're still getting as the industry grows in some of that new capacity and with moderation in some raw material pricing, we think that we're starting to move up on the margin cycle, and so we're expecting improvement in silicones in quarter 2. And as of now, I have no reason to not expect the back half of the year to be good year-over-year also.

[Operator:]

And next we'll go to Simona Jankowski with Goldman Sachs.

[Simona Jankowski:]

I just wanted to ask first what the EPS would have been in the quarter under the old accounting or maybe kind of put another way, I just wanted to understand in terms of the FX impact that was included, clearly, the cost of the hedges excluded, but what about the move of the yen up to JPY 93, was that included in the quarterly results or it's not? What would that have looked like if it had not been excluded?

[James B. Flaws:]

Well, the yen, there really is no change. I mean, because the yen was PJPY 93, and so there really was no impact and the cost of the hedge for the quarter after tax was a very small amount.

[Wendell P. Weeks:]

Yes. So I think the core answer to your question is no difference. That's one of the reasons we wanted to do it this quarter. Core earnings are about going forward on the volatility standpoint and to be able to link to our actual hedge.

[Simona Jankowski:]

Okay, that's helpful. And then the other question is on your guidance for a relatively flat volume into the second quarter. That seemed a bit weaker than I would expect it, given that you had some correction in the first quarter in seasonality, and even some of your customers, like LG Display, had guided for something a bit higher. So can you just go into the drivers of that view and then what you see in terms of inventory downstream?

[James B. Flaws:]

What goes into that view is our reflection on the fact that inventories grew again in quarter 1 and are likely to grow a little in quarter 2, and we think that level will temper a little the potential volume that the panel makers will take. We recognize we could be wrong in that. And I would say if we had to say where the error would come, it might be stronger. Clearly, the demand right now from our panel maker customers is quite strong. We're actually air shipping in order to meet their demand. So it could be that it is -- that we'll actually see it go up. It's just that our caution is we measure the amount of inventory in the supply chain north of where the panel makers are as we're worried that it is -- it's built up quite a bit, and therefore, that's what led us to our flat guidance.

[Wendell P. Weeks:]

Based on the high side, are healthy. But to your point, it's -- we'd like to see the May sales in China, and then it could be that we're underestimating where the market is going to be.

[Simona Jankowski:]

And in your view, what explains that disconnect between your customers requiring you to air-ship while at the same time you're having excess levels of inventory?

[Wendell P. Weeks:]

I don't think they're in excess. We'd say they're just on the high side of healthy, right? And I think what it really comes down to is how big a sales cycle do they see, especially in China as the retailers get ready for the May day sales.

[James B. Flaws:]

I just want to make sure you understand that the inventories we're talking about are not at the panel makers. So it is our estimation of what exists at a set assembly in a retail, and the panel makers are continuing to run strong. In order to keep up with them, we're doing some air shipping, which, regretfully, is costing us a little bit in gross margin. But if China, the May holidays perform as well as what we saw in the New Year's holidays, we could be surprised on the upside and do a little bit better what our guidance has been.

[Operator:]

The next question is from Ehud Gelblum with Morgan Stanley.

[Ehud A. Gelblum:]

A couple of clarifications first. Jim, the $100 million hedge expenses, where does that show up or where are we going to see in the P&L? And also the change in pension accounting that you made, did that have an impact on EPS this quarter and what do you expect that to be for the year? And then I have some fundamental follow-ups.

[James B. Flaws:]

Well, on the pension, it basically was $0.01, and it's in both this year and last year so it really isn't making a change statement. The cost of the hedge, we exclude from core performance. But as you divide the $100 million by 8 quarters and tax effective, it's a very small amount.

[Ehud A. Gelblum:]

Okay. That is helpful. Digging a little bit deeper into the equity earnings, the $173 million versus -- we had about $120 million, count that SCP was probably around $17 million of that. The rest, did that come basically from silicones? And can you just give more color on what is driving that? You did make some comments that you think it's sustainable and it comes back. Just what are the drivers there and sort of to understand kind of the moving pieces? And then on cash, someone asked before and I'm not sure I caught the answer, what is your U.S. cash balance right now? I think it was $1.5 billion at the end of last year.

[James B. Flaws:]

Cash balance is $1.2 billion right now.

[Ehud A. Gelblum:]

In the U.S.?

[James B. Flaws:]

In the U.S. And in terms of equity earnings, it's -- we believe that silicone business is doing quite well in the current quarter. It's going to continue to do well in the second quarter.

[Ehud A. Gelblum:]

Any drivers behind that? I mean, what's creating that so that I can track?

[James B. Flaws:]

So we've said demand is good. Pricing has been okay. Raw materials have been -- costs have been improving versus where they were. So those are the primarily things. Demand is good in China, good in the United States, weak in Europe.

[Ehud A. Gelblum:]

I've always thought sales have just more been somewhat of a GDP-related thing because they go into a lot of different areas. So is that a comment on macro, in general, looking better from the perspective of product that silicones go into...

[James B. Flaws:]

They have a very high correlation with GDP or industrial production. It depends on which segment, the usage of it. But I think the thing you have to remember, as emerging economies start to move up the scale, if you will, of development, they actually use more silicone per population. So you actually get a multiplier effect even though, say, China's GDP is 7.7%, as an example, the growth in silicones will be higher because -- consistently seeing developing economies as more silicones per person, if you will, as they move up the scale of life, and so that's what where we think we're seeing some of the strength.

[Ehud A. Gelblum:]

And China's GDP was even stronger last year, and yet, it wasn't really helping you then. So I'm just trying to find out what was the turning point of what's happening now that hasn't happened previously that seems to be bringing that category back up again? Is there anything you can pinpoint or...

[James B. Flaws:]

Because last year, we -- you were seeing perspective from our price competition and we're not seeing that right now.

[Wendell P. Weeks:]

So overlaying the GDP pieces in those factors, you also have just sort of the supply-demand cycles that you get in silicones over time, and feel like it bottomed out last year, and it's starting its lock-up as an industry as they get better and better balance between demand and supply.

[Ehud A. Gelblum:]

And from your standards, is this a 1, 2, 3-year cycle? So this is the beginning of a multiyear upswing or is this a -- does it happen every year, it goes up and down?

[James B. Flaws:]

No, we think silicones is coming off a low point in terms of margin performance. And assuming the world's economies behave, sales should grow. The unknown for us is really going to be Europe. It's really hard to tell what's going to happen in the European economies, and that's clearly been a drag on Dow Corning, but I think we're starting to stabilize a little. Even though it's at a lower level, that's helpful for Dow Corning.

[Operator:]

And next, we'll go to Rod Hall with JPMorgan.

[Roderick B. Hall:]

So first of all, congrats on the hedging. It's a pretty cheap price to get for all that for $5.2 billion worth of hedges, and a couple of questions on the rest of the business. I wanted to just check in on the inventory again and see -- you've been talking about this structural reduction in inventory over time, and I wonder, based on what we're seeing now, do you think that we're coming to an end of that and that inventory is actually kind of reaching its stability point, or do you think this is just kind of a short-term fluctuation in inventory we're observing? And then I also wanted to talk a little bit about the -- or get you to talk a little bit about the panel supply/demand situation as we head into the back end of the year. I mean, we see some of these -- well, a lot of these panel manufacturers running pretty high utilization rates now, and we're not at the peak season. So I wonder, do you think that -- do you think there's going to be enough supply in the second half of the year to meet demand even in a more cautious economic scenario? And then I've got a follow-up to that as well.

[James B. Flaws:]

A lot of questions. So the structural reduction in inventory that we talked about in December of 2011, we still believe that, that can occur. What has surprised us is the willingness of the supply chain to carry more inventory than what we expected, and we continue to struggle a bit as per the reasons as outlined in my prepared remarks. We clearly think that there could be some impact from the fact that panel prices have been relatively stable, and what has often driven supply chain fluctuations has been when -- particularly when people think there's about to be a big reduction in panel prices, no one wants to look dumb and buy when they're seeing that. So we think that stability maybe playing into effect. The second thing, again, hard to prove is the LCD television market basically gets the full penetration, and we're capturing the more emerging parts of China as an example and other parts around the world. It may be that the supply chains are just less efficient. The third factor that we're seeing is that the panel industry has chosen to improve their own efficiencies and also position themselves better, seeing the proliferation of new sizes. So at one time, life was pretty simple. It was either a 32 or 37 or 40 or 42 or 46. Now you see these new sizes like 39 coming in. And the more models you have, the more inventory you have. So we still believe over time that the supply chain will become efficient and will go down, but it's definitely carrying more than what we originally expected. Do you have any comment on the panel supply, Wendell, in terms of, we know there's more capacity coming on in China, and as the year progresses so we're hopeful that, that is enough to supply the demand, but I don't have a lot of current data on panel supply.

[Wendell P. Weeks:]

It's hard to tell at this point in time, I'd say. But boy, it would really be good if you were right.

[James B. Flaws:]

Yes, exactly.

[Roderick B. Hall:]

Okay. I need my follow-up. I don't know, Jim, I wonder if you could make any comment on your cash return policy, going forward, particularly the dividend as you're thinking about metrics there. Do you have a payout ratio in mind or a yield in mind? Or can you just give us any feeling for how you're thinking about that looking forward?

[James B. Flaws:]

We have not yet set a firm policy with the board as either a yield or a percentage of our free cash flow. I can tell you that the board's deliberations went into the announcement today is that we're really dedicating our free cash flow over this year and next year to shareholder returns through a combination of dividend and share repurchase. And I think, as always, I think we'd love to continue to increase the dividend as our earnings go up. We want to be cautious not to get too strong on the dividend because you never want to have to lower it and we lived through that once before. But I think you can expect to see the dividend continue to go up as our earnings go up, and that's dedicated to free cash flow, the remaining free cash flow against share repurchases as long as we feel the company's undervalued, which we clearly do.

[Operator:]

And that will be from the line of Jagadish Iyer with Piper Jaffray.

[Jagadish K. Iyer:]

Two questions. First off, Wendell, if the yen continues to weaken further, the prognosis being much closer to like JPY 115 to JPY 125 or something like that over the next 12 months, how do you think that your competitors are likely to respond in terms of pricing, given that you have hedged, do you think that it doesn't matter anymore? So I would like to have your thoughts on that, at least on the qualitative perspective, and then I have a follow-up.

[Wendell P. Weeks:]

Well, what -- economically, you would believe if there were macroeconomic [ph] decision-makers is that it ought to have a very moderating effect on pricing because customers are getting the benefits from that and actually, the weakening yen hurts their financials because of the way their cost structures are built and the way their P&L works. So that ought to give strong motivation to them to be more moderate in their pricing behavior, if indeed they're macroeconomic [ph] decision-makers.

[Jagadish K. Iyer:]

Okay. Just as a follow-up, Jim, just -- you alluded in your prepared remarks that the gross margins on Gorilla Glass was getting better. Just wanted to get your thoughts on the puts and takes in terms of how the ASP declines were in Gorilla Glass and how your cost reduction initiatives have begun?

[James B. Flaws:]

Our cost reduction is exceeding our ASP declines on Gorillas. So just a reminder on Gorilla, this remains a relatively new business and new product and we're making improvements in our cost structure as we're making that glass thinner and improving our yields so we are moving up the gross margins of that, and the profitability remains well above the corporate average and it's improving.

[Ann H. S. Nicholson:]

And Jim, do have any closing statements?

[James B. Flaws:]

Yes, I do. A couple of quick wrap-up comments for me. First of all, we do have one Investor Relations announcement. We'll be attending the JPMorgan TMT Conference on May 14 in Boston, and we hope to see a number of you there. I'd like to just summarize the call this morning. First, we think we've made great progress on stabilizing display, and then returning that business to positive momentum. We didn't talk a lot this morning, but we continue to do well with new products for various usages. Second, we're executing on our goal to grow our earnings and our other businesses. We saw very strong aggregate growth and profitability from our other businesses. Third, we grew core earnings per share year-over-year by double digits, both in quarter 4 and quarter 1, and we think this is very strong evidence that we are marching up on earnings. We think we've moved very assertively and appropriately to protect the company investors with our yen hedges. And we remain very committed to shareholder returns, and we've acted on that commitment by increasing our dividend for the third time in 18 months, effectively doubling it, and announcing a $2 billion share repurchase. You should consider these new actions is approximately a $3.2 billion commitment over the next 2 years, essentially putting our free cash flow work for shareholders, in line with our belief the company is undervalued at its current price. And finally, looking ahead to Q2, we are very confident that we will have a third consecutive quarter of year-over-year core earnings growth, driven by moderate LCD glass price declines and excellent growth in telecom, Gorilla Glass and Life Sciences. Ann?

[Ann H. S. Nicholson:]

Thank you, Jim, and thank you, all, for joining us today. The playback of the call is available, beginning at 10