Ann Nicholson - Division VP of IR Wendell Weeks - Chairman and CEO Tony Tripeny - SVP and CFO

Joseph Wolf - Barclays Capital Jess Lubert - Wells Fargo Securities Rod Hall - JPMorgan Steven Fox - Cross Research Patrick Newton - Stifel Nicolaus Vijay Bhagavath - Deutsche Bank Doug Clark - Goldman Sachs

Welcome to the Corning Incorporated Quarter Four 2016 Earnings Results. It's my pleasure to turn the call over to Ann Nicholson, Division Vice President of Investor Relations. Please go ahead.

Thank you, John and good morning. Welcome to Corning's fourth quarter 2016 conference call. With me today is Wendell Weeks, Chairman and Chief Executive Officer; Tony Tripeny, Senior Vice President and Chief Financial Officer; and Jeff Evenson, Senior Vice President and Chief Strategy Officer. 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 financial reports. You should also note that we will be discussing our results using core performance measures, unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. A reconciliation of core results to the comparable GAAP value can be found on the investor relations section of our website at Corning.com. Slides are posting live on our webcast to accompany our formal comments and with encourage you to follow along. They'll also be available on our website for downloading. Now, I'll turn the call over to Wendell.

Thank you, Ann and good morning, everyone. Early last year, we told you that we expected our momentum to build steadily throughout 2016 and it did. As we reported this morning, we finished the year with a very strong fourth quarter, with sales up 6%, net income up 24% and EPS of $0.50, up 47% year-over-year. We see this momentum continuing and anticipate year-over-year sales, net income and EPS growth in the first quarter. Tony will cover our financial performance and outlook in greater detail, in just a few minutes. These corroborating results and our progress on key value creation initiatives continue to reinforce our confidence in the strategy and capital allocation framework that we introduced in October of 2015. The framework outlines our leadership priorities and articulates the opportunities we see across our businesses. We designed the framework to create significant value for shareholders, by focusing our portfolio and leveraging our financial strength. As you know, under our framework, we target generating $26 billion to $30 billion in cash through 2019 and plan to return more than $12.5 billion to our shareholders through repurchases and dividends. We have made great progress against that goal. Since October 2015, we have returned a total of $6 billion by increasing the dividend 12.5% last February and by repurchases that reduced outstanding shares by approximately 22%. In 2016, we also realigned our interest in Dow Corning. That transaction further focused our portfolio and unlocked tremendous value for our shareholders. In addition to cash distributions, we plan to invest $10 billion to sustain our leadership and deliver growth over the long term. We're best in the world in three core technologies, four manufacturing and engineering platforms and five market access platforms. We focus 80% of our resources on opportunities that use existing capabilities in at least two of the three areas. We're investing in research and development, capital expansion and acquisitions, to advance our innovation initiatives, strengthen our leadership and low-cost positions and ultimately outperform our competitors. By pursuing this strategy, we believe that our likelihood of success increases, our cost of innovation decreases and we create higher and more sustainable competitive barriers. Our focus in leadership also attracts some of the world's leading companies to our ecosystem, because they see how our unique expertise can help address some of their toughest challenges. This is leading to improved performance and excellent momentum in our market access platforms. Let's look at a few examples. In our optical communications market access platform, our goal is to add $2 billion in sales by 2020. Optical communications is a fully-evolved example of our focused 3-4-5 portfolio. We began more than 40 years ago, by leveraging our deep knowledge of optical physics, glass science and vapor deposition, to disrupt the telecommunications industry with optical fiber. Over time, we increased our value-add by leveraging ceramics, extrusion and precision forming. Today, we're reaping the benefits of this unique combination of our capabilities, in segments like fiber-to-the-home and hyperscale data centers. During 2016, we improved our cost position and won customer commitments that support long term growth. In the fourth quarter, optical communication sales rose 11% year-over-year and we expect growth in this business to accelerate in 2017. In our automotive market access platform, we're building on our existing environmental business, with the addition of a significant new business for gas particulate filters, or GPFs and a Gorilla-sized automotive glass business. Consistent with OEM announcements, we believe that GPFs will be the preferred approach to meet new regulations for particulate emissions from gasoline direct injection engines. GDI engines offer both higher performance and better fuel economy. And, as a result, have grown to about a quarter of passenger car sales worldwide, with units growing in the high teens annually. Platform awards began in 2016 and we have won the majority. In December, the European Union agreed on its 6C regulations which introduced new real-world emissions tests, starting in September of 2017. All new cars will need to comply with the rules, starting in September of 2018. In December, China also finalized related regulations. We expect gas particulate filters to become a significant business for Corning. GPFs offer the potential to increase our sales opportunity per vehicle by a factor of three to four, with profitability similar to our current business. In line with our commitment to invest $10 billion in growth opportunities, our investment in GPF is ramping to support customer commitments. You will see both cost on our P&L and capital expenditures in the near term and we'll start to see sales in the second half of the year. In 2017, we also expect progress towards commercialization of Gorilla Glass for auto, for both vehicle exteriors and interiors. To tap this opportunity, we're reapplying our core technologies and reusing our manufacturing assets, to provide advantage glass that can make cars cleaner, safer and more connected. Our decades-long relationships with auto manufacturers have assisted in gaining collaboration on testing and development. During 2016, we successfully formed a joint venture with Saint-Gobain. We've passed Government safety tests and have been engaged in many promising dialogues with customers. The concept car we introduced at CES that used Gorilla Glass in a myriad of ways was frequently cited as a top innovation at the show. In our mobile consumer electronics market access platform, we seek to increase our revenue per phone and win placement on new devices. Our goal is to double our sales, despite flattening smartphone unit growth. We're pursuing that goal in a number of ways. First, we continue to lead the market with best-in-class products. Gorilla Glass 5 is the best glass for drop performance in the market today and we're seeing that superior performance translate into a meaningful price premium, that increases our revenue per phone. Second, we're selling more glass per device, given handset antenna requirements to support increasing data rates and the desire for wireless charging, glass is becoming a preferred material in more places on phones. Also, we have launched a glass specifically designed for screen protectors, for those who want added protection on their device. Third, we're enabling more value per device by adding functionality which opens up new device categories. For example, our Vibrant product enables photo realistic images on handhelds and notebooks, while Gorilla Glass SR+ offers outstanding scratch performance on wearables, such as the Gear 3 from Samsung. Fourth, we can add sales by focusing on markets where we can gain share. In all cases, our close relationships with our customers enable us to work jointly with them on compelling new mobile consumer products. In summary, we believe the strategic and financial benefits of Corning's cohesive and focused portfolio are becoming even more apparent, as we enter the second year under our framework. Let me turn the call over to Tony, for a review of our results and details on our outlook for 2017. Tony?

Thank you, Wendell and good morning. As we noted in today's release, our fourth quarter core results reflect the sequential and year-over-year improvement we expected and we're very pleased with our strong operating performance. Net income and earnings were both up significantly. Looking ahead, we see year-over-year growth in the first quarter in sales, net income and EPS. Before I get into the details of our performance and results, I wanted to briefly note that the primary difference between our GAAP and core results for the fourth quarter is, again, a non-cash mark-to-market adjustment. As we have discussed previously, GAAP accounting requires earnings translation head contracts, settling in future periods, to be marked-to-market and recorded at their current value in the current quarter, even though those contracts will not be settled in the current quarter. During the fourth quarter, the yen weakened which resulted in a GAAP gain of $1.1 billion, when we marked the contracts to market, as required by GAAP. To be clear, this mark-to-market accounting has no impact on our cash flow. We remain very pleased with the results of our hedging program and the economic certainty it delivers. Since its inception, we have received cash totaling $1.3 billion under our hedge contracts. These proceeds offset much of the yen-related decline in display's earnings. Hedging our earnings and cash flow through 2022 substantially mitigates risk from a weakening yen. For the investors who have additional questions on the mechanics of the contracts, please refer to the tutorial on FX hedge accounting on the digital media disclosure section of our investor relations website. And as always, Ann and her team are available after the call. Note that for the full year, marking those contracts to market resulted in a non-cash loss of $409 million. The more significant difference between GAAP and core results for the full year was the $2.7 billion benefit from the strategic realignment of Dow Corning, that was completed in the second quarter. As Wendell noted, this transaction provided tremendous value for our shareholders. Turning to fourth quarter core results, sales grew 6% year over year and net income was $534 million, up 24% year-over-year. Adjusting for the former Dow Corning silicones business equity earnings which no longer contribute to our results, net income grew 36% year over year. Fourth quarter EPS was $0.50, up 47%. These positive year-over-year results were primarily due to rapid adoption of Gorilla Glass 5 and record Gorilla Glass volume which produced higher sales and a profit boost from its premium price; sales growth and higher profitability in optical communications; and LCD glass volume growth and moderate pricing. We delivered a 43% gross margin, as expected which was up 140 basis points from last year. SG&A was 14% of sales, at $350 million. RD&E was 7% of sales at $173 million, benefiting from the proceeds of a joint development agreement with a display customer. Total gross equity earnings were $112 million, driven primarily by our equity earnings from Hemlock which is seasonally strongest in Q4. Our effective tax rate for the quarter was 17%. Turning briefly to the balance sheet, adjusted operating cash flow for the year was $2.75 billion and we ended the year with $5.3 billion of cash, approximately 40% of which is in the U.S. Now let's look at the detailed segment results and the outlook for each business, beginning with display technologies. The fourth quarter display market and our results were strong and in line with guidance. Sales were $904 million and net income was $276 million. Industry dynamics played out, as we said they would, in October. The fourth quarter is the strongest season at retail. Based on preliminary data, premium retail area growth year over year was robust, particularly in North America and China. Our customers, the panel makers, kept their utilizations high to meet this demand. Our fourth quarter glass volume tracked with the market and was up low teens year-over-year. Sequentially, our volume was down slightly. Supply chain inventory exited the year at a healthy level and panel makers' inventories remain lean. Fourth quarter LCD glass price declined moderately sequentially, in fact, more moderately than Q3. For the full year, glass demand grew in the mid-single-digits. As we predicted, growth was driven primarily by average TV screen size which grew more than 1.5 inches. Our volume for the full year grew mid-single digits, in line with the glass market. Now, looking into 2017, we expect the retail market, as measured in square feet of glass, to be up mid-single digits, driven primarily by demand for larger screen size TVs. Let me walk you through the details. First, TV units at retail are expected to be flat, or possibly up 1%. This has a small contribution to glass market area growth. Second, TV screen size should grow about 1.5 inches, consistent with the trend of the last three years. This will contribute 4% to 5% to end market glass area growth in 2017. Third, we think IT will be flat, with larger screen sizes offset by lower units. We do not expect IT and other smaller form factors to contribute to glass market growth. And fourth, the value chain enters the year with healthy inventory levels and we think inventory will again be healthy at year-end 2017, expanding during the first half to prepare for a seasonally-strong second half, when inventory will contract. Taken together, we expect our demand to be up mid-single digits in 2017, in line with the overall market. Specifically for the first quarter, we expect the glass market and our volume to be up mid-teens over last year's first quarter. This is down mid-single digits sequentially, driven by two fewer production days in the quarter and a reduction in panel maker capacity. As context, late in Q4, Korean panel makers began to take down some lines, to convert the flexible OLED manufacturing for smart phones. New fabs are coming online over the course of 2017. Therefore, panel capacity will increase throughout the year. When one panel maker reduces production in one fab, other panel makers will need to produce more to meet retail demand. We expect to maintain our worldwide share position, due to our broad and diversified customer base. We believe the full-year 2017 glass price declines will be more moderate than 2016. In fact, we may see the smallest declines in the last five years, as the profitability of our competitors remains low and supply/demand remains in balance. At this point, we already have more than 90% of our 2017 volume under contract. For Q1, we expect the sequential LCD glass price declines also to be moderate and very similar to the decline in the first quarter of 2016 which was the best for our first quarter in the past five years. Keep in mind, Q1 is typically the quarter with the largest decline for the year, as annual supply agreements are finalized. Let's move to optical communications, where we're very pleased with the results, as fourth quarter sales rose 11% and NPAT rose 85% over last year. The increased sales of our solution products and improved manufacturing performance contributed to the higher year-over-year sales and profitability. North America carrier network business provided the fourth quarter growth highlight, as demand for our fiber-to-the-home solutions remained strong. Turning to 2017, we're preparing to leverage the strong opportunities we see within the existing telecom market. These include fiber market demand exceeding market supply; key industry leaders in telecom investing in optical solutions, particularly as they look to the next generations of network capabilities; and, finally, industry consolidations that favor some of our strong business partners. These are organizations that have turned to Corning's optical communications business many times for help in solving their cost and network capacity challenges. As a result, we expect low teens growth for full-year 2017 sales. The increase will largely be the result of a continuation of the growth trends we saw in the second half of 2016. In the first quarter, we expect year-over-year growth of at least 25%. As a reminder, a software implementation issue constrained sales in the first half of 2016. In environmental, fourth quarter sales were down slightly, in line with our expectations. For this business, it's a tale of two end markets, in very different places. The light duty automotive market grew mid-single digits for the year. Our auto sales were a record, up 11% for the year, driven by winning additional business. The heavy duty diesel market is in a different place, particularly in North America, where truck builds were down 30% year on year and our sales were down. Net income for the fourth quarter declined in line with our expectations. For the first quarter, we expect to report sales consistent to down slightly versus Q1 of last year. For 2017 overall, we expect full-year sales to be consistent to up slightly from 2016. We expect continued sales growth in the auto market and lower heavy duty volume. In 2017, we're making select capacity and engineering investments for the new GPF business, to prepare us to support customer commitments and you will see both cost on our P&L and capital expenditures in the near term. As we've mentioned, we're excited about the GPF platform wins we have secured and expect sales to begin during the second half of the year. Let's move to specialty materials, where we were very pleased with the performance. Fourth quarter sales rose 22% over last year, ahead of our expectations, led by record Gorilla Glass volume. Net income was up 48% year over year. During the quarter, we saw rapid adoption of Gorilla Glass 5, as OEMs used it on more devices, a testament to our market leadership. As Wendell noted, our innovative products also can command a premium price. We began to feel the benefit of Gorilla Glass 5 pricing in the fourth quarter and expect it to positively impact our financial performance in 2017. Our growth prospects remain strong in this market. The newly-introduced Gorilla Glass 5 and Gorilla Glass SR+ provide added value for consumers in terms of durability and we're working on even more innovations to increase our sales in the mobile consumer electronics market. In the first quarter, we're expecting specialty materials sales to grow in the high teens year over year, as our OEM customers continue to use Gorilla Glass on more devices. Keep in mind, the supply chain in this market is driven by the timing of new product launches, not calendar years. We're highly confident that our specialty materials business will grow in 2017. The only question is how big that growth will be which will depend on the timing and extent of customers employing Gorilla Glass 5 and other Corning innovations. We will certainly keep you posted as the year progresses. In Life Sciences, fourth quarter sales were up year over year and net income growth outpaced that of sales. For full-year 2017 and the first quarter, we expect low single-digit growth year over year, ahead of forecasted market growth rates. As for our innovation program in pharmaceutical packaging, we continue to make progress and look forward to sharing milestones as we can. Now, let's turn to a few more details on our first quarter outlook. As Wendell noted, for the first quarter, we expect year-over-year growth in sales, net income and EPS. We expect our first quarter gross margin will be in the range of 42% to 43% and SG&A and RD&E spending should be approximately 14% and 9% of sales respectively. We expect other income, other expense to be a net expense of approximately $40 million and we expect first quarter total gross equity earnings to be approximately $15 million. Those details should help you understand our view of the first quarter, but we wanted to provide a few insights regarding the full year as well. First, we presently believe full-year equity earnings will be approximately $150 million, predominantly from Hemlock Semiconductors. You may recall that we're receiving Hemlock's equity earnings on a pretax basis, since we closed the realignment of Dow Corning. We've put a schedule in the appendix to the slides for this call, that will walk you through the comparison. Further, we expect our effective tax rate for full-year 2017 and the first quarter will be approximately 17% to 18%. Recall from our strategy and capital allocation framework that we plan on investing $10 billion from 2016 to 2019 in growth and sustained leadership which included capital spending. We said the pace of CapEx would be dependent on customer demand. We anticipate investing a total of about $1.5 billion in 2017 which is up from 2016. This is driven by expansions related to four growth opportunities in our market access platforms. First, to support the double-digit growth of optical communications. Second, to support the success of our innovations in mobile consumer electronics. Third, to continue work on the gen 10.5 glass manufacturing facility, adjacent to BOE and display. You may recall this project exceeds our target of obtaining $2 of every $3 from others, when we invest in new melting capacity. And, fourth, to add capacity for the new gas particulate filter business in automotive. Now, finally, I wanted to comment on our plans to return at least $12.5 billion to shareholders under our strategy and capital allocation framework. Through year-end 2016, essentially the first year under the framework, we returned $6 billion. In February 2016, the Board increased the cash dividend by 12.5%. Our repurchase activity included $2.5 billion spent on repurchases, to offset the EPS impact from the loss of the silicone's equity earnings from Dow Corning. In 2017, as we did in 2016, we planned to continue repurchasing opportunistically, reflecting our view that Corning remains undervalued. For your modeling purposes, we anticipate spending approximately $2 billion over the course of the year for repurchases, or roughly what we spent in 2016, excluding the spending to offset the loss of the silicone's equity earnings. Of course, the timing and amount of repurchase activities always depends on a variety of factors. In addition, we expect the Board to approve an increase of at least 10% per share in the annual dividend rate, in line with the framework. Let me close by saying that we're very pleased with the strong fourth quarter results and our positive momentum coming into 2017. Overall, we feel very good about our progress against our framework and the rich set of opportunities ahead of us. With that, let's move to Q&A. Ann?

Thank you, Tony. Operator, we'll now open the lines for questions.

[Operator Instructions]. First in line is Joseph Wolf with Barclays. Please go ahead.

So when does the car from CES go on sale? But more seriously, if we look into 2017, you gave a good overview of the display market, but I was hoping you could get us a little more color on the OLED market, in terms of both the large TV size and the smaller-sized handsets. There was a lot of OLED discussion at CES and the starting price point on one of their new TVs from LG actually doesn't seem to be that high for market adoption. If you could just review for us your view on OLED and Corning's position in these new developments?

With regards to OLEDs, we continue to believe that OLEDs will not be a factor in large size TV of any significance, mainly because of their cost premium and the value that they create in performance is not large enough versus an ever-improving LCD technology. We do, however, believe that the most compelling use of OLED technology is in the conformable displays for small form factors, especially smartphones. Although this is irrelevant a small part of the overall glass market, something less than 3%, the adoption of these type of displays will actually be a revenue enhancer for Corning, because we just developed a very special glass to be used, as the substrate for those poly unit displays, so our share is very high, as well as the glass utilization for one of these flexible OLEDs really is approximately the same as an ace high LCD today. I will expect that to improve over time, but that's where it's starting. So overall as we look at it from Corning's perspective, where we see OLED getting adopted ought to be a small but positive revenue event.

Our next question is from Jess Lubert from Wells Fargo Securities. Please go ahead.

Two questions, first for Wendell, you met with Trump yesterday, so I was hoping you could help us understand the key takeaways from Corning, to what extent fiber might fall under any infrastructure plans and how the border tax adjustment under Trump versus Ryan are different, if one or the other is more advantageous to Corning? And a question on the optical business, I was hoping to understand how much of the Q4 strength was a function of business that slipped from last quarter coming back? And then it looks like you're expecting the business to see a nice acceleration this year. So I was hoping you could help us understand how that breaks down across carrier, data center and to what extent that's a function of market acceleration versus improved execution, following some of the difficulties we saw in 2016?

Sure. Let me start on the optical question. We definitely had good growth in the fourth quarter. It was higher than what we expected. We did see the data center demand pick up in the fourth quarter. It was higher than Q3 and it was also higher than last year. I think what's important to remember about data center demand is it will be lumpy, because of the project nature of the business. But over time, we definitely expect this to be a strong driver of growth. And as we look out into next year, for our full year, we think our growth will be in the mid-teens. A lot of that, of course, driven by fiber of the home and carriers. But we do expect some growth in the hyperscale data -- enterprise in general, including hyperscale data centers. Now, for the first quarter, we said the growth would be greater than 25%. I think you can think about that, roughly half of that coming from the issues we had last year and half of it being the strong market that we have. Because overall, we think the market in the mid-teens gives you a sense that -- our growth in the mid-teens gives you the sense that the market, we expect to grow greater than 10%.

And Tony, are you supply constrained at all in the fiber business at the moment?

Yes. I think that right now fiber supply is very tight.

And then Wendell?

The purpose of the visit with Trump was, is that, this administration has formed a small group of leading manufacturing executives in the U.S., for him to be able to listen to ideas and exchange ideas on how to improve manufacturing in the U.S. and more specifically, how to significantly increase manufacturing employment in the U.S. Given that, the actual dialogue is confidential, at least from our side and it is up to the President to share what it is he sought to communicate to us and what he gained from that communication.

Our next question is from Rod Hall with JPMorgan. Please go ahead.

I've got a couple for you. I wanted to follow up, Tony, on your comment on hyperscale and try to get some idea of what the trajectory looks like through the year. Do you expect acceleration in the second half? Do you think it's just cost and growth all the way through the year? Can you give us any color on how you expect that to go and whether, I think you're alluding to Q1 bouncing back, but I think when we exited Q3, you had thought it might take until Q2, so is that a little bit earlier? So just trying to get a feeling on that. Wendell, I wanted to go back to not really the Trump meeting content, but just onshore manufacturing. I know you have capacity here. Could you talk a little bit about your flexibility in manufacturing location? Do you feel like you have got enough capacity onshore if you needed to start doing more here? And just give me any color on what sort of flexibility you feel like you've got there. And then the last thing I wanted to ask about was just the glass demand growth. You are talking about mid-single digits. I think most of the deviation from our model is the IT expectations. Why do you expect those numbers to be potentially down? A lot of the PC manufacturers and so on are thinking maybe there's some growth this year. So just curious about your expectations, versus what I'm hearing back from manufacturers. Thank you.

Why don't I start with the telecom question, Rod. I think from an overall standpoint, we did see the growth in the fourth quarter and that was on a year-over-year basis, also versus Q3. But I think one thing that we learned in the process of talking about hyperscale growth is, because of the lumpy nature of it and the timing. It just doesn't make sense to think about it on a quarter in, quarter out basis. I think it's more important to think about it on an annual basis and it's part of our mid-teens or low teens growth that we expect in 2017.

As far as our ability to onshore flexibility of our supply. Today, only around 20% to 25% of our revenue is in the U.S., but 35% or more of our people are in the U.S. So we're set up fundamentally as a pretty strong exporter from the U.S. That being said and our fundamental philosophy is that we make in the countries where our customers are. And this has always been our philosophy and we think it is just good business practice to be close to your customers, as well as responsible business practice. Really the only exception of that is to the U.S., where we're a strong exporter from this country, of product and we employ for people than we sell here. So that being said, if we see some significant onshoring of our customers' production capabilities, we do have the capability to flexibly react to that, in really all of our businesses. So if that does become a trend, I think that would be fabulous for the country and it would be really good for us.

And then, Rod, on your last question on IT and screen sizes, I think at the end of the day, we don't expect it to have a big impact on the market. We agree, I think, IT is stronger than it has been over the last couple of years. But we still think that, you know, the units themselves, relatively flat, screen size relatively flat. So we just don't see it as a big contributor. Of course, we could be wrong about that. It may be a little bit of a positive contributor, but I think we would still end up in that range of mid-single digits in terms of the glass market.

And next we'll go to Steven Fox with Cross Research. Please go ahead.

I was wondering if you could dig down or help us a little bit on next year's or this year's Gorilla Glass outlook. First off, could you give us a sense for how you exited the year in terms of your mix of Gorilla Glass 5? And then, secondly, in terms of just the Gorilla Glass business, you mentioned a couple times now other Corning innovations that could help specialty materials. Can you give us some clues as to what track that could be on, whether it's the next generation of Gorilla Glass, or something totally different that we haven't heard about yet? And then I have a quick follow-up. Thanks.

Clearly, Gorilla Glass 5 adoption was strong in the fourth quarter. I'm not going to give you the percentage of what it was, but it was strong in the fourth quarter and we expect it to continue to accelerate as we go into 2017 and that's positive, both in terms of the volume itself and of the premium price. And that premium price clearly had a positive impact on our profitability in Q4. And it will continue to have an impact on our profitability in 2017.

To the second part of your question, that really the core of it comes to, what we said is, we expect incredibly strong growth in quarter one and that we expect growth for the overall year. But we're not yet comfortable saying how much. And so you're asking really for some of the levers as you take a look at that. I think it's a really good question. What this comes down to is how much of our glass gets utilized per phone and how much of our innovations get utilized per phone. And this really depends on two things, how does a customer choose to use our innovations in their designs, as well as how do our innovations perform, relative to the requirements for that use case. And it's just a little too early for us to be certain how those decisions and launch dates will be impacting our revenues. Over the sweep of time, we're very confident in our ability to see strong growth in Gorilla. In any given quarter or any given year, what the actual product launch is and then the supply chain that is associated with that can make the actual predictability problematic, from too early in the year. This will become quite obvious, what is going to happen to us in the relatively near term and we'll provide better and clearer guidance for you, as our understanding of the situation clarifies.

And then just a quick clarification, when you were talking about type fiber, you're specifically talking about the raw fiber production? And when you say you're investing, are you investing in new fiber towers, or just to have towers production that's mothballed that you're bringing online? Can you just be a little more specific on the investments there? Thank you very much.

At this point in time, we find ourselves in the situation where customers are requesting more of all of our products than we currently have the manufacturing platform in place to support over the long term. So what you can expect from us in this year, as you heard from Tony's guidance, is you can expect us to have some capital expansions that we'll talk about in more detail at the appropriate time in optical communications, that we're going to need to put in place to support very strong customer commitments for long term acceleration in our revenue, in that business. So more to come as those agreements come into place and as our actual plans of our manufacturing footprint firm up.

Our next question is from Patrick Newton with Stifel. Please go ahead.

I guess digging a little bit more into the optical side, Tony, is there any way you can help us understand what the growth rate for the year would be, if you normalized for acquisitions? And then for the snapback for manufacturing? And then going a little bit more, you talked, I believe, about fiber-to-the-home being a little stronger than perhaps hyperscale. Is there any geographic spread you could give us, from where you're seeing outside strength?

Sure. I think on the overall growth standpoint, it's always hard for us to know exactly the impact of the software implementation issue that we had. But I think if you were to adjust for that, you would still see growth in the double digits. And that same applies to acquisitions. The bottom line here is that we think that our position in this market and where we play in this market and the part of the market that is most important to us is growing very rapidly and we think it's seen a double-digit growth. In terms to fiber-to-the-home, clearly North America is a place where we see lots of fiber to the home growth.

And then I think looking at the biggest delta to your earnings relative to my estimate came from R&D. You talked about benefiting from a joint development payment. Just given the magnitude of the downtick relative to expectations, could you quantify that payment and maybe walk us through any information you can provide on the payment?

The payment was with a customer and I'm not going to disclose what development work we were doing with that customer. And I'm also not going to disclose how much it is. But I think, you think relative to what your expectations were and the difference that explains most of it.

Yes. One of the things that I think you're going to continue to see as part of our focused portfolio and our engagements with our customers, given our capability set, is that sometimes when they want us to solve an especially challenging problem and that they want some form of relatively unique access on an accelerated basis to our capabilities, we're going to ask them to share in that cost up front and so you just saw that playing out in a relatively significant way in the quarter. This has become a more standard practice for us. As it becomes more standard, I think it will be easier to model. But the core of it has to do with what we've been doing with our focus portfolio and our market access platforms.

And, Wendell, you just brought up the focus portfolio again. And as I think about your life sciences business, it wasn't really spoken about much in your prepared remarks. You've had some material progress coming from that business for a couple years now, but the growth really, since your Discovery Labware acquisition has been very low. So how does this business fit with your 3-4-5 core strategy?

I think there's two elements to it. First of all, we continue to do better than all of our competition in that life science vessel market. So one of the key requirements to remaining in our portfolio is that management proves that being part of our portfolio allows us to lead that industry. So that part, I think that business unit and the way in which we have interacted with our capabilities, that has proven to be quite successful. The second part, though, is to remain in our portfolio basically we have to be able to either use the market access platform that you have, or to use your asset and capability set to support our other capabilities, or our other business units. That moment is still ahead of us in Life Sciences. It needs to do both and we're hoping to see strong progress on that in this year. You've heard us speak to what we're doing in a very vague way, to what we're doing in pharmaceutical packaging and that uses that platform. I think if that is very successful and we can basically reuse big hunks of that market access platform in life sciences, then we'll be delighted with what's in our portfolio. If not, we'll put that into our overall judgment of our portfolio as we do our normal reflection on what is the best way to maximize the value for our shareholders over the long term.

Our next question is from Vijay Bhagavath with Deutsche Bank. Please go ahead.

The question is on the auto glass business. Do you plan on reporting any additional metrics going forward, to help us better track and model progress in auto glass? And do we see auto glass as a major growth opportunity for the Company? And also when can we see Gorilla Glass going down market into mainstream cars? Would it be next year? And then also thoughts on carving out auto glass as a separate business unit, given its own culture and then associated sales and marketing, R&D to help scale the business? Thanks.

So to the core of your question is, when will key metrics be available to track our progress in the penetration into automotive glazing and interiors, so that this actually can become a more predictable -- or become a predictable growth driver for Corning. And then the second part of your question that I heard is if we break it into a different business unit. So let's take the second part first. We plan on reusing our automotive market access platform to service this market and basically to repurpose elements of our manufacturing and engineering platform that are already in place as part of our portfolio to serve this market. We'll develop market specialists, as well. But one of the things that reduces the cost of this innovation and increases the probability of success, is that ability to use our unique capability set to basically attack a market with existing resources. Augmented, of course, by specialists, right? And that's the way we're going to approach it. As to the metrics, I think it's too early for us to lay out that as you look at these metrics, this will become in this way a predictable growth driver. I think we need more penetration before we get to the point of the S curve that we'll be able to segment the market in some useful way for you, so that we give you more signal, as opposed to noise. What we look at internally is something very simple. It's winning customer platforms. To date, those platforms have been more in the high end of vehicles where they're trying to get the highest performance and are less cost sensitive. I think if it stays in that piece of the market, this will be a good but relatively small revenue opportunity. If, indeed, we can attack an every day car platform, as you are asking, this will become a very large growth platform for us. It's just too early to tell when that is going to happen. Do I think it's going to happen? Yes, sir. Do I know it's going to happen? Not yet, sir.

Our next question is from Doug Clark with Goldman Sachs. Please go ahead.

A two parter, first one is on the price declines in the display business. I think, Tony, you mentioned that 90% of volumes are contracted for all of 2017. Is that percentage higher than years in the past? And, secondly, related to that, the moderation versus 2016, does this imply a less than 10% year-over-year price decline for the full year? And then my second part question is also on the display business, but more so on the panel maker capacity fluctuations between LCD and OLED. It sounds like that's already factored into first quarter guidance and your expectations is that alleviates by the second half of the year. Is that the correct cadence that we should expect to see volumes pick back up, to the extent that there's any depressant are right now?

So the answer to your second question is correct. That is the way that we expect it to play out. In terms of price declines and the amount of volume we have under contract, usually as we enter into the year, we have a high percentage under contract. So 90%, I think, was important for everybody to remember, that's the way this business works. And then relative to price declines more moderate, somewhere in the 10% range is how that would work out.

And then one quick follow-up additionally is on FX. I'm wondering if you can provide either an update on expected constant currency rate for 2018 or when we should look for that detail?

I think that when we entered into our exchange contracts originally in 2014, we said they would be for three years and that we would stay at a constant rate of 99%. We have hedged about 70% of our exposure from 2016 to 2022 at about a $1.06 rate, but we're not ready to talk about the constant rate for 2018 yet, in part because we're looking at either other opportunities for us to hedge and we're also looking at different ways that we might hedge, as opposed to the FX contracts that we're using today. So I think when we made the FX rate change previously, we did it towards the end of the year. And I think that's probably the timing when you would expect us to talk about it again, or maybe even at the beginning of 2018.

Thanks, Todd. And, John, I'm afraid we're out of time for questions. Wendell, any closing comments?

Let me just close out the call by reiterating that we're very pleased with the progress on our strategy and capital allocation framework, since we announced it. We believe we're creating significant value for our shareholders and we look forward to updating you on our framework progress and results throughout 2017. Thanks to everyone for listening.

Thanks, Wendell and thank you all for joining us today. Before I close, I wanted to let everyone know that today's slide deck has an appendix that recaps some of the full-year data that you might find useful. Looking out to next month, we'll be meeting with investors at the Goldman Sachs Technology and Internet Conference on February 14 and the Morgan Stanley TMT conference on February 28. Please let us know if you'll be attending. Our annual Investor Day this year is scheduled for June 16 in New York City. We'll be sending out more details in the coming weeks. And, finally, a replay of today's call will be available on our site for one year starting later this morning. There's also a telephone replay available for the next two weeks and details are in today's news release. Once again, thank you all for joining us. John, that concludes our call. Please disconnect all lines.