Welcome to the Corning Incorporated, Quarter 3, 2021 Earnings Call. It is my pleasure to introduce to you, Ann Nicholson, Vice President of Investor Relations.

Thank you, and good morning, everybody. Welcome to Corning's quarter 3 earnings call. With me today are Wendell Weeks, Chairman and Chief Executive Officer, Tony Tripeny, Executive Vice President and Chief Financial Officer, and Jeff Evenson, Executive Vice President and Chief Strategy Officer. 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. Those statements involve risks, uncertainties, and other factors that could cause the 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 consolidated 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. For the Third Quarter, the largest differences between our GAAP and core results stem from non-cash mark-to-market losses associated with the Company's currency hedging contracts, and non-cash impairment charges. With respect to mark-to-market adjustments, GAAP accounting requires earnings translation hedge contracts in foreign debt settling in future periods to be mark-to-market and recorded at current value at the end of each quarter, even though these contracts will not be settled in the current quarter. This decreased GAAP earnings in Q3 by $16 million. To be clear, this mark-to-market accounting has no impact on our cash flow. Our currency hedges protect us economically from foreign exchange rate fluctuations and provide higher certainty for our earnings and cash flow, our ability to invest for growth, and our future shareholder distributions. Our non-GAAP or core results provide additional transparency into operations by using a constant currency rate aligned with the economics of our underlying transactions. We're very pleased with our hedging program and the economic certainty it provides. We have received more than $1.7 billion in cash under our hedge contracts since their inception more than 5 years ago. A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at corning.com. You may also access core results on our website with downloadable financials in the interactive analyst center. Supporting slides are being shown live on our webcast. We encourage you to follow along. They're also available on our website for downloading. And now, I'll turn the call over to Wendell.

Thank you, Ann, and good morning, everyone. Today, we reported strong third quarter results that continue a year of outstanding sales growth, margin expansion, and significant cash generation. Sales grew 21% year-over-year to $3.6 billion, a new all-time high. Gross margin expanded 50 basis points sequentially, and 70 basis points year-over-year to 38.3%. EPS grew 30% year-over-year to $0.56, and free cash flow of $0.5 billion brought cumulative free cash generation for the first 9 months of 2021 to $1.3 billion. Our outstanding results in this period of global disruption are due to excellent execution at all levels of the Company, and they're driven by a compelling set of long-term growth opportunities that will account for sharing through our innovations and broad market access, as we strengthen our commercial relationships and scale operations to meet demand. Like everyone, we're dealing with numerous factors caused by the pandemic and the resulting inflation. In this quarter, the largest macro impact was constraints in the automotive industry, stemming from chip and component shortages. Auto production in the third quarter is estimated to be down nearly 20% year-over-year and 9% sequentially. As a result, we stepped down in light-duty sales. Across our businesses, we prioritize delivering for our customers in a complex inflationary environment, and we have delivered despite incurring extra costs. Now we're taking additional actions, including pricing to address these costs and maintain our ability to invest and support our customers. And you'll hear more from Tony on this in just a few minutes. Against this backdrop, we feel really good about our performance. In the quarter, announcements with industry leaders illustrated the power of our portfolio, demonstrating not only our relevance across multiple markets, but also our role as a key innovation partner. Our starting position stems from a complementary set of 3 core technologies, 4 proprietary manufacturing and engineering platforms, and 5 market access platforms. We're leaders in each. We generate growth opportunities by delivering combinations and new applications of these capabilities to help our customers drive their industries forward. And in doing so, we drive more Corning content into the products people are already buying. Let me share some highlights from the quarter. In optical communications, the industry is in the early stages of large deployments in support of 5G, broadband, and the cloud. Momentum is building, and we see it confirmed by multiple sources. First is network need. Demand on the network is significantly higher than pre-pandemic levels. Broadband usage for September was up 32% versus pre-pandemic levels, and up 9% versus September 2020 when remote work and school were largely in play. Global 5G subscriptions have grown to almost 0.5 billion this year. More applications are moving to the Cloud, and global data creation is expected to grow at a 23% compound annual growth rate from 2020 to 2055. Compared to 2020, Cloud revenue industry-wide is up nearly 50%. The second confirmation of strong industry momentum can be seen in the announcements from leading companies. On AT&T's earnings call last week, their CEO said they're on a march to deploy fiber at scale. They're working toward passing 5 million homes per year. In the quarter, we announced a strategic investment to support their growth plans. Speaking about our expanded collaboration, AT&T said the expansion of fiber infrastructure is central to the growth of broadband reach for consumers as well as business customers. Recently shared that they plan to reach 10 million more homes with fiber by the end of 2025 with their CEO saying, 'Our future is fiber.' Cloud deployments are also expanding. Microsoft's CEO said that over the past year, they added new data center clusters in 15 countries across 5 continents in support of their cloud business. The third confirmation is a substantial increase in sales and continued order book momentum. This is perhaps the most important indicator of growth over the next few quarters. We evolve. We are ramping capacity and we are energized. Across the business, we're driving strong year-over-year growth, and we're outperforming the optical market as we continue to commercialize innovations that extend our competitive advantage, and as we provide more solutions to more customers at both the regional and national levels. During the quarter, we introduced the newest additions to our Evolv portfolio, which includes solutions designed to support role deployments. We also introduced our ever-on millimeter wave indoor small cell systems, which deliver 5G-ready coverage in high-density environments, including office buildings, factories, hotels, hospitals, and classrooms. Let's turn to mobile consumer electronics. Here, we're helping transform the smartphone experience. As we help our customers deliver new value to their users, we drive more of our content into each device sold. This played out well during the quarter with the launch of Samsung's Galaxy Z Fold 3 and Galaxy Z Flip 3. Both devices feature Gorilla Glass Victus. Now, they also utilize our new Gorilla Glass with DX on the lenses of the rear cameras. This is more Corning in action. We've expanded our capabilities into a new category, device cameras. Even though the lens is a fraction of the surface area we addressed with our cover material, the value we add is high. And we're capturing a very attractive opportunity to increase our revenue per device. Samsung is also featuring Gorilla Glass with DX on the new Galaxy Watch4. Turning to automotive. OEMs are designing cleaner, safer vehicles and distinguishing themselves with technologies that enhance the driving experience. Corning is uniquely suited to address these trends, and we're pursuing a $100 per car content opportunity across emissions and AutoGlass solutions. In the quarter, Jeep announced a product that brings our top technical glass into their iconic vehicles. Their new Jeep Performance Parts windshield featuring Gorilla Glass is now a factory-installed option on the 2021 Wrangler and Gladiator. We're making the windshields lightweight, durable, and up to 3 times more impact-resistant than regular windshields. Additionally, tighter emissions regulations continue to provide a strong content opportunity for our environmental solutions. OEMs need higher filtration performance, and we've responded with a new generation of gasoline particulate filters. The importance of our GPF business drives home my ongoing point; it's not about more cars, it's about more Corning in those cars. Since 2017, our auto sales are up more than 40% while global car sales are down 20%. Turning to display. We're in a position of strength for two reasons; it is significantly more profitable than our competitors. The market for large-size TVs is projected to grow at a double-digit compound annual growth rate through 2024. We're a leader in Gen 10.5, which is the most economical approach for larger sets. Stepping back, we've all seen the declines in panel pricing and we're beginning to see panel maker utilization adjustments. Now, lower demand provides us an opportunity to minimize expedited freight and to rebuild tanks that have operated beyond end-of-life. Taking these actions will allow us to keep our supply balanced with demand. We expect the overall glass supply to remain tight, and the glass pricing environment to remain attractive. Tony will give you more details on our industry position and our outlook. Finally, in life sciences, we're delivering growth on multiple fronts. We're seeing ongoing demand in support of the global pandemic response. Our inventions are helping advance the transition to cell and gene-based therapies. Additionally, we're making progress on our multi-billion-dollar content opportunity in pharmaceutical packaging. We're expanding our comprehensive portfolio, advancing key partnerships, and building our customer base. Corning continues to support the pandemic response, and its portfolio of advanced vials and pharmaceutical glass tubing has enabled the delivery of more than 3 billion doses of COVID-19 vaccines. Our high-volume manufacturing facility in North Carolina is now operational, which will help us scale with demand. In total, we believe our efforts to address the pandemic are enabling permanent industry shifts. That means a future pharmaceutical packaging landscape defined by enhanced patient safety, lower cost, minimal regulatory hurdles, and increased capacity for life-saving drugs. Other efforts that have gained increased attention during the pandemic are finding broader long-term applications. We introduced Corning Guardiant, a paint additive that uses a glass matrix to trap copper ions, a powerful and long-used antimicrobial material. Paint with Guardiant has been proven to kill 99.9% of bacteria and viruses, including the one that causes COVID-19. This month, PPG announced that their Copper Armor paint powered by Guardiant received EPA registration and will be available in major U.S. retail and home improvement stores. PPG noted that it's the first virus-killing paint in the U.S., and our collaboration builds on an EPA statement asserting that public health would benefit from surfaces with built-in antimicrobial capabilities. Stepping back, I am proud of the many ways our people unleashed the power of our portfolio in the quarter, and what our performance says about Corning's strong position today. Key trends are converging around our capabilities as we become more and more vital to industry transformations driving the world forward. This provides a compelling set of long-term growth opportunities, and we're executing well to bring those opportunities to life and make a difference wherever we can. So, I want to thank our dedicated employees for their contributions. Now, I'll close by briefly looking back at 2019 when we outlined our priorities for growth and shareholder returns for the next several years. We provided attractive targets as we laid out our plans to building an even bigger and stronger company that delivers sustainable results. Today, the growth drivers we laid out remain intact, and we're delivering on our goals. We are a bigger, stronger company than we were in 2019, and we are continuing to grow. Tony will get into more specifics. But I feel really good about our position and the progress that we've made. I look forward to updating you when we close out a strong year and as we grow again in 2022. Now, I will turn the call over to Tony so that he can give you some more insight on the quarter.

Thank you, Wendell, and good morning everyone. Strong execution resulted in another outstanding quarter. We are on track to reach $14 billion in sales and over $2 in EPS, making significant progress extending our market leadership while scaling operations to meet demand, and we expect to grow again in 2022. During the third quarter, sales increased 21% year-over-year to $3.6 billion, led by the strength in optical communications and the strong performance in our other businesses. EPS grew 30% year-over-year to $0.56. Sales and earnings reflect lower production levels in the automotive industry due to the semiconductor chip shortage. The impact of Corning's results was approximately $40 million in sales and $0.02 of EPS. Gross margin percent expanded 50 basis points sequentially and 70 basis points year-over-year to 38.3%, despite a net impact of 150 basis points from supply chain challenges and inflationary headwinds. Free cash flow grew to $497 million, with cash generation of $1.3 billion for the first 9 months of the year. These achievements are particularly noteworthy because we are operating in the face of unprecedented logistical challenges and component shortages. Delivering for customers in this complex environment requires both decisive action and agility. Our ability to sense disruption and act quickly has been key to running our plants well and meeting our customers' needs. And we're leveraging our diversified global supply chain to continue to meet customer demand. In fact, I'd be remiss if I didn't recognize the efforts of our global supply management and operations teams that have allowed us to maintain a steady supply of raw materials while finding creative shipping strategies. Their actions have enabled us to effectively deliver for our customers, and they're providing actionable insight into the current dynamic environment. At the same time, we continue to incur additional costs as we work to meet strong customer demand. And while we've been taking actions to mitigate them, certain costs continue to elevate in the third quarter. For example, we were able to offset a significant portion of elevated freight cost, but resin prices increased again. Therefore, our margin is temporarily muted. Given this ongoing inflationary environment, we have price increases underway across all of our businesses. We saw some benefit from these actions in the third quarter, and their impact should accelerate in the fourth quarter and into 2022. Now, we don't expect the environment to improve in the short-term, but our digital supply chain capabilities enabled real-time visibility into emerging situations, allowing us to proactively address issues. We remain focused on meeting demand, expanding our margins, and protecting our ability to invest for customers. Now let's take a closer look at the performance in each of our businesses during the third quarter. In display technology, sales were $956 million up 2% sequentially, and 16% year-over-year. Corning's glass volume grew slightly, and glass prices increased moderately sequentially as expected. Glass supply continues to be tight, and we continue to do everything we can to meet customer demand. We expect fourth quarter glass prices to be consistent with the third quarter. Now, I know there is a lot of discussion about the display industry. Briefly, we expect the pricing environment to remain favorable as glass supply remains tight to balance throughout 2022. Now, as we've discussed previously, we base our perspective on what will happen in the display market on three main factors: retail demand, panel makers' production, and glassmakers' ability to supply the panel makers. With those factors in line, I'll start with what I said about retail demand on our last earnings call in July. Since LCD televisions emerged as a mainstream technology in 2004, LCD TV units have only been down 3 times and never 2 years in a row. Since 2014, TV sell-through units typically range-bound between 225 and 235 million, with an average screen size growing about 1.5 inches a year. In 2020, global television units increased 4% above the trend line to about 242 million. Screen size growth was about 1.2 inches, about 20% below trend. A lot of smaller TVs sold probably to accommodate more people living, working, and studying from home. Entering this year, we expected and continue to expect the market to reverse the trend, implying a decrease in TV units, especially smaller televisions, and for normal screen size growth of 1.5 inches to return. We now have 9 months of retail data under our belts, and it is confirmatory. Television units declined by about 10% year-over-year, while average screen size growth is in line with the 1.5 inches per year trend. Unit volume for TVs 65 inches or larger increased by a mid-teen percentage, and smaller TVs were down by a mid-teen percentage. So, three quarters through the year, our expectation for TV units being down year-over-year, and screen size growing approximately an inch-and-a-half are playing out. Looking ahead to 2022, we think TV units and screen size will continue to follow historical trends and retail glass demand will be up. That means television units will be within the typical range of 225 to 235 million units, and average screen size will grow about an inch-and-a-half. Now, remember, television units, which are declining this year, have never declined two years in a row, and next year is a World Cup year, and TV units have never declined in a World Cup year. Finally, the biggest driver of retail glass growth in most years is the increase in screen size. We would expect the average screen size to once again grow 1.5 inches next year. In summary, we expect glass demand at retail to be up by a high single-digit percentage in 2022, as measured in square feet. Now let's move from retail to panel makers. After a period of high production in 2020 and 2021 to meet strong demand, we are now seeing panel makers temporarily reducing their utilization given the lower 2021 retail demand that we told you about all year. And that is happening just as we would expect. Now finally, let's move to the glass industry, which struggled to meet demand in 2020 and 2021, as glass has remained tight. Like other glassmakers, we've depleted our inventories, expedited shipping, and operated tanks beyond their targeted end-of-life. We will use this period of temporarily lower panel maker utilizations to shut down end-of-life tanks and rebuild them with our latest technology. We will also take the opportunity to work our way out of expedited shipping. These actions keep our supply balanced with demand and will improve our operating costs going forward. But rest assured, we will still have capacity to supply all of our customer's anticipated glass demand. When panel production ramps to meet the expected high single-digit retail demand growth in 2022, we'll be fully prepared with our revitalized fleet of tanks. Overall, we believe glass supply will be tight to balance throughout 2022. And since glass pricing is primarily driven by glass supply demand balance, we expect the pricing environment to remain favorable in Q4 and also throughout 2022. Moving to optical communications, we saw strong growth across the business with sales exceeding $1.1 billion, up 24% year-over-year and 5% sequentially. Net income was $139 million, up 21% year-over-year. Net income declined 6% sequentially, as increased raw material and shipping costs significantly impacted profitability. During the quarter, carriers spent more on 5G and broadband projects. This, along with the continued strong pace of enterprise cloud data center builds, drove our strong performance. Demand on networks is at an all-time high, setting the stage for significant investments in fiber infrastructure as operators expand network capacity, capabilities, and access. During the quarter, we announced the collaboration with AT&T. Our capacity expansion will allow AT&T to expand investments in fiber infrastructure, expand U.S. broadband networks, and accelerate 5G deployment. We are well-positioned to capture significant ongoing growth, as network and data center investment increases. Our solutions improve the speed and capital efficiency in deployments. Additionally, Corning is the only large-scale end-to-end manufacturer of optical solutions, which allows us to innovate on important dimensions not available to competitors. In environmental technologies, our third quarter sales were $385 million, up 2% year-over-year and down 5% sequentially. As everyone knows, chip shortages are having a big impact on the auto industry. At the start of 2021, global vehicle production was expected to be about 88 million. By July, the industry was projecting below 85 million. And given continued chip and component constraints, forecasts now anticipate out-of-production around 75 million for the year. This pullback in production began to impact us in the middle of the quarter, and we expect it to continue for the fourth quarter. We estimate an impact on EPS in the third quarter of about $0.02, and we expect additional impact in the fourth quarter. The good news is that when component shortages are resolved, auto production will recover because end-market demand remained strong, and we will be prepared to meet the growing demand. Specialty materials delivered sales of $556 million, up 15% sequentially, and in line with the strong third quarter in 2020 when we introduced Ceramic Shield. We've grown specialty sales every year from 2016 to today despite smartphone unit sales being roughly flat. Over that 5-year period, we've almost doubled our sales on a base of more than $1 billion. Clearly, we are successfully executing our objective of driving more content into each device sold. And strong demand continues for our premium cover materials. During the quarter, our glass innovations were featured in 30 new devices, including smartphones, wearables, and laptops. Demand also remains strong for our advanced optics content used in semiconductor manufacturing as the broader end market continues to experience robust growth. In the quarter, investments in innovations that are moving towards commercialization resulted in lower net income than in 2020. As we've noted before, newer innovations can face high costs as we develop and scale our manufacturing process. We anticipate that profitability will improve, as we come up the learning curve and improve utilization. Looking into the fourth quarter, we're seeing typical volume declines in Gorilla Glass, following the build supporting flagship customer product launches. Life Sciences third quarter sales were $305 million, up 37% year-over-year, driven by ongoing demand to support the global pandemic response, continued recovery in academic and pharmaceutical research labs, and strong demand for bioproduction vessels and diagnostic-related consumables. Our Life Sciences segment is outpacing the overall industry, as evidenced by our sales CAGR of 9% over the last 3 years. Stepping back, we have made strong progress across all of our businesses. We entered new product categories, announced collaborations with key industry leaders, and contributed to significant industry advancements. We're building a strong foundation for future growth. This, combined with our consistent focus on innovation and deep commitment to R&D, is what continues to fuel and sustain Corning's leadership position across its markets. As we look ahead to Q4, we expect core sales to be in the range of $3.5 billion to $3.7 billion and Core EPS in the range of $0.50 to $0.55. Profitability is expected to decline sequentially due to the further reduction in automotive-related sales, as I mentioned, and lower Gorilla Glass sales, following strong customer launches. That said, we expect to close out 2021 with both top and bottom-line growth, and another year of strong cash flow, and we expect our momentum to continue in 2022 with sales and EPS growth along with strong cash generation. Now I'd like to expand on Wendell's closing point. Back in 2019, we outlined our goals for growth and shareholder returns. We said we would leverage our focused and cohesive portfolio to extend our leadership and capture significant growth opportunities. And we said that key trends would continue to converge around our capabilities. What we said back in 2019 still rings true today. Despite the pandemic and the resulting global disruptions, our key growth drivers are all intact, some are even accelerating. We're on track or even ahead of the goals we laid out in 2019 in all our market access platforms. Since 2019, sales have grown at a 10% CAGR ahead of the 6% to 8% target. Now, we have been growing EPS at a rate consistent with sales, which puts us ahead of our target, which puts us behind our target because inflationary pressures are clearly impacting profitability. But we do expect that our cost and pricing actions will deliver significant improvement over time. As we said, we would do, we're also growing our return on invested capital. Today, our total Company ROIC is in the double digits. Our most recent capacity expansions, or as we like to call them, build investments, are fully ramped, have enabled the $2.5 billion of sales we've added since 2019, and are delivering more than 20% ROIC. Our aggregate free cash flow generation for 2020 and 2021 is expected to be more than $2.5 billion. Finally, we remain steadfast in our commitment to investing in growth, extending our leadership, while returning excess cash to shareholders through share repurchases and a 10% annual increase in our dividend. As you might remember, we decided early in the pandemic to ensure the stability and flexibility of our financial position by building up our cash reserves. In April, we resumed share buybacks with the Samsung transaction, where we repurchased 4% of our fully diluted shares. Consistent with our strategy to opportunistically buy back shares, we plan to do more repurchases in Q4. In summary, we've built a strong foundation over the last several years. Our capabilities are relevant to major growth trends across our markets. Our 'more Corning' strategy is working. And we're executing through some very volatile end-markets, extending relationships and commitments with our customers, extending our leadership position, and generating outstanding sales, profits, and free cash flow. With that, let's move to Q&A. Ann.

Thanks, Tony. Michelle, we're ready for our first question.

As a reminder, our first question comes from Matt Niknam with Deutsche Bank. Your line is open.

Hey, thank you for taking the questions. Just two if I could. First on the price increases, you mentioned the increases across all units. I'm just wondering if you can give us maybe a little bit more color in terms of how we should anticipate that the flow-through. I know you initiated some of these in 3Q, but I'm wondering how to think about the cadence and the flow-through there order of magnitude. And then just secondarily, as we think about capital allocation, Tony, maybe to your last point around doing a little bit more on buybacks in 4Q. I'm just wondering if you could refresh us in terms of how you're thinking about leverage, where you would like to be? And ultimately how you see Corning getting closer to that 2x leverage target you've laid out in the past. Thanks.

First on in terms of the price increases, I mean, clearly our priorities over the last year or so with the pandemic is to protect our people and protect our customers. And we have been doing a great job on that, on those priorities. And we saw it in Q3, which is an incredibly challenging environment, but required decisive action and agility, and we had to act quickly, and we've done that. And I'm personally very proud of all the work we've done as a Company and is what you'd expect at Corning. But what tends to happen in this environment is that you see some places where we made improvements from a cost and freight standpoint and others that have gone up, and all of this comes at a cost. Our goal here is to increase prices across all of our businesses. We've had about a 150 basis points impact for the last several quarters. I'd expect that to continue in the next quarter and then for it to get better over time. But the actual timing and prediction of that, it's just hard to know because there's so many moving pieces. So tried to do Matt, on pricing here is you have a range of what could happen with inflationary pressures, and then we have a range of what could happen with our pricing in each of our different businesses and even in each of our different products. And what we tried to do is capture those within the guidance that we just gave for quarter four. And as we continue to gain experience on both, we would expect to get better and better at being able to narrow those ranges, and improve our ability to give you a good idea on how this will impact your models.

From a balance sheet perspective, we have strong goals regarding leverage, and we're particularly focused on maintaining very long maturities. We hold the longest maturity in the S&P 500. Our overall approach hasn't changed, but we are still affected by global economic developments, and we will keep adapting as things progress. The positive aspect is that we are generating significant free cash flow, which allows us to invest in the business and return money to our shareholders.

Thanks, Tony. Next question.

Our next question comes from Samik Chatterjee with JP Morgan. Your line is open.

Thank you for taking my question. I wanted to inquire about today's communication and the current demand outlook. We have heard various sentiments regarding demand, particularly related to government-subsidized broadband connectivity, and whether delays on the government's part are causing any slowdowns. Additionally, could you provide details on recent capacity expansion? I'm interested in understanding the scale of this expansion and how it might affect margins as you develop that capacity. Thank you.

I want to make sure that I understand your question. So, you are asking how do we feel about the growth in the business, and as that growth occurs, how do we feel about our margin expansion as that capacity ramps? Do I understand your question correctly, Samik?

Yes, I'm adding to that as we engage with the government infrastructure plan, driving any slowdown in terms of performance.

Great. So first, as I laid out in my comments, we feel that the growth here in the business is very strong. You saw and I think in the quarter, we've had $1.1 billion of revenue. Our order book was in excess of that, stronger than that rate. So that gives you an idea of the demand that we're seeing right now, and that is before there's any passage. It's in the bipartisan infrastructure bill on what it is the government wants to do with broadband. So that new layer on top of the demand that we're seeing that is largely serving commercial and customer opportunities. So that's how we feel about demand. All those long-term trends that we see look like they're all continuing in both Cloud and carrier networks. Now, margin. So, in margin expansion, this is a segment where we've given the really strong demand. We have had a lot of expedited shipping. We've had a lot of challenges around freight, and we've had accelerating raw material costs. So, we haven't been putting quite the increase in our margins that you would normally expect as we fill out, right? That's one of the reasons that we're going to be addressing price with our customers, who we have done all these long-term build investments with. And hopefully, what that's going to do is get the type of margin growth that you're really expecting with our rising revenue growth, Samik. Does that make sense to you, sir?

Yes. Thank you. Thank you for taking my question.

Our next question comes from Shannon Cross with Cross Research. Your line is open.

Thank you very much. Wendell, at the risk of continuing on this topic. I'm just curious. Can we dig more into the inflationary environment? I'm trying to understand when you guys have a really great perspective, I think, of how transitory versus permanent shift you're seeing out there, and what should we watch, given the impacts to your margins? What specifically should we watch closely to see if things are starting to improve?

Great. It’s a great question, Shannon. I would say if you had asked us when this all began, say in late quarter 2, in quarter 3, like in that time period. We would have said, you know, this is probably transitory and our top priorities are protecting our people and our customers, and spending what it takes to make that happen. And we want to keep our customers running smoothly, and this too shall pass. And our normal great job that we do, reducing costs will trigger in and we got this. Actually, it is mainly through conversations with our supply chain head as well as our investors that have led us to look at this and say this may last longer than we had thought. And that this looks like we could continue to have challenged supply chains for the foreseeable future. And what we needed to do was add to our priorities that we also needed to protect our investors and our ability to invest for the future, which in turn allows us to once again protect our people and protect our customers. And so, as we've looked at it that way, that is what has led us to start to externalize that cost pressure, and we began in quarter 3. We've got a lot further to go. So, I think the thing to look at is pretty simple: how do we do get our profitability working in the way you would expect when we have revenue growth? Because we're expecting to grow no more, less as we grow because we actually make things for a living or you would expect our margins to improve. I think that's the key thing that we're looking at, as we have detailed plans by customer product by region and all that is getting rolled out. It’s already in motion.

Okay. And then I'm curious, what your initial conversations with some of the customers in areas where you're raising prices now? Is the feeling out there that everything's going up in price, so they're absorbing it, or how much pushback you're getting from price increases? Thank you.

Well, it's a little early to generalize on that. That depends on the customer. We've had some who have said, I was expecting this. We have others who say, thank you very much for sharing, but we rather you fix this on your own. But we'll work our way through it. I think the key to all is to understand about how we are with our customers: this is a very long-term partnership. And we invest for the long term, and we ask for strong commitments from them and they ask for strong commitments from us. But we face that future, all of us are looking at the future when we make these investments in innovation. And our plans, that is a little uncertain. And so, the way we always try to work through things with our customers is, okay, this is where we're at. This is reality. How do we work through it together in a way that allows you, our customer, to continue to succeed and allows us to continue to support that success? And that's the tone and attitude that we bring to it, and that our customers engage in that same dialogue. we'll all play out, and I'm so certain that as we work our way through it, we'll reach a fair resolution of what happened. We operate in an inflationary environment at least for a period of time, which neither our customers nor us have had a lot of experience with.

Great. Thank you.

Our next question comes from Steven Fox with Fox Advisors. Your line is open.

Hi, good morning. I was wondering if maybe you could put some numbers around all that commentary. So, if I look at Optical, for example, your revenues were up 5% quarter-over-quarter, but your margins were 12.3 versus 13.8 in the prior quarter. So how much exactly was the pressure from all those extra costs and adding new capacity hindering margins when volumes are going up? And then same question on pricing for display. You're saying it's consistent with prior quarter. I assume that's like flat 0% change in pricing, but last quarter you were able to pass through some costs. Does that mean you're not passing through costs this quarter? Thanks so much.

Great. So first in Optical, that margin drag that you've rightly identified, Steve, that's the inflationary pressures that we have yet to offset with our customers. So, I think you're right on, and what we'd like to do is see that drag moderate. And as you know, our Optical businesses are big with a lot of customers. So, it's a lot of commercial work to get everything in place. It's already begun and already gotten rolling in this last quarter, and we will gain and accelerate in quarter 4. So that's what we'll be about in display, and you're looking at the right numbers, and that's the numbers you should expect to improve. In display, we expect the price to be consistent with our raised pricing in quarter 3 and in quarter 2. So, we're following a couple of price raises, and we anticipate our price to be consistent in quarter 4.

And in quarter 2.

And in quarter 2. So, we're following a couple of price raises, and we anticipate our price to be consistent in quarter 4.

So that implies that you're still passing through some of these inflation costs in that price; is that correct?

That is correct.

Our next question comes from John Roberts with UBS. Your line is open.

Thanks, and congratulations on all the new product wins. You're now on OEM windshield options for a number of Jeep models versus primarily replacement before. Will the windshield option be packaged with other options so if you want the better stereo and the better seats, you're going to get the Gorilla Glass windshield with that or is it going to be a la carte? And you're on the replacement windshield in the Ford F-150, which is an even bigger model, do you think that's going to go OEM anytime soon?

That's a great question. I need to check on how the Jeep is planning to handle that. Currently, when you want a vehicle, they tend to come highly bundled, but I'm not sure how they're managing their limited chip supply versus their long-term strategy. I'll look into this and get back to you. Regarding windshields, I believe you'll continue to see progress. We're working on several significant innovations to address the glazing challenges presented by electric vehicles and autonomy. It's too early for me to definitively state that we have a new large revenue generator, but I hope to clarify this within the next 12 months since we're doing a lot of work in this area. We're also observing an increase in demand for our laminated products and other innovations. So, it’s a bit early for us to make a definitive statement.

Could we get an update on Hemlock? It's ironic that we have such strong semiconductor demand, yet Hemlock isn’t participating due to the contractual structures in place.

So, we're really happy that we are the owners of Hemlock, John. And I think you're one of the few people that we have this fall that really always understood Hemlock in depth and you always wanted us to be the owner of Hemlock. And finally, after all these years, we are. And we're happy to get it. As you know, semiconductor demand is strong. I think the other added revenue source that we're now seeing in Hemlock is in solar, which as you know, we idled a hunk of our capacity in solar as the U.S. supply chain ended up downstream of us, becoming eroded with the intense competitive environment with China. We are now seeing really strong demand in solar, and we are doing what you would expect us to do, which is if a customer wants us to commit capacity to them in solar, we're putting in place those same type, very strong contractual arrangements to be able to make sure as we turn up some of that capacity they buy it. And you're going to see that in our revenues. And so, we feel very good about it, John. We should have listened to you even earlier.

Our next question comes from Wamsi Mohan with Bank of America. Your line is open.

Yes. Thank you. I was wondering when you talk about retail demand and last up, high single digits in 2022, do you expect Corning to grow in line or higher or lower than that? And then I have some follow-ups, please.

Yes, Wamsi. As you know, much of that growth is happening in the Gen 10 or large size screen TVs. Having three out of the four Gen 10.5 factories significantly contributes to this. We expect this trend to continue to positively influence our results in 2022, as it has in the past couple of years. By the way, did you have another question?

The way we view the situation aligns with your key observation. As Tony mentioned, two crucial factors influence display demand at the retail level, which we anticipate will grow in the single digits next year. Additionally, we expect a tight glass supply-demand balance in the fourth quarter and throughout 2022. Consequently, we believe the pricing environment for glass will remain favorable. When we refer to tight to balance, we mean that we are transitioning out of a challenging period where glass supply has been particularly constrained. We've been extending the lifespan of our tanks beyond what was planned, incurring high expediting costs, and delaying technology upgrades for over a year. Our strategy is to seize opportunities for upgrades during periods of lower panel maker utilization while enhancing service levels and reducing expediting costs. The timing of these upgrades is gradually coming under Corning's control. Our primary goal is to fulfill our customers' demands while preparing our operations to reduce costs and enhance quality in the years ahead. This approach allows us to ensure our customers receive what they require while we implement upgrades whenever possible. That's our strategy regarding display, and we are also offering insights into next year, which is not typical for this moment in our earnings call.

That's helpful, Wendell. And if I could just follow-up a clarification question. I think Tony mentioned that in Q4, you'd expect some seasonal softness in specialty given some product launch timing in Q3. But I think you specifically you said Gorilla Glass, and I was wondering if that was meant to be as specific as Gorilla Glass versus ceramic shield or was that meant to be a comment about specialty in Gorilla Glass in general?

So, what a very big question. Tony, what did you mean? I would've thought it meant in total, but you tell me.

I absolutely meant in total.

Okay, Wamsi, I need your assistance in asking some really interesting questions. I interpreted it as total, and that's a good question.

Thanks, Wamsi. We still have time for one more question.

Our last question comes from Tim Long with Barclays. Your line is open.

Thank you. I have a two-part question regarding display. Wendell, you mentioned the moves being made with end-of-life tanks and some new ones. Could you also discuss Tony Tripeny and the potential cash flow impacts or near-term gross margin effects that may lead to better profitability? Can you walk us through what these changes mean for the model? Additionally, could you provide a higher-level overview of the impacts on PC and display? With the pandemic, those likely became more significant. What is the outlook for that segment and how do you anticipate it affecting overall volume trends moving forward? Thank you.

I think to the first part of the question, I'll start and let Tony come in. I think from a modeling standpoint, as we do these upgrades. Of course, we're doing it to increase quality and lower costs. But the one way to think about it for your next year would be how you feel revenue plays out. It will pretty much just play out like that. I don't think you'll see any added cost drag or things like that. I just think you're going to mainly see it with the revenue change. That's what I would say. What do you think, Tony?

I think that's right. I mean, there are some things like the expedited freight costs, for example, that won't go away. So, as we think about the 150 basis points, as we go through next year, that will certainly help us to some degree against that. You will see those results in the financials. And then from a cash flow standpoint, I mean, all of this is a part of our ongoing cash flow capital spending. It's not part of a build cycle or anything like that. So, I don't think it will really stand out from a cash flow standpoint.

That's a great question on PCs and notebooks. As you quite rightly pointed out, our PC makers had a really strong demand during the pandemic. What we're seeing right now, we're hearing from them is that demand is still quite robust, but it's shifting towards commercial rather than consumer demand. And that, as a result, those that are really strong in commercial still find things quite tight. And that's how they're seeing that play out. And we'd be happy to sit down with you, Tim, if you want to share how we view total IT demand come into play and how that plays out in glass, and we'd be happy to do that.

Just wondering if you think that's an additional headwind relative to TV as being strong next year?

Not much. Because like I said, you're seeing consumer back-off, right? And then we're seeing few which uses a certain type of display that is too deep to go into here. And we're seeing commercial, I mean, big companies with that return to work and those upgrade cycles turn in turn ups. So, I don't view it as a big headwind one way or the other, but like I said, let's talk through the details with you and that way, you can know where our heads at and how that differs from where you see things.

Okay. Great. Thank you.

Great. Thanks, Tim. And I want to thank everybody for joining us today. Before we close, wanted to let you know that we're going to be at the Baird Virtual Global Industrial Conference on November 10th, the Credit Suisse Annual Technology Conference on December 1st, and the Barclays Virtual Global Technology, Media, and Telecommunications Conference on December 7th. Finally, a replay of today's call will be available on our site starting later this morning. Thanks for joining us. Michelle, you can disconnect all lines.

Thank you. This concludes the program. You may now disconnect. Everyone, have a great day.