Pretty cool, Now, that was our vision of a day in the near future and it is a compelling picture. And while we're not saying that it will develop exactly as we've envisioned, we do know that this world is being created as we speak. So what did you see? A world with seamless delivery of real time information. A world where people stay connected in a very genuine way through a virtual world that is literally at their fingertips.
It's a world enabled by technology, a world where the surfaces of everyday life mirrors, counters, signs are transformed from 1 dimensional utility in the sophisticated electronic devices. It's a world of communication and connection and it's a world of glass. Why glass? Well, consider the materials requirements. This is a visual world, so transparency is a must, which by and large narrows the field to glass or plastic.
But transparency is just the beginning. The material must also be flexible, versatile and conformable, durable and damage resistant. Stable under the cumulative stress of a hostile environment, think temperature, weather, the chemical impact of cleaning agents. And it needs to have a touch friendly aesthetic with a cool and natural feel. In design speak, a noble or authentic material.
This doesn't describe plastic, but it does describe glass. And since there are some additional requirements, not just any glass, but specialty glass. This is a visual world, but it is also a world of technical requirements that lie just below the surface. It's a world of electronic circuits, photons and complex micro and nano structures with a set of technical requirements that can be just as demanding as the requirements of LCD glass. So it's a challenging world for materials science.
Designers and architects want it all. Authentic materials that are strong, yet thin and lightweight. Stable yet versatile, materials that can enable nano functionality and can scale for very large applications. High-tech engineered materials that are also environmentally green. This is a world that needs specialty glass, But that's not all.
Consider what brings this world alive by enabling seamless delivery of real time information and on demand connection. It's a communication network with massive bandwidth capacity. A network that works anywhere, anytime and with any device. It's a world of fiber optic networks and connectivity. We're excited about this world because it's a world of opportunity for Corning.
We're actively working with customers today on much of what you saw. Large scale touch walls, auto sunroofs, appliance displays and veneers and photovoltaic systems. In telecom, we're bringing optical level bandwidth to wireless technology. And our customers are pulling us in to help solve new problems as they emerge. Now these are tough challenges, but as our CTO says, they're in our sweet spot and represent an exciting set of growth opportunities for us.
And they've created a lot of energy at Corning. We feel it from our customers and you see it in our products. Most importantly, you'll feel it from our people, not only from our speakers, but from all the Corning people here today. If you toured the product booths and spoke with our folks, I know you felt their energy and excitement. We're also excited about emerging markets, another growth engine for Corning.
With 70% of our revenues from outside the U. S, global markets are already important for Corning. We have leading market positions in China, Taiwan and Korea. We are well connected with our customers there and support them with large scale local manufacturing. China is a terrific growth opportunity as you'll hear from Eric Musser, our China CEO.
Market growth rates in China are among the highest in the world and we are investing to grow all of our businesses there. We're also actively pursuing external growth opportunities. We have the financial strength to enhance our growth through acquisitions. We're actively pursuing external growth in 2 of our markets, Life Sciences and Telecommunications. In the last 18 months, we've completed 2 Life Science acquisitions and this week we announced the acquisition of Mobile Access, a leading provider of wireless network solutions.
And you can expect to see more in the months to come. So we're excited about our growth potential and we're confident that we have a path to $10,000,000,000 in consolidated sales. You'll hear more about all of these opportunities from our speakers this morning. In addition to our consolidated operations, equity companies add to our financial strength and our growth potential. They're an important part of Corning, providing access to significant markets and geographies.
Samsung Corning Precision is an integral part of our display business. And Dow Corning is a $6,000,000,000 company well positioned in global markets for silicones and polysilicon. You'll hear more about Dow Corning from Jim Floss. Corning's true economic value includes our share of these equity companies and they are also growing. We believe their revenues will grow to $14,000,000,000 by 2014.
So our 50% share increases Corning's true economic sales from $10,000,000,000 to $17,000,000,000 And this brings me to our team. At the end of the day, growth is all about execution. And at Corning, we have an experienced management team that continues to deliver. That team is comprised of the management committee that has led the company for the past 8 years and an outstanding group of seasoned business and functional leaders. All these leaders are members of our extended leadership team responsible for developing and executing our corporate priorities, business strategies and our growth plans.
You'll hear from many of them this morning. And now it's time to move on to the rest of our agenda. You'll hear from the speakers shown here. And following the presentations, Tom Hinman and Joe Miller will join us for the Q and A panel. So now, I'll hand the floor over to Jim Clappin, President, Glass Technologies.
Jim?
Thanks, Wendell, and good morning, everyone. I'm Jim Clappin, President of Corning Glass Technologies. That video was good, wasn't it? It was very good. A day made of glass.
And I hope you enjoyed it as much as I did. It is certainly a compelling and possible view of the future. If you were thinking that the display innovations in this video may not come to pass in our lifetime, Consider this. It wasn't that long ago that pay phones, VCRs, film cameras and bulky CRT TVs that took 2 persons to lift were commonplace. Take yourself back just 10 short years and think about what such a video, if made back then, would have predicted.
Could you have imagined video content streamed to a device that fits in the palm of your hand? Or that you could stream a movie to an affordable 60 inches high definition TV hanging on your living room wall. Have a video phone call on your notebook computer with family members 1000 of miles away, essentially from free. But as everyone knows, this is commonplace today. In fact, consumers increasingly expect to access information and entertainment anywhere, anytime on a variety of devices.
This trend has been underway for many years and Corning as a leader in technology and glass innovation has helped enable much of this. With thinner, greener, larger, flatter and cleaner and more thermally stable glass substrates, we've worked with leading electronics innovators from the trend's earliest stages to where we are today. And we are excited by the prospect of continuing the trend and turning a day made of glass into reality. Consumers want to be connected anywhere, anytime and are increasingly doing so through thin portable devices as well as through large high definition TVs. High resolution touch enabled devices are ubiquitous, allowing consumers to interact with their devices and access content at will, blurring the boundary between the virtual and physical world.
And the nature of content is changing with 3 d becoming a bigger part of the viewing experience. These device characteristics drive very challenging glass requirements and Corning is uniquely positioned to deliver these to the market. Some of these are an extension of what we've been delivering to date, but some represent recent or new requirements. Specifically, conformable, meaning shaped and flexible glass and durable, referring to the emerging and accelerating opportunity in Gorilla Glass. Our Fusion technology gives us a powerful competitive advantage in meeting or exceeding these glass requirements.
Our Fusion expertise enables us to produce thin, light glass with a precision surface. This highly versatile platform is capable of manufacturing multiple products and glass compositions with superior performance. And we've aligned our organization to fully seize the opportunity in glass. The new Corning Glass Technologies Group is a focused organization that combines our 2 business segments that are dedicated to the proposition of glass. Display Technologies, which is focused on LCD and advanced substrates for display and specialty materials consisting of Gorilla Glass for handheld, IT and TV applications as well as our advanced optics businesses.
The management and oversight of Samsung Corning Precision Materials also falls within group responsibility. This new organization takes us back to the days when glass reigned supreme in this company And why we were tempted to insert the word works into the group name, we opted for the more accurate technologies instead. So starting with 25 years of fusion process development and combining it with an organization broadly focused on opportunities in glass, we are very well positioned to exploit current and near term growth opportunities as well as future growth opportunities presented by other extensions, which I'll discuss shortly. Now, I'm going to bring our focus to what remains Corning's biggest business today, display. If you were here with us last year, you will likely remember this slide.
So now I'm going to ask you to put your BlackBerrys down and stay in your seats. Don't get excited. I'm not showing this slide because I'm looking to relive that moment. But actually, I do want to make an important point. This chart was our forecast of 20 ten's supply chain dynamics.
The blue bars represent quarterly shipments of glass into the supply chain. And shipments out of the supply chain to consumers are shown as gold bars. Now let's take a look at what actually happened. This chart shows an end market demand only. The green bars represent incremental consumer demand versus our forecast.
As you can see, we were very we were a little conservative on total demand, but we were pretty accurate on the quarterly seasonal end market pattern. Now let's take a look at the glass shipments, which totaled 3,150,000,000 square feet for 2010. As you can see, we didn't fare as well at predicting the quarterly glass demand pattern. You can see the effect of the inventory build in quarter 2 and the correction that followed in the next quarter. What we've learned is that supply chain dynamics are very difficult to forecast because they can be driven by a host of factors unrelated to true end market demand.
So I won't be showing you a similar 2011 quarterly glass demand forecast today. Consider the full year glass demand cycle forecast a thing of the past. Instead, I'm going to focus on Corning's view of the end market where our historical accuracy tends to be much better. Turning now to Display's 2010 performance. Corning's Display business had a record year.
Wholly owned revenue surpassed the $3,000,000,000 mark for the first time, up 20%. Gross margins were up, returning to historical levels after a difficult 2,009. Total NPAT was a record at 2,700,000,000 dollars And cash flow was also very strong, partly driven by the special dividend that we received from SCP. And other notable milestones include breaking ground and starting construction on our new plant in Beijing. Capacity expansions began in Taichung and Harrodsburg.
The launch of Eagle XG Slim, where we introduced 0.4 millimeter substrates in sizes Gen 5 and below and large size substrates down to 0.5 millimeter. And we fully ramped our Gen 10 manufacturing facility to meet Sharp's increasing demand for these large sized substrates. Some of you in this room had the opportunity to tour our Sakai City facility on Sharp's campus last June and saw firsthand what a feat of engineering Gen10 represents. With 2010 now behind us, let's look at what we expect going forward. Handheld devices are not a significant portion of LCD glass substrate demand.
However, the smartphone segment of the market is growing rapidly in both number of units and screen size. I'll cover handhelds more when I talk about Gorilla and the cover glass part of our business. On the other hand, the IT market represents a more significant portion of LCD glass demand. In the near term, the continuing shift toward mobile computing will be the primary growth driver. Longer term, the increased affordability PCs in emerging economies will sustain growth.
Let's look at the segments driving IT Glass growth more closely. The units and growth rates on this page represent the midpoint of our range estimate. We forecast that the worldwide IT market will grow about 16% annually from 2010 through 2014. This includes desktops, notebooks, netbooks and tablets. We see solid growth in notebooks and tablets with tablets being the fastest growing segment with an accelerated cannibalization of netbook sales.
The explosive popularity of tablets with 3 pieces of engineered glass, including the Gorilla cover, represents a unique growth opportunity for Corning. As I said previously, increased affordability of PCs in emerging economies will be a significant growth driver for display demand. Our analysts compared PC sales per capita, shown here on the X axis, with the average PC selling price as a percentage of GDP per capita on the Y axis. As you can see, the increase in PC sales is relatively flat until the price falls to about 7% of income, where it then accelerates rapidly. A full 2 thirds of the world's population is to the right of this inflection point with a couple of key fast growing economies, China and Brazil, approaching inflection.
In terms of the worldwide average, you can see how far we've come along this curve since the year 2000. We believe that the combination of rising incomes and falling prices will drive PC growth up the curve to the 2014 worldwide point, which represents 1 out of 11 people around the world buying a PC in that year. Now let's turn to the biggest driver of LCD glass, the TV market. First, aesthetics and form factor are becoming key differentiators for set makers. The streamlined designs and capability of LCD TVs just a few years ago seem bloated and dated by today's standards.
Take the new Sony Bravia, for example, which features Corning's Gorilla Glass to achieve its sleek monolithic design. And I'll talk more about that when I address Gorilla Glass. But it illustrates the trend towards TVs that are thinner, lighter and more aesthetically pleasing than ever before. One of the most exciting trends is the move to smart TVs. These Internet enabled sets allow consumers to stream content directly to their TV.
This feature is becoming quite common, supported by popular services such as Netflix. 3 d TV is another trend getting a lot of attention. The jury is still out on whether consumers will vote with their wallets for the active shutter or passive eyewear as the technology of choice. Set makers also continue to work on developing effective 3 d TVs that will not require dedicated eyewear. Regardless of which technology becomes the most popular with consumers, we believe 3 d is a desirable feature that will help to drive TV replacement.
In the near term, growth will be driven by the continued penetration of LCD and the continued replacement of CRT televisions, as well as increased penetration of LCDs in emerging regions. Long term, we see shorter replacement cycles, the continued adoption of LCD TVs in emerging regions and innovation as key growth drivers. We expect LCD to remain the technology of choice in a growing TV market. LCD is the winning technology with consumers around the world and it is now moving toward full penetration. As you can see, we expect double digit growth of LCD to continue, while CRT phase away and PDP sales decline.
The other good news here is that the overall TV market continues to grow and with LCD TVs getting slimmer, higher in resolution, rich in features and less expensive, we see very little risk of new display technologies such as OLED supplanting LCD's growth trajectory. As we've been telling you for the last several years, near term LCD TV growth is all about emerging regions. Penetration is currently lower and improving economic conditions will help drive stronger TV sales overall. For those of you who worry that LCD TVs are not affordable in emerging regions, look at the increase in penetration in the last several years. The penetration rate has more than doubled between 2,008 2010 with a compound growth rate of almost 70%.
Consumers in these emerging regions are buying LCD TVs. Here's a data rich slide. I won't cover these numbers in detail, but there are 2 key points I would like you to take away from this page. First, the regions with the most households still have the lowest number of TVs per household. And second, penetration of the worldwide installed base is still only about a quarter of the total.
Both of these factors convince us that there are many LCD TVs yet to be sold. So, what do we expect in TV beyond the next 4 years? As LCD TV approaches full penetration worldwide, we see the growth rate settling in at the underlying growth rate at the underlying TV growth rate, which we believe will be about twice that of the historical 3% to 4% rate in the days of the CRT. The 2 key drivers for this rate of growth will be continued growth from economic expansion in emerging regions and replacement cycles for LCD TVs that are shorter than historical rates, primarily as a result of more rapid technology innovation. So allow me to discuss this in more detail.
With you.
First, let me describe the study that we conducted with McKinsey. Our primary objective was to estimate long term global TV demand by understanding the dynamics around TV replacement. This was based on consumer research focused on major markets around the world. McKinsey also interviewed key individuals at companies identified as leading players in the TV value chain. Our time horizon was 3 to 6 years out.
As a result of this study, we believe the LCD TV replacement cycles are shorter than during the years of the CRT dominated TV market. Near term, the replacement of CRTs by LCD TVs will remain the dominant driver. But longer term, the replacement of an existing LCD TV with a newer model will gain importance. Overall, the study confirmed for us that we are still in the early stages of the LCD TV replacement cycle. Here are some of the data from this study.
On this page, we've charted replacement curves for 3 of the major regions we surveyed. The data indicates that 50% of LCD TVs are replaced within about 6 years after purchase. This compares very favorably with the roughly 9 year average replacement cycle for CRT TV. This replacement is not driven by obsolescence or product failure, but by the tremendous improvement in technology of newer LCD TVs. People with a 6 year old flat panel TV can buy a new LCD TV that is bigger with better performance at a much lower price than they paid years before.
And so they will upgrade. While today most LCDs are sold that are sold to replacing CRTs, LCD to LCD replacement becomes a more significant driver of TV demand over time. We believe that the market will remain in sync with current consumer trends towards a roughly 6 year replacement cycle, resulting in sustained growth above historical CRT rates. We've given you our predictions of the IT and TV markets. And for those investors who are concerned about new products cannibalizing existing applications, take a look at this chart.
In inflation adjusted terms, over the last 35 years, the average U. S. Consumer has steadily increased spending on electronics as new innovations hit the market. During this time, the average household went from about 1.3 consumer electronic devices in 1975 to about 25 devices today. Average spending is still rising as is the number of devices per consumer.
And we believe that this will continue for some time. While this graph is based on U. S. Consumer data, it is fair to say that this describes worldwide trends. So let me finish this section with a view on aggregate demand for LCD glass.
As shown in the chart and the table, we anticipate that the total glass market will grow substantially by 2014 to over 5,000,000,000 square feet. That's 2,000,000,000 square feet above where we are today or about 60% growth in 4 years. On the chart, we've shown the midpoint of our forecast range. And you can see we expect solid growth in each LCD application. Now let me turn to margins.
Historically, our cost reductions have kept pace with price declines. When you look at glass pricing trends, declines over the last 5 years have been relatively moderate. During this time, we have been able to steadily drive cost out of our operations at a pace that has fully offset price erosion. This combination has allowed us to sustain healthy gross margins. After a difficult 2,009, you can see that we are back to historical gross margin levels.
We feel good about our cost reduction portfolio and fully expect that we will continue to negate the impact of price declines. Let me talk about an excellent cost reduction opportunity next. As we continue to drive cost reductions, Eagle XGSlim is a prime example of how we can leverage our Fusion expertise to help maintain margins. Going thin allows us to reduce our cost and produce more glass from the same assets. And this also allows us to differentiate ourselves, especially compared to competitors using the float process.
Eagle XG is a true win win for Corning and our customers. Customers are able to differentiate with thinner, lighter panels across all application spaces. Eagle XG Slim requires less or no additional panel thinning, helping to reduce the need for the costly and environmentally unfriendly etching process. In many cases, they can use the glass as we form it at the thickness they need. We are expecting another strong year in 2011 for display.
We expect at least another 500,000,000 square feet of growth in the glass market, growing to between 3,600,000,000 and 3,800,000,000 square feet. We expect glass supply and demand to remain balanced and price declines to remain moderate, in line with our pricing strategy. As I discussed earlier, LCD TV units should grow about 17%, while PCs, including tablets, are expected to grow about 27% over last year. So to summarize, we believe the mobility trend will continue to drive growth in handheld and IT panels. The world's emerging economies are approaching the PC purchase inflection point.
We expect LCD TV unit sales to grow faster than the historical CRT growth rates, driven largely by shortened replacement cycles. Emerging regions will continue to be an important factor in this growth, led by China. And we expect cost reductions to keep pace with price declines, allowing us to maintain our margins. Bottom line, we see strong increases in demand for our glass. So I hope you can agree that reports of LCD glass demand maturity are indeed greatly exaggerated.
Now that we've covered LCD glass substrates, I'd like to acknowledge the 800 pound gorilla in the room. Gorilla Glass is our fastest growing platform. We created the strength in cover glass category 3 years ago. Initially for handsets, this optically beautiful yet exceptionally tough cover glass has been a resounding success. Gorilla has also helped to enable the success of tablets and soon will be featured as a design element on Sony's new Bravia TVs.
And we haven't even scratched the surface yet, so to speak. We continue to make new developments that will enable new applications beyond consumer electronics. Applications such as automotive glass, smart appliances and architectural glass are on the horizon. In fact, we're engaging today with customers in each of these areas. And beyond that, the possibilities for Gorilla Glass are endless.
We know consumers like devices with strength in cover glass, but we did some research to understand the value across applications and consumers' willingness to pay for it. The results indicate that consumers are willing to pay a premium for scratch and damage resistance as well as edge to edge design. The research firm that we work with stated that this was one of the most positive results that they had seen in consumer studies of this kind. Because consumers want and will pay for Corning Gorilla Glass, we have launched a mass marketing campaign targeted directly at consumers. This campaign will help our customers differentiate their products and create consumer pull through.
This media campaign has been highly visible with significant print, online, mobile and search presence. On the slide are examples of advertisements that are appearing both online and in print in publications such as Rolling Stone, GQ, Wired and just yesterday in full page format in The Wall Street Journal. Early results indicate that this campaign resonates well with consumers. And we believe this campaign will keep the competition dragging and trailing behind. I thought that was good.
We launched a campaign at the Consumer Electronics Show last month. And according to CNBC, Gizmodo and other media outlets, Gorilla Glass was one of the most talked about products exhibited at the show. I'd like to present a brief video that was shot in the Corning booth at CES last month. This has been appearing in Best Buy Stores nationwide and on their website.
There are gorillas in the mist at CES, pointing Gorilla Glass. But, what's a glass company doing on an electronics ship?
We are here because we've come up with a proprietary product, Gorilla Glass, which is outstanding for today's electronics.
Thin and tough
is really a story for Gorilla Glass, for handhelds, for tablets, notebooks, and TVs.
You may not have heard of Corning Gorilla Glass, but you might already have it. It's used on close to 300 different products from major manufacturers, like Samsung. They use it on smartphones and on their new tablet.
Alright, Paul. You say this glass is tough.
Prove it. Oh, absolutely, Mick. You'll love this. I want you to look at the scratch test on plastic. Look at this.
Oh, wow. Look how that just digs right into the plastic. Now look at grill glass. You see any scratch at all on that? Not at all.
Not at
all. Not at all.
Alright. So that just gets you to glass. What's really cool about this, look at it, it's soda lime, typical glass that you use. Okay. See if you can break it.
See how strong or how durable this is. Oh. Look at that. Wow. Now here's Gorilla Glass.
Same condition, same thickness, same everything. Let's see how that goes.
Same spot.
Yeah, same spot. See if you can get that to go. Come on. No, that's not going anywhere.
This is just an excerpt. You can watch the full video on Best Buy's and Corning's websites. In the growing handheld market, Gorilla Glass participates in the high end segment on smartphones and other feature rich phones like the Dell Aero and the LG Mini. This segment represents a growing portion of the market. Within this segment, the penetration of cover glass is also increasing, driven by the demand and requirements of today's touch applications.
Bottom line, we estimate that units with cover glass will grow 3 to 4 times over today's level by 2014. The market for Gorilla Glass gets even more interesting in the IT segment, especially in tablets where 100% have a strength in cover glass. As I said before, the tablet category is the fastest growing segment in the IT space and represents the strongest growth opportunity for Gorilla Glass. During CES week alone, more than 26 new tablets were launched. Our estimate is that IT products with a strength in cover glass will grow 6 to 7 times by 2014.
As I mentioned earlier, in addition to tablets, TVs with cover glass are a large area opportunity for Gorilla Glass. At CES last month, we announced our first television customer when Sony unveiled its new Bravia line of LCD TVs. Gorilla Glass was instrumental in enabling Sony to achieve its distinctive monolithic design on select models. We believe that the new Bravias may be the first of a new generation of TVs that will be thin, elegant and sophisticated with an outstanding viewing experience. Some of the TVs with edge to edge designs on the market today use thick soda lime glass.
Sony's Bravia uses Gorilla Glass that is just 710ths of a millimeter thick, with better impact resistance and durability than the thicker soda lime cover. Gorilla Glass is also significantly lighter in weight and has a fusion form glass, has advanced optical qualities. These properties make Gorilla a much better option for 3 d TVs. As I hope you can tell, we are very excited about the growth prospects of Gorilla Glass. Our consumer research confirms that consumers place high value on its attributes.
We've launched our media campaign and have begun establishing brand a brand recognized by consumers. We see significant growth potential in both feature rich phones and tablets. The TV cover glass opportunity has the potential to represent significant area and has moved us to establish large format capability. I want to give you a quick look at our vision of future markets for Gorilla Glass. In automotive, as cars become more sophisticated, Gorilla Glass will offer manufacturers a lightweight, yet extremely durable design solution for displays, windows and sunroofs that can improve aesthetics, user interface and fuel efficiency.
At the same time, appliances are becoming increasingly smarter and high-tech. And we expect touchscreens will become the prevalent interface. Gorilla Glass will enable seamless designs with tough, scratch resistant, touchscreen surfaces and a virtually unlimited choice of decorative options. Architectural Glass is another interesting opportunity. Gorilla Glass offers architects the ability to design greener buildings with the potential for lower cost.
For example, using thinner, lightweight yet rugged windows, glazed with Gorilla Glass could lead to buildings requiring less structural steel. Earlier, I asked you to think back 10 years. Could any of us have predicted today's reality? Well, I'm going to make a bold prediction. Much of what we showed you in the day made of glass video will be realized within the next 10 years.
The consumer trend driving this is very clear. We all want to be connected with what we want, when we want, anywhere and with great ease. This is a journey we've all been on with glass playing an increasingly critical role. Corning's innovations in Glass will enable this journey to continue. At our core, we are a specialized glass company.
We have proven our ability to make seemingly impossible things, not only possible, but practical and profitable. We've covered a lot of ground today. The continuing growth story of the LCD market, the vast possibilities in cover applications and the breadth of opportunities the Fusion platform and our Glass Technologies Group will realize. But if you only take away one thing from what I've said today, remember this, Corning is better positioned than ever to make real the possibilities so that our future can truly be a day made of glass. Thank you.
And now I'd like to turn the floor over to Clark Kinlin, President and Chief Executive Officer of Corning Cable Systems.
Thank you, Jim. Welcome everybody. Jim and Wendell have talked with you about a day made of glass. Optical telecommunications infrastructure is central to making this vision a reality. So how does glass fit into this picture?
1st, by providing the connectivity in data centers to transport the exploding digital content behind the Internet. Also, by enabling fiber to the home access networks for broadband wireline subscribers to enjoy services of 100 megabits per second and beyond, particularly for new video services. And by providing the backhaul and distributed antenna systems needed to provide the ubiquitous global wireless services that we all enjoy. All of this is made possible by glass, specifically low loss, bend and sensitive optical fiber and connectivity solutions. Bandwidth demand of 40% will result in capital investment in categories that matter to Corning, including optical enterprise networks, fiber to the home access networks and wireless infrastructure, all of which will grow up to 7 times faster than the CapEx of the overall telecom sector.
Before I discuss each of these customer segments in more detail, let me take a minute and reflect back on 2010 results. Our strategy has 3 elements: to provide differentiated solutions via products with clear economic value propositions that matter to obtain advantaged customer access, so we can partner with customers early in their design process, and to relentlessly focus on cost. 2010 was a good year for us. We launched the Predium Edge product set for data centers, providing customers with plug and play solutions that are 35% faster to install than traditional fiber cabling systems. With smaller profile components, Edge enables higher density, so customers can squeeze every inch of utility out of their facilities and reduce energy costs.
We broadened our global customer base and deepened our customer relationships. One notable example is that we were recently selected as a primary supplier of optical cable and hardware for the Australian National Broadband Network or NBN Fiber to the Home program. Corning and NBN Co. Have signed a contract valued up to $1,200,000,000 over 5 years with an initial purchase commitment of $400,000,000 This is the culmination of years of sustained engineering effort to position Corning for success in the Fiber to the Home segment in Australia. Finally, we relentlessly focused on cost.
You may recall that we took necessary but painful restructuring actions in 2,008 and 2,009. This enabled us to have our sales up when demand returned in 2010, and we were able to capture the economic benefits of this restructuring. Our 2010 sales, excluding divestitures, were up 5% compared to 2,009. Our net income, excluding Specials, nearly doubled and was the highest level of net income in the Telecom segment since the year 2000. With that summary of 2010, I'd like to now focus on the opportunities that lie ahead.
Telecom is now entering a renewed investment cycle. Although overall Telecom CapEx is expected to grow 3% annually, the 2 investment categories where we participate, wireless and optical wireline infrastructure, are expected to grow nearly 2x faster than the overall rate. And within these categories, there are several segments growing at much faster rates. The Optical Enterprise segment is growing at 7% with continued investment in data centers to support the 65% annual growth in data storage requirements. The Fiber to the Home segment will grow 18% as new global carriers provide 100 megabits per second service to stay competitive.
Finally, the fastest growing optical segment, wireless, is growing at just over 20% to support bandwidth demand growth of 100% over the next few years. With these optical growth opportunities in mind, I'd like to spend a few minutes discussing the drivers for each segment and how Corning is participating in them, starting with Enterprise Networks. Corning's Enterprise Networks business grew 25% last year, and we are forecasting continued growth of 8% this year. So what's going on? In data centers, storage demand is growing 65%, and there's rapid adoption of 10 gigabit per second networking, which demands fiber.
Additionally, over the planning period, we see a resurgence in global construction, which should buoy local area networks, which are 70% of our business. This will be complemented by existing LAN network expansion due to the proliferation of networked IP devices. What you should expect from Corning is more edge. The Pretium Edge solution enabled by ClearCurve Fiber will be expanded as we launch additional products designed to continue our success inside data centers. In the LAN, we have significant core product upgrades underway as well, so expect these products to start rolling out in 2012.
Next, I'd like to talk about fiber to the home. So last year, we told you that fiber to the home was relatively flat. This year, we expect our fiber to the home sales to grow 40% in a segment that's growing at 18%. So what's happening? First, as you heard from Jim, there is an increasing customer demand for high bandwidth video services, such as IP, HD and 3 d television.
Competition continues to be a major factor with DOCSIS 3 from the MSOs, over the top product offerings from a variety of new players and even mobile broadband services putting pressure on traditional wireline carriers. Thankfully, fiber to the home deployment costs continue to fall, improving the overall business model, and average revenue per user or ARPU rates continue to improve, particularly for video services. Verizon recently announced consumer wireline ARPU of $88.90 up 11% from the previous year. In past years, Verizon has been the bulk of the story for us. They were the 1st major innovator to deploy a large scale GPON network.
Now, a new wave of global deployments has started. In Canada, we are supplying a large scale fiber to the home network constructed by Bell Canada and Bell Lion. We expect our business in Canada to double this year. We also have independent telco demand in the United States growing at similar rates. New major deployments are ramping in Germany, Spain and China, and as discussed previously, in Australia, where we will be the leading vendor to Australia's NBN Co.
And Corning has demonstrated our capability to scale operations globally to supply these deployments. Many of these projects will use ClearCurve enabled solutions in their network architecture, particularly in multi dwelling units or MDUs. Between enterprise networks and fiber to the home, Our sales of ClearCurve fiber enabled solutions are now over $200,000,000 a year, and we will continue to design and deliver custom solutions for single family and MDU applications for our major fiber to the home customers. Now let's talk a bit about wireless. Globally, there will be 400,000,000 new users this year, and nearly half of them will be new mobile broadband subscribers equipped with smart devices capable of drawing the equivalent bandwidth of up to 4.52 gs phones.
They're placing a significant strain on existing networks and bandwidth demand will jump 100% this year. We're also seeing the acceleration of LTE deployments globally with over 100 operators now committed to deploying 4 gs networks, up from just 40 a year ago. These LTE deployments are placing significant infrastructure requirements on the network by drawing over 300 megabits per second per tower and requiring up to 10 times more access points to provide the coverage and capacity needed to support these services. Corning has the backhaul and fiber to the antenna products to help relieve this bandwidth pressure. And as you know, our indoor distributed antenna system or IDaaS continues to evolve with beta trials underway now.
This year, we will launch this all optical DAS solution set that will bring fiber into the horizontal, allowing carriers to roll out multi band 2 gs, 3 gs, 4 gs services indoors. Central to enabling the IDaaS solution for us is our pending acquisition of Mobile Access announced this week. Mobile Access is an embedded Tier 1 provider in DAS networks with an established customer base and product portfolio. They possess the proven RF development and engineering capability integral to DAS systems. We believe that their existing customer access, established product portfolio and strong RD and E capability will accelerate our launch of the all optical solutions, which we see as the next generation of IDaaS systems.
And before closing, I'd like to update you on our development efforts in the area of very short distance networks. The last frontier in the conversion to all optical networks is now the final few meters between devices such as the connection between your laptop and your television. These appliances have been served up to now by big bulky USB or HDMI copper cables. The optical conversion is in sight. Corning is developing highly flexible, ultra low bend loss, high bandwidth optical connectivity products, which will deliver 10 gigabits per second speeds over distances of 30 meters or greater.
These solutions will provide high speed and high quality connectivity for a true day made of glass experience. We'll be back next year to tell you more about these efforts. So in conclusion, with bandwidth demand growth of 40%, we are seeing a new investment cycle in telecom, most notably in those high growth optical segments where we are focused, optical enterprise, fiber to the home and wireless networks. We are poised to grow our sales by 15% to $2,000,000,000 this year, enabled by advantaged customer access and innovative solutions delivered over the past several years. And now, I'd like to introduce Mark Beck, who will provide you with an overview of Corning's Life Science Business Unit.
Thank you very
much.
Thank you, Clark, and good morning, everyone. I am Mark Beck, and for the past 4 years, I have been responsible for Corning's Life Sciences Businesses. Today, it is my pleasure to share with you the story of this business, who we are, and the bright future that we see ahead. If any of you have ever been in a modern pharmaceutical or biotechnology laboratory, you have almost certainly seen our products in action. Many of our products can be recognized by their distinctive orange color.
You see, over 50 years ago, we began to put these bright orange caps on our Pyrex bottles. Now as our business has grown, Pyrex has become a much smaller part of our portfolio, but the orange color has been adapted onto many of our products. And customers, particularly scientists in research laboratories around the world, working in universities, in biotech companies and in big pharma, they look for that orange color to know and be assured that they are getting the performance and the quality of Corning Life Sciences products. Our products can be grouped into these 3 categories. The first group, Drug Discovery Products, is designed to be used in specialized and often automated experiments involved in finding, testing and developing new drugs.
Our second group, which is the fastest growing is bioprocess. These products are used to grow the cells that produce vaccines and biologic drugs. Finally, we produce an array of products that our customers consider to be the staples of their research laboratories. The great thing about these general research products is that they enjoy very long life cycles that can extend into decades. Over 90% of our products are sold into Life Sciences Research or production facilities.
And every major pharma and biotech company in the world is our customer. They use our products and they are very loyal. In 2,009, over $120,000,000,000 was spent in the pursuit of new medicines and therapies. Of that, about $35,000,000,000 was spent for laboratory products, which is divided into these three segments. Among these three segments, most of our products are sold as consumables.
We like the consumables business because our customers, these scientists, when they are making the purchasing decision to buy a consumable, they seem to care more about quality than price. We also like the fact that they use the product once and then it needs to be replaced. Within the consumables market, our focus has been somewhat narrow, but in nearly every one of the segments that we do serve such as cell culture, liquid handling and high throughput screening, we enjoy the number 1 or number 2 position. So building on that strong position, over the past several years, we have grown our business at a compound annual rate of 15%. This compares to a market growth rate of about 5%.
Our profitability has also improved over this timeframe. Operating margin has grown since 2006 at a compound annual growth rate of more than 30%. And even excluding the impact of the recent acquisitions, that growth rate is better than 20%. In addition, we have generated several $100,000,000 of operating cash flow and because we are not a capital intensive business, our return on invested capital has been better than 25%. So now that you know who we are and what we do, I'd like to briefly describe the industry we operate in, the key trends that are driving growth in that industry and what we at Corning are doing to support that growth.
So I'm sure you all know and it's well understood that the healthcare industry is growing and that it does not suffer from significant cyclical swings. In fact, this specific segment within healthcare that we serve, Drug Discovery Research is even more steady than the broader healthcare market. And there are some very well known megatrends that drive continued growth. As we all get older, our need for and consumption of pharmaceuticals increases, and this is the big driver of growth in the developed world. In emerging economies, as people reach middle class status, one of the first things that they desire in addition to an LCTV is access to modern medicine.
Yet in spite of these favorable demographic trends, our customers do have challenges. Perhaps the biggest challenge they face is a lack of new drugs, What we call in the industry, the innovation productivity problem or sometimes we simply call it the pipeline problem. Now new drugs are needed because there still remain several untreatable conditions. And the other issue is that as patents expire on the existing drugs, the profits of those drugs also expire. So I'd like to elaborate on this challenge, this productivity challenge and then show how Corning is uniquely positioned to help our customers improve their innovation activities.
As you can see, although R and D spending for drug discovery has been consistently rising, the number of new drugs approved has not followed this pattern. There are many reasons and explanations for this problem, but the simplest is that finding new drugs is tremendously difficult work. The drug discovery process can take 10 to 15 years and cost up to $1,000,000,000 and that is just to produce one new medicine. Part of this high cost stems from the 92% failure rate. And when success does come, it often seems to be almost serendipitous.
75% of newly approved drugs are approved to treat something different from what was originally targeted. I'd like to give you an example using Viagra. The active compound in Viagra was originally tested as a cardiovascular drug. Then later during human testing, some interesting side effects were noted and while the rest is history. Now this innovation productivity problem drives our customers to continue spending huge sums of money on research.
But they don't want to just keep spending more money. They also want to work smarter and they're actively seeking more effective research tools and solutions. We believe that this is a real opportunity for an innovative company with proven technology capabilities and an established position in the market, in short, for Corning Life Sciences. In the past 4 years, we have doubled the size of our Life Sciences business, and we intend to double it again by 2014, and we have a plan to get there. To reach our $1,000,000,000 goal, we will need to do 3 things.
1st, execute in our existing businesses. 2nd, leverage Corning Technology to create new businesses. And third, we will continue to selectively evaluate acquisition opportunities. So now I would like to provide you with a few examples of our efforts in each of these three areas. Let's start by looking at a geographic expansion opportunity for our existing businesses.
As you can see here, our business has been growing robustly in China. 2 things are driving this growth. One is that the major pharma and biotech companies of the West are moving research work to China as a way to reduce the cost of their drug discovery. The other is that the Chinese government wants to bring the benefits of modern medicine to more of their people. Because of these investments in growth, we believe that in 10 years Shanghai will become one of the 3 most important biopharma centers in the world along with Boston and San Francisco.
We are already investing to capitalize on the growth potential of this important region, and we will be up and running with local manufacturing and distribution later this year. Our second strategic thrust is in the area of innovating new business platforms. One example of this that you may have heard of is the Corning EPIC label free technology. EPIC technology is gaining support from many thought leaders in the industry. We now have an installed base of over 40 systems and 9 of the top 10 pharma companies in the world are EPIC customers.
I'm pleased to say that the 2nd generation of Corning EPIC technology was launched earlier this week in collaboration with PerkinElmer at the Lab Automation Show. The Inspire instrument which has the Gen 2 EPIC optical system inside represents a major improvement in the size and cost of label free technology. So to put this in perspective, the Gen 1 system is about the size of a large American refrigerator. It costs $400,000 to $500,000 and we've had 5 dedicated and diligent sales people bringing this to the market. The Inspire and we have an example of it over here in our booth is the size of a desktop printer.
It costs about $50,000 and PerkinElmer's sales force of several 100 are excited to bring this label free technology to their Epic business and that the smaller footprint, lower cost and greater commercial presence will drive widespread adoption and therefore greater consumption of the Corning made microplates. Another area in which we have been innovating is in bioprocess. Living cells grown in vitro or in the lab are used to test new drugs to produce vaccines and biologic drugs, and increasingly scientists are looking at cells as a potential therapeutic agent themselves, something called cell therapy. As a result, our customers grow and use trillions of cells every day, and we have developed a way to help them do so more efficiently. We have invented cell culture vessels that utilize our gas permeable membrane technology.
The first of these was Hyper Flask. This flask has 10 breathable growth layers in the same cubic area as a standard single layer flask. This can reduce incubator space, labor and disposal costs by a factor of 10. It was introduced in 2,008 and it has been adopted by hundreds of laboratories. We're leveraging that success into developing Hyperstack, which has 120 growth layers in the same footprint as our 40 layer cell stack.
This product is in manufacturing now and will be commercially launched in a few weeks. So I mentioned that cells are increasingly being considered as a potential therapy. The most promising cell type for use in therapy are stem cells. Stem cells have this unique ability to become any type of cell that you might need. However, they can be very difficult to grow and manage in a laboratory environment.
Today, stem cells are most commonly grown on biological coatings which are derived from animal byproducts. These surfaces are highly variable, they pose a risk of contamination and can be limited in availability. In collaboration with Geron, we have developed Corning SynthemaX T, a synthetic surface that supports the growth of stem cells that can then be turned into cardiomyocytes or heart cells. In this comparison, on the left, you can see heart cells that have been grown on the animal derived coating. And on the right, you can see the higher yield and the increased functionality of the cells grown on the Corning surface.
With these compelling results, Geron is now our customer as well as our collaborator. Another synthetic product designed specifically for research use was developed in Corning Laboratories and launched last fall as Syntomax R. This product is now being evaluated by dozens of stem cell research laboratories around the world. With these and other patented surfaces, we plan to be designed in today for the cell therapies of tomorrow. If cell therapy succeeds, diseases like diabetes, heart disease, liver failure and many others will become treatable conditions.
And for Corning, this could become an enormous long term opportunity. The third element of our strategy is to find acquisition opportunities that leverage our market position, our brand, our customer relationships and Corning Technology. We acquired AxoGen 18 months ago and we are delighted with the synergy realization and financial performance of this business. More recently, we acquired Gosselin and although it is still early, we are confident that this will be a strong addition to our portfolio. Going forward, we will continue to look for attractive businesses.
We will be seeking companies that will benefit from our unique technical and manufacturing capabilities, as well as those that would utilize our global market access and customer relationships. So to summarize, we feel that we play in a large, stable and growing market And although our position is narrow today, we have demonstrated the ability to grow much faster than the market while generating strong margins and attractive returns. We have applied Corning technology to serious issues in drug discovery, And we have created new products like Epic, SynthemaX and Hyperstack, and we believe these products will make a difference. We have also shown that we can effectively pursue and integrate acquisitions. I am confident that as we build on these recent successes and execute our 3 pronged strategy, we can build a profitable, sustainable $1,000,000,000 business for Corning and for our shareholders.
Thank you. I would now like to introduce our next speaker, Eric Musser, CEO of Greater China.
Thanks Mark and good morning. Again I'm Eric Musser and since 2007 have been responsible for Corning Greater China. I'm glad for the opportunity today to update you about our China operations and outlook. My overall message this morning is simple. Corning is growing very fast in China, We're increasing our investment and we're targeting $2,000,000,000 in sales in the foreseeable future.
You know a great deal about China's market and economy, of course. It's large, dynamic and growing rapidly. It's also a challenging, complex and competitive business environment. Corning has been operating successfully in China now for over 25 years. All of our businesses operate in China today and are market leaders And we've demonstrated the ability to scale to capture growth opportunities.
And as we prepare for more growth, we've previously announced new investments of about $1,000,000,000 in 20.10 and in 2011 we're pursuing several additional opportunities. Together these support our sales growth objective. My agenda this morning is to 1st take a brief look back from the past to the present, then focus on market trends and opportunities and what this implies for Corning, next discuss our investments for growth and summarize. As I mentioned, for over 25 years, Corning has grown its presence steadily in China. We initially served the market from Taipei and Hong Kong.
Then in the 1990s, we moved our regional headquarters to Shanghai and completed our 1st Mainland wholly foreign owned investment. Over this time, we developed excellent relations with both local and central governments from the working level through to the most senior leadership. We operate with a shared governance model. Our China leadership is jointly responsible with business leadership for performance, strategy and decision making. We also serve as Corning's largest corporate center outside Corning, New York to provide all the necessary staff support to our businesses in China and increasingly now throughout Asia.
Since 2000, all of our businesses have made investments in China. We have a wide geographic footprint and a mix of wholly foreign owned joint ventures and contract manufacturers. In many cases, we have been the 1st to invest, helping to secure 1st mover advantages with markets, customers and setting technical standards. With approval by Corning's Board for new investments in 2010, we have projects underway that will bring leading technology in multiple locations. Corning's recent sales growth in China has accelerated growing at a 64% CAGR since 2,008 to $829,000,000 in 2010.
While not disclosing the specific numbers, we have excellent cost and margin performance that compares favorably to Corning overall. Looking ahead, we expect continued rapid growth in 2011 to a range between $1,200,000,000 $1,300,000,000 in sales. And with an expectation of continued strong performance, by 2014, we're targeting to grow our sales into the $2,000,000,000 range. Now with that as background, let's shift our focus to the current market trends and opportunities. As you're aware, China's recovery from the 2,008, 2009 economic crisis was rapid.
With a large fiscal and credit stimulus, GDP growth recovered strongly from Q1, 2009 onwards and is now in a range of 10% year on year growth, a growth rate that compares favorably to more developed economies such as the U. S. And Europe. Of course, there are many risks and issues that policymakers are facing in China, but despite these risks, the GDP outlook continues to look positive. In the Q4 of 2010, China's Central Government issued its 12th 5 year plan for the period through 2015.
A key element of the plan is the so called 3 transformations, which includes reducing the reliance on foreign exports and increasing domestic demand, a range of energy and environmental policies to improve both resource efficiency and reduce the economy's carbon footprint, and an overall emphasis on broader prosperity. These government policies are influencing major elements of GDP and key end market trends. And our expectation is that they will further strengthen opportunities important to Corning such as consumer electronics, broadband networks and so on. In fact, Corning's capabilities are very well aligned to these current and emerging growth trends in China. As you can see in the table, the markets for our major existing businesses or for new innovations such as photovoltaics are either already large or are growing rapidly or both.
Of course, we compete with both foreign and domestic competitors in all of these markets. However, Corning's positions in each is very strong, either number 1 or in the top 3. You heard from Jim Clappin about China's growth outlook in LCD TV. We expect China's total end market glass demand to grow from about 600,000,000 square feet last year to approximately 1,000,000,000 square feet by 2014. To serve this growing demand, China's panel making capacity is expanding rapidly and may become self sufficient by the end of our planning horizon.
A total of 8 new panel fabs are announced and under construction since 2,009 at increasingly larger gen sizes and another 5 are under consideration. Both domestic and foreign panel makers are investing. Of course, we watch closely for any indications of future excess panel making capacity, but to date this is not evident. These trends obviously create opportunity for Corning's own investments to serve this market, more in a moment. Let's turn now to the environmental segment.
Since 2009, China has become the largest market for light duty vehicles from both a production and a sales perspective. In 2010 alone, light duty vehicle sales with EU4 implementation now underway. This trend drives the need for increasingly more advanced emission control substrates. At 18,000,000 units, China's light duty market is already large. However, the growth may just be getting started.
As you can see, China's average passenger car density is only 33 vehicles per 1,000 population. And when you compare that to the density in other developed or developing markets, it's clear that China's capacity to grow remains large for the foreseeable future. Let's turn now to the telecom sector. The data on the left describes the especially large public telecom market in China and its high level of ongoing CapEx. Within these segments, the trends are toward broadband networks that will continue to drive demand for optical innovation.
The 12th 5 year plan allocates up to 80% of telecom CapEx to broadband and is expected to drive broadband wireless growth to 150,000,000 subscribers by the end of 2011 and fiber to the home growth at a 150% CAGR through 2014. As Mark presented, the life science R and D market in China is expected to grow at a 24% CAGR through 2014. And that's due to an influx of multinational pharmaceutical companies, contract research organizations and academic institutions, which in turn is resulting in a growing plastic lab consumable segment. As you're probably aware, China has a significant photovoltaic manufacturing capacity and this capacity has grown steadily within the past few years. China's current capacity is largely single junction or single layer amorphous silicon.
However, it has relatively low conversion efficiency compared to emerging thin film technologies. We expect amorphous silicon module manufacturers to migrate to silicon tandem, a dual layer solution that provides higher efficiency and lower cost. For this to occur, there is both the need and the opportunity for glass innovation to improve conversion efficiency. With this survey of the market opportunities for Corning's businesses and innovations, let's now turn to our investments. Although our first investment in China was 25 years ago, and since then we've invested in manufacturing for every business, Our cumulative investment to date is modest with net assets at year end 2010 of just over $300,000,000 However, this is changing rapidly due to the new investments announced in 2010.
These investments total nearly $1,000,000,000 for a large gen LCD glass substrate facility in Beijing, the 1st large gen fully integrated glass fab in China, a second expansion of our Shanghai light duty substrates facility with advanced technology to meet the tightening environmental regulations that I referenced earlier, and a new life science manufacturing and distribution facility supplying consumable lab wear products. These investments have been underway now since the fall of 2010 and overall are on plan. Our new Life Science operation will start production in the second half of this year followed by display glass and light duty substrates in the first half of twenty twelve. Clearly, this is a lot of investment in a short amount of time. Even so, it may not be enough.
While we're not announcing new investment today for Flat Glass, environmental or any of our existing businesses, it is a key priority for 2011 to determine if, when and where we need to invest further. In telecom, we have a strong base in fiber and cable. We completed a major optical fiber investment in Shanghai in 2,009 with our most advanced technology. In building on this strong base, we are innovating in hardware and equipment for fiber to the home, focusing on development of low cost pre connectorized designs to meet the specific needs of the rapidly growing China fiber to the home market. An example of which is shown in this deployment of our Ascend multiple dwelling unit product solution.
In photovoltaics, Corning is well positioned to capture the silicon tandem opportunity. We announced a record breaking silicon tandem cell with 11.9% efficiency in 2010, and we continue to innovate on our roadmap to achieve even higher efficiencies and to scale our processes from cells to full size modules. With the China market need for improvements in cost per watt, delivery cost and material costs, we are seeing strong interest in Corning's glass innovations that deliver improved efficiency, are thinner and allow a thinner silicon layer. To date, we've had engagement with customers that represent 80% of China's market and we're jointly proceeding with a silicon tandem glass sampling and evaluation plan in 2011. For all of our investments and sales growth to succeed, we obviously need a large and talented organization.
And despite the challenges you may be hearing regarding availability of talent and direct labor in China, we're doing very well. And that's due to our major emphasis on talent development, Corning values and culture. Our plan is to ramp our employee base from today's 2,200 to 3,500 employees by the end of 2012. Having invested in the development of local talent, we are increasingly being led by more senior local management. These initiatives have created a strong pride of association that has allowed us to enjoy an attrition rate that is just 1 half the China average.
Let's summarize. Corning has a strong base and a proven 25 plus year track record of success in the China market with sales of over $800,000,000 in 20 10, strong market leadership positions in all our businesses, new investment being implemented and others being evaluated, and with the opportunity to deploy new innovations, we believe that Corning will continue to be a major player in China and that we're well positioned to achieve our sales growth target to $2,000,000,000 in the 2014 timeframe. Now I'd like to introduce Jim Fluss, Vice Chairman and CFO. Thank
you.
Thank you, Eric, and good morning, everybody. I'm going to get that theme music for my new ringtone, I think. I've got a number of topics I'd like to cover with you today. First, I'll walk you through our corporate tax rate assumptions for the next few years. 2nd, I'll provide an overview of our current cash and liquidity position and some color on our capital expenditure plans for this year.
3rd, I'm going to provide an overview of Dow Corning and why we are very excited about its growth prospects. And lastly, I'd like to summarize what you heard today about our goal to become a $10,000,000,000 sales company and what each segment needs to do to deliver that goal. You should also note that there are several slides in the appendix to my presentation this morning. These slides contain, among other things, cash statistics, depreciation, foreign exchange and pension information. I won't be covering them, but I will be happy to answer questions during our Q and A.
Now, our estimated effective tax rate for 2011 is 15%. You may recall at the Barclays Conference in December, we provided a range of 15% to 20%. At that time, we told you if Congress renewed the tax extenders bill, our tax would be 15%. And just a few weeks after that conference, Congress, in fact, did that. The 15% tax rate, however, is an increase from 20 10 rate of 4%.
There are 3 primary reasons. First, we're not going to have a repeat of last year's repatriation of foreign earnings to United States. We use foreign tax credits in that transaction, which helped to lower our effective tax rate in 2010 by about 8 points. 2nd, we expect to generate more income in higher tax jurisdictions this year like the United States. And lastly, we are beginning to see the expiration of some investment tax credits in Taiwan.
Here's a roll forward from 2010 to 2011 tax rate. For 2010, our rate was 4%. The non repeat of the repatriation is worth about 8 percentage points. The higher income in the United States will drive it up by about 2 points and the tax holiday expiration by about another point. Also, I'd like to note that SEP's effective tax rate will be moving up higher this year.
A portion of SEP's earnings have been exempt from corporate income taxes under the Korean tax law. This exemption fell from 100% last year to 50% this year. As a result, SEP's effective tax rate will increase from about 14% to be between 18% 19% this year and next year. And post-twenty 12, we expect SEP's tax rate to move up to the Korean statutory tax rate, which is expected to be in the low 20s. Now looking ahead for Corning overall, we believe our tax rate will also likely move into the low 20s.
This is driven more by income and higher tax jurisdictions as well as our forecasted expiration or non renewal of the extenders and the expiration of tax holidays in Taiwan. So while this tax rate is higher than previous years, you should remember that in the 1990s, our corporate tax rate was mostly in the upper 20s. However, we were very interested in the President's State of the Union comments last week on lowering corporate tax rates, which he said was one of his priorities to help U. S. Companies remain globally competitive.
Now one more important note on taxes. Due to our net operating loss carry forward, our cash tax rate this year will only be between 4% 5%. Our next topic is cash and liquidity. We have clear and consistent priorities for the use of our cash. One of the most important priorities is to protect the financial health of the company.
Our reasoning is simple. We're a technology company that places large investments on innovation. We compete in technology markets that can be volatile. And as a result, we want to have enough cash to survive potential bumps in the road. As of today, I'm very pleased to tell you that our financial health is very strong.
More importantly, our second priority is to invest in the future. And I'd like to expand on this a little to make sure you understand what it means. 1st, it means having the ability to spend on research and development in a consistent manner. 2nd, it needs to it means to be able to invest in capital, particularly when we think we can seize an opportunity early and create a leading market position. And lastly, it can mean acquisitions.
As you heard today, we intend to grow primarily through our own internal innovation. However, we will consider acquisitions that could strengthen our existing businesses like Life Sciences and Telecom. And we would also consider acquisitions of technology that could strengthen our overall technology leadership in glass and ceramics. Once those two priorities are met, the Board has said they will consider return of cash to our shareholders. Obviously, this can come in the form of a dividend, which we have now, or share repurchase, which we did in 2,007 and 2,008.
The Board currently has no predetermined preference for dividends versus share repurchase. Now some investors have asked me why hasn't the Board decided yet. I can't speak for the full Board, but I think one of the reasons they've taken a more cautious approach was our much higher capital spending this year, which I'll be discussing in a minute. If our CapEx had been consistent with last year when we spent about $1,000,000,000 I feel they may approach the topic earlier. That being said, I believe once the Board has a chance to see how the year is progressing, they will likely revisit this issue.
Now regarding capital spending, as many of our investors know, our spending over the past 6 years can be at best described as lumpy. This chart is a good illustration of that. We typically have higher spending in years. We are undergoing significant expansion like a new factory. That was certainly the case in 2,008 when we built our Sakai City plant, and in 2,005 when we expanded our Taiwanese facilities with Taichung.
For your modeling purposes, we believe our normal maintenance capital spending is about $500,000,000 to $600,000,000 per year. So this year, we expect capital to be between 2 point $4,000,000,000 to $2,700,000,000 And this higher level of spending is necessary to capture those significant growth opportunities that Wendell, Jim Clappen, Clark Kinlan, Mark Beck and Eric Musser have so nicely outlined for you this morning. However, looking ahead, investors should not view this amount as a new level of capital spending. In fact, we currently anticipate our 20 12 12 capital spending to be below this level. So here's how the spending will break down by segment this year.
We believe CapEx and Display will be between $1,200,000,000 $1,500,000,000 This amount may appear high, but keep in mind the majority of this will be for our new $800,000,000 LCD factory in Beijing. We're also expanding melting capacity in Taiwan, but some of this may be eventually transferred to Guerrilla if demand continues to outpace our capacity. And you can see other spending amounts here, much of which has been previously announced, such as our expansions for environmental and life sciences. In addition, the new business spending is primarily the expansion of our Harrodsburg, Kentucky plant for photovoltaic capacity, which was previously announced. In Specialty Materials, about $200,000,000 relates to the construction at our Shizuoka, Japan factory to produce TV cover glass.
It was completed last year, but the bills will be paid this year. Again, I'll be happy to answer more questions on CapEx during the Q and A section. And now I'd like to spend a few minutes discussing one of the most important contributors to Corning. As Wendell shared with you earlier, we want to be a bigger and more balanced company. And one way we believe we can achieve a better balance is through our equity companies, specifically Dow Corning.
Now for those who don't know about Dow Corning, I'd like to provide a brief overview. Dow Corning is 50% owned by Corning and 50% by Dow Chemical and is reported in our results as an equity company. Dow Corning is the worldwide leader in silicone, a technology that was actually born in Corning's laboratories. They are also the world leader in polysilicon production. We view Dow Corning as an important contributor to our long term strategy for growth, stability and balance.
Dow Corning is a fairly large company, almost the size of Corning. They reached $6,000,000,000 in sales last year, which was an increase of 18%. And they are quite profitable. Our recorded equity earnings from Dow Corning in 2010 were $381,000,000 an increase of 33%. And Dow Corning has a policy of paying cash dividends based on 60% of prior year net income.
Our share of that was $222,000,000 in 20.10. So here's a snapshot of Dow Corning's operating structure. Under silicones, there are 2 business core products and specialty chemicals. The core products business has 2 functions. First, it's an important strategic producer of key raw materials needed for both silicone and polysilicon production.
2nd, it's a world leader in the sales of undifferentiated fluids such as sealants and rubbers, which are done primarily through Dow Corning's diameter brand. Ziameter is a web based purchasing vehicle for commodity grade products. The Specialty Chemical business sells formulated silicon based value added products to a number of different markets. Now under the Poly Silicone segment is Hemlock Semiconductor, which I'll cover in a minute. Silicone segment sales were $4,500,000,000 last year and they increased 19%.
On the pie chart on the left, you'll see the diverse markets that Dow Corning sells to. And on the right, you can see this mix of sales between the Americas, Europe and Asia. What's interesting here is just few years ago that split was about a third, a third, a third. The shift towards Asia is a direct reflection of the growth in industrial production in regions such as China and India. And as production grows there, so does the use of silicone products.
As consumers in these developing countries begin to build more homes, drive more cars and use more personal care products, their use of silicone will rise. Now many investors know Hemlock Semiconductor, but for those who don't, Dow Corning actually owns 63% of Hemlock. As a result, its sales and earnings are consolidated into Dow Corning. Hemlock is actually the world's largest producer of polysilicon, which is used in the production of semiconductors and solar cells. Hemlock sales hit $1,600,000,000 in 2010, up 14% from 2,009.
Now more importantly, the high gross margin that Hemlock enjoys, it's a more significant contributor to Dow Corning's bottom line. Hemlock is currently running at full capacity and is undergoing a series of expansions to meet contracted demand. At the bottom of this slide, you can see their expected capacity levels in terms of metric tons. You should note almost all this capacity is spoken for. The company entered into long term supply agreements with its customers and we view this as a win win.
The customers are guaranteed supply of the world's best poly as well as attractive pricing for the life of the contract. And in return, those customers gave advanced cash deposits to Hemlock, which they use to help fund the capacity expansions. And now to my last topic. As you heard throughout this morning, we want to be a bigger and more balanced company, And we believe we have a path to reach $10,000,000,000 in sales no later than 2014. I'd like to walk you through what each segment must do to help the company achieve this goal.
As Jim Clappin outlined earlier, he expects continued growth in the display business. We're forecasting display segment sales to grow from about $3,000,000,000 in 20.10 to be between $3,400,000,000 $3,800,000,000 by 2014. Our Telecom segment will grow from $1,700,000,000 in 20.10 to be between $2,300,000,000 $2,600,000,000 in 2014. And additional acquisitions can obviously make this number even higher. As Clark Kinlan said earlier, we are very excited about the growth prospects for our Telecom business.
We expect Specialty Materials segment to grow from $600,000,000 to at least $1,800,000,000 to $2,000,000,000 by 2014, led by Gorilla Glass. And we believe there's considerable upside potential to this number as well, given the rapid increase in cover glass needs and the significant opportunities we see outside of consumer electronics. You also heard from Mark Beck this morning about his goal to double sales in that segment from $500,000,000 to $1,000,000,000 by 2014. We believe this is a very achievable goal. Now one of the segments we've not had a chance to talk about morning is environmental.
We expect this segment to grow from roughly $800,000,000 in 2010 to be between $1,200,000,000 and 1 point $3,000,000,000 by 2014. I'm going to take just a few moments to walk you through our assumptions behind the environmental sales numbers. We believe auto and diesel markets are poised for significant growth over the next several years. In auto, emerging regions such as China will drive much of this increase. And in diesel, we expect demand to be fueled by continued market growth for light duty diesel vehicles and a recovery in the heavy duty diesel market and lastly, new regulations.
So there's a lot of growth coming our way and we think we're well positioned to capture it. On this chart, you can actually see the worldwide demand for light duty vehicles from 2000 to 2010 and industry estimates through 2020. There are several key takeaways on this chart. Note the relative U shaped recovery in demand within the developed regions following the recession. While this recovery was occurring, please note also the very steep ascent in demand in Brazil, Russia, India and China.
And as you heard from Eric this morning, China became the world's largest market for autos in 2,009. Looking ahead, we expect the growth rate in these developing regions to outpace and eventually surpass the developed regions in terms of total demand. And we are investing today to increase our auto substrate manufacturing capacity to meet this growth opportunity. In light duty or passenger cars, diesel, the U. S, Japan have tight regulations that require the use of filters on any diesel vehicle.
However, Europe remains the primary market where approximately 50% of all passenger cars are diesels. As a result, over 90% of filters sold worldwide are for European cars. The important Euro 5 regulation was implemented in late 2009, requiring all new diesel passenger car platforms to have filters as standard equipment in 2010. Note the jump in the green bar between 2,009 2010. Now this year, all existing diesel passenger car platforms sold are to have a filter installed.
So this means filter forcing regulations are in place in all developed country markets. Our position in this market continues to grow as our innovative product has led to multiple platform wins. And looking ahead, there will be further tightening of NOx requirements in Europe with the Euro 6 regulation in 2014. In heavy duty diesel, the long awaited market recovery has finally begun. We saw an increase in engine production in 2010 and we expect further growth.
We are well positioned to capture this long awaited growth opportunity stemming from U. S. Regulations. But that's only one part of the heavy duty story. The filter forcing Euro 6 heavy duty regulation will be implemented in 2013, creating additional filter demand and opportunities for Corning.
Another reason we remain very excited about the future of diesel is the new regulation on non road vehicles. This includes vehicles such as agricultural and construction machinery, and there are actually more of them in the United States than heavy duty vehicles. This year, non road regulations across a number of countries will begin a multi year phase in that lasts through 2015. These regulations will initiate the use of filters and substrates in this segment. As these regulations phase in, the number of machines that will require emissions control systems will grow to almost 1,000,000 by 2014.
And that represents a regulatory penetration level of about 75% for non road machines. And we expect the technology adoption process to follow that of on road. We are already working with industry leading OEMs to help design and environmental and we expect to get a very a good jump start on this plan in 2011 with our segment sales growing by 11%. Now to round out our path to 10,000,000,000 dollars we plan to build a new business or businesses by 2014. The most promising innovation we have today that we believe has the potential to be a significant business opportunity is a specialty glass for thin film photovoltaics.
This graph shows the worldwide demand for crystalline silicon in blue and thin film photovoltaics in green. PV demand is growing very rapidly and nearly doubled in 2010, creating opportunities for Corning and for Dow Corning. As you know, Corning's focus is on developing special glasses for thin film photovoltaics, which is the fastest growing part of the industry, representing about 15% of the market today. The other larger segment, of course, is crystal and silicon. Today Dow Corning through its subsidiary Hemlock has about a $1,600,000,000 as the world's largest producer of poly.
Dow Corning is also developing a range of products to seal and encapsulate solar panels of all types and expects to be a major supplier of silanes for the emerging silicon tandem thin film technology. So let me build up the opportunity for the thin film segment, starting first with the demand outlook in terms of gigawatts. There is a wide range of estimates out there and we believe there will be about 7 gigawatts of thin film demand by 2013. Now this translates into a little less than 700,000,000 square feet of glass. Basically, 1 square foot of glass delivers 10 watts of power at current average efficiencies for thin film technologies.
So what are we expecting to bring to this market? A set of specialty glass solutions that can provide significant value to our customers. Our value add is to increase conversion efficiency by 2 percentage points or roughly 20% of today's levels. We achieved this by tailoring our glass optical, chemical and thermal properties to a specific thin film process. This is a significant improvement and one that could change the competitiveness and profitability of thin film technologies.
We think there are other benefits that could help reduce the overall cost of solar energy. By going thinner, we can help reduce transportation installation costs. And finally, the higher efficiency also decreases the balance of other systems costs, which right now could equal or be 2 times the panel cost. We have made significant progress this past year on advancing all of our specialty glass solutions for the leading 3 film technologies, thin film technologies. So where are we right now?
We're actively engaged in significant customer collaboration to fine tune our product and validate our value propositions. In addition to the 20% efficiency gains we've demonstrated in our labs and our customers, Last year, we set a record breaking efficiency on our research size silicon tandem cell. This milestone was achieved with Ehrlichon, the world's leading manufacturer of end to end thin film solutions. And we were very pleased with this milestone and believe it demonstrates the effectiveness of our new specialized glass. But we admit it's taken us longer than we thought to sign up a customer.
The rigorous lab testing that's required as well as multiple customer iterations is proving more time consuming than we initially expected. However, we're hoping to have our 1st thin film PV customer by the end of the year, and we have begun construction of our 1st dedicated solar glass production line in Kentucky. So that's an overview of what each segment needs to do for the company to reach $10,000,000,000 in sales by 2014. And as a reminder, a good portion of this growth comes from China, as Eric Muser mentioned earlier today. We feel very good about our ability to reach this level of sales no later than 2014.
We believe it's a very achievable goal and we hope you do as well. And as Wendell mentioned earlier, we not only want to be a bigger company, but we also want to be more balanced. So assuming we hit these sales targets, what do we look like in 2014? Our sales by segment will become more balanced as we move through the next 4 years. Now before we break for the Q and A period, I'd like to leave you with my thoughts about the general state of the company and why as an investor you should be part of our growth going forward.
I've been with the company for 38 years and I cannot recall another time when we had so many opportunities to pursue. At our core, we are a growth company And I believe our financial performance over the past 8 years is proof of that. And I also believe our performance over that time gives us a certain amount of credibility. We stand up here and tell you that we plan on reaching 10,000,000,000 sales in a very short timeframe. The markets we sell into for every one of our segments are growing, and we are clearly a market leader in each and every one of these markets.
Our strong balance sheet provides us with the financial flexibility to withstand difficult times, but as well to go on the offensive. You saw some of that over the past 2 years when we placed large bets on innovation, think about Gorilla, when we realized we had a winner and who had the money to expand our operations to capture this opportunity. Looking ahead, we expect to generate a significant amount of cash flow over the next several years. In fact, we expect to generate more free cash flow over the next 4 years than we have over the last 7. And that's saying a lot given the numbers we shared with you this morning.
We did not have a chance to hear from Joe Miller this morning, but he will be on the Q and A panel. And what you will hear from him is that we have more ideas right now than we have scientists and engineers to pursue them. Our plate of potential new technologies is that full. And finally, we have a proven management team. The members of our management committee have been together for 8 years.
Collectively, this group has 140 years of leadership at Corning. I think you'll agree this group has been good stewards of the company. And our newly formed executive leaders extended leadership team provides us even more bench strength. So with that, I'd like to brief the formal presentation portion of our day to a close and ask Wendell and other members of our Q and A panel to come to the stage. Thank
you.
Everybody want to stand up, take a little stretch break?
Good idea.
And while we're doing that, how about another hand for our presenters today? The flip did a great job. Okay. With that, why don't we open it up for questions. And what will happen is we have 4 people out in the audience, Anna, Pam, Patrick and Ginger get their attention and they'll try to get mine.
I must admit to you, I'm having a hard time seeing you all. So, Pam, why don't we start with you?
Hello? Okay, great. Question for Jim. With Telecom and Specialty Materials growing faster this year in terms of the numbers you've shown, do you envision corporate gross margin being down this year because of a mix shift? Or is there a scenario where we can see it up?
And then just second part, given the new CapEx guidance, do you still think the company can show positive free cash flow at all this year? Thank you. Excluding any special dividend from SEP.
So I'll take the second question first. Without a special dividend, it will be really close, but I think it's still possible for us to have positive free cash flow. But we'd certainly like to have the special dividend also, but I think we can try and do that. As you know, I don't actually forecast our corporate gross margins because it all depends, as you highlighted, that mix. I think what's most important for me is I believe that we have the potential to raise the gross margin in telecom, to raise the gross margin in Specialty Materials, improve in environmental, to grow again in Life Sciences and hopefully if pricing turns out right to have good gross margin in display.
The absolute mix of that on the corporation is not something I'm prepared to forecast right now. But what I like to see is, can we make our gross margin in each segment actually improve over the course of the year.
Thanks, Jim. We're going to rotate this way. Ginger?
Yes. Hi, thanks. C. J. Muse with Barclays.
A question on Gorilla, your prior guide was around $1,000,000,000 in revenues for calendar 11. So I'm curious, it looks like smartphones, tablets is going stronger than I would imagine you initially thought, while TVs maybe a little bit slower. So curious whether you can still reach that target with that mix shift or whether there's issues in terms of your capacity and inability to switch over in a timely manner? And then a quick follow-up.
Okay. Why don't we turn that to Mr. Clappin?
CJ, we have a capacity plan that supports that objective We still expect that by the end of 2011, we'll be on pace to a $1,000,000,000 sales level in Gorilla Glass. We're obviously planning against display demand and balancing the 2. But at this point, we don't have any reason to believe that we can't get there with our capacity. And the demand remains very strong.
For Jim, in terms of Dow Corning, any thoughts on what kind of equity earnings growth we should expect here in calendar 'eleven?
Thank you.
I won't give a forecast, but you should expect good equity earnings growth at Dow Corning this year. We believe that they will see improvement in Hemlock. And at silicones, we begin to reap some of the benefit of the China facility this year. So you should expect to see good equity earnings growth this year, but I am not going to give an absolute number.
Can people hear the answers okay? People can hear it out in the audience all right? Okay, good. Patrick?
Hey, Teckhat and Daroga. Jimmy, you showed on Slide 89, the revenue contribution would shift and be more diversified by 2014. I'm wondering if you could comment a little about the profit contribution. As you know today, I mean there's really equity income and your display business as a majority of profits?
Yes, I was anticipating getting that question. Clearly, it won't shift as rapidly as the sales because we expect display to be remain extraordinarily profitable. But we do expect more balance in our profits also. We are expecting to see quite a bit of improvement in our environmental profitability over the course of the next 3 years. We're carrying a drag in diesel today, but we believe with the volume improvement in manufacturing, we will see a substantial ramp up in environmental profitability.
We expect telecom profitability to improve, particularly as we swing more to higher value added parts of the business. And clearly, with Gorilla, where for IT and handheld, the profitability of the products are greater than the corporate average, we expect that to help too. So, the balance should improve on To get to the billion Please one question,
To get to the $1,000,000,000
Please one question at a time. Okay. So that was your question. Can we go to here, please?
John Roberts, Buckingham Research. And maybe I can get in Tom and Joe that's there since you may not get back to me. But Joe, Tom, first, could you give us a regional breakdown of growth in environmental given the recovery in the U. S. Truck and automotive market?
Will it grow faster than the emerging markets in the developed markets? And Joe, how thin can glass get in the display segment? Technically, can we get to a multiple of the optical fiber diameters or something like that? And how does your capacity go up as the glass gets thinner? That is got volume in the upstream part of the manufacturing, but you're selling surface area?
Sure. So I'll handle the first part in terms of growth. So as we look globally, we expect the real growth for heavy duty will be first the United States, followed by then the Europe where the emissions regulations tightened in the 2013 timeframe. As we look at light duty filters, that is primarily a European business and will remain so for the foreseeable future. And then when we look at China, that is really going to be led in our light duty business, in particular light duty substrates.
And that is where we'll expect the strongest growth over time in the near term, as well as then we see the emerging markets like Brazil and India start to drive further growth in light duty substrate demand.
So on glass and Jim you could chip in on this. So you melt pounds and basically sell area. So the thinner you go, at the same level of melting capability, you can sell more product and so therefore you get a capacity increase. And that's been one of the driving forces behind the Eagle XG Slim product line. The standpoint of thinness you saw over here, there's one of our exhibits where we're investigating thin flexible glass.
You've asked this question several times, John, in fact several years ago, about the printability of glass. We're exploring as part of that program, whether we can print glass, roll to roll, making color filters, etcetera, for reflective displays and we're investigating thinness all the way down to 50 microns, which is 0.05 millimeters. So anything to add to that, Jim?
Back around here to Pam.
Hi, Carter Shoup from Deutsche Bank. First question on Gorilla Glass. We obviously narrowed the range a little bit from last year's Analyst Day. Last year you talked about $1,000,000,000 to $4,000,000,000 in 2013. Now we're talking about $1,800,000,000 to $2,000,000,000 in 2014.
We appreciate you're narrowing the range there, but can you talk a little bit about the upside potential, is that $4,000,000,000 still on the table?
Wainel, can I take that one? Sure.
So let me start on this and Jim may want to chime in. You may recall that when Pete Bell and Aukus did that last year, the widest part of that range was actually TV cover. And what we've done is we're just launching that product now. You saw it at CES. So I think we went to the more conservative side of that now.
But frankly, we need to see now that these are rolling out in the market, how big it is. So that's kind of an unknown to us. And I think that's where we did the most narrowing. But we want to see how that sells this year. And if they sell really great, we could move a long way up on that scale.
Steve Fox with CLSA. Just further on Gorilla Glass, could you talk a little bit about the next 3 years in terms of keeping the margins above corporate average? What are going to be the big challenges to doing that? What are some of the strategies involved around maybe outsourcing versus ramping more of the back end processes internally?
Mr. Clappin, do you want to tackle that?
Well, I'd point out that, Steve, that the product is based on Fusion, right? And fusion, as we showed you in display, has big opportunities for cost reduction going forward. We expect those supply equally as well to Gorilla. So I made the comment that we expect cost reduction to keep pace with price declines in display. And I could confidently make the same statement for Gorilla.
Thank you. Yair Reiner from Oppenheimer. The display you had of total TV sales for 2010, I think, showed a total of about 246,000,000 TVs. I think last year you showed us 2,009 being 205,000,000 TVs, which implies that you think that 2010 total TV sales were up about 20% which will be a pretty spectacular number. Is that math right?
And if so, how do you explain that large step up from the normal growth of the TV market? And what does that imply moving forward? And the second question, in the movie that you showed earlier, there's a lot of clear displays which implies OLED. Do you have a product in development to go after the OLED market? Thank you.
Well, the math whatever the math states, the math states. But I'd point out that in 2,009 was a down market for total TV sales coming off of the financial upset in late 2008 that carried forward with the recession in 2,009. So essentially, the market recovered in 2010. So not surprised to see a big step up in the market for that reason. And you mentioned OLED.
So today, the OLED market is relatively small, confined predominantly to handheld devices from predominantly one maker. And that maker is in Korea, SMD is Samsung affiliated company. We do believe that there is opportunity here. We are in the process of qualifying a glass with them as we speak that meets their needs. But more importantly, as this market develops, we're not sure exactly how it will develop.
There are still big issues in OLED related to the backplane development, especially when you consider large size OLED displays and TV. But we're looking at and working with this customer on developing an advantage glass for that possibility. And that will be our work for the next several years.
Doctor. Miller, do you have anything you'd like to add?
No. We obviously have it under development and we're focused on temperature because of the crystallization process for polysilicon. Obviously, very, very low compaction glass and low ion containing glass because you really need to have a consistent turn on voltage across the backplane.
And I'll just make one systems comment is transparent displays do not necessarily imply OLED, actually some of the more compelling work that we're seeing done today that we're working on is ambient lit LCD, also edge lit LCD. So, there's some very compelling large area displays that make your windows come alive or be able to make a very inexpensive display that exists in ambient light when you don't need any power and then at night you adjust it. So, sorry, I will turn into an applications engineer if you let me. Words where we are at, we are here.
Thank you. It's Jim Suva here from Citigroup. Congratulations to you and your team for really coming out significantly stronger. Thank you, Jim.
You can have 2 questions.
And the leads have 2 parts.
That's okay.
On 2 weeks ago, when you announced earnings, you gave a confirmation that you believed channel inventory was pretty well aligned. Since this time, we've had a lot of snowfall here in the New York area and it's tough for me to bring that TV from midtown to deliver it to somebody's home on my back in the snow. Can you update us a little bit about your view on channel inventory, not only with the weather, but also now that we've had Samsung, LG, Sony, Sharp, all give some commentary about some excess supply, maybe that's LED glass. And since I get a second bonus question, the seasonality of production compared to your maintenance schedule, comparing that to the seasonality of North America no longer your biggest market as China overtakes it, how should we think about seasonality of your production on a normalized rate quarter over quarter?
Mr. Clappin, do you want to tackle part 1 and then Mr. Floss tackle part 2?
So fortunately the market is bigger than just New York City.
And a man
who lives in Tokyo, so.
Tokyo is pretty big. But clearly, it's a worldwide market. And so trouble here on the East Coast, at least in our view, hasn't noticeably impacted the inventory situation. We believe we exited 2010 at about 16 weeks of inventory, which we would say is on the light it's within a healthy range, but on the lighter end of the healthy range. We don't think that has appreciably changed.
There's a couple of big sales events coming up here that we'll have to see in terms of results, the Super Bowl coming up this Sunday and of course Chinese New Year, which is underway today. But at this point, there's no indication that inventories are rebuilding in the chain. Now you mentioned about the set makers, and yes, we've noticed that too. Sony came out yesterday with earnings and a forecast that was less than they were saying earlier. Not a major surprise to us at this point.
We know the branded TV makers such as Sony, Samsung have been pushing LED backlit TVs. They've been pushing the high end TVs. And what we've seen is that the mid- to lower end TVs have been more popular, popular, especially here in the U. S. We've seen PDP a little bit stronger than we would have thought, again, based on price points more than anything, not based on functionality.
In fact, most of the PDP sets that are selling are 7 market. Walmart has done very well. We don't get data from Walmart, but we know talking to set makers that they've sold many sets, lower end sets there. So I think the big problem for the big set makers has been the level of sets they've been selling as opposed to the total sets sold in the market. I think that's my part.
Great. Mr. Floss, anything on seasonality you'd like to comment on?
Well, first, I'll just add on to what Jim said is despite the comment by some of the panel makers, what we're experiencing in quarter 1 is them requiring more glass. So production is up from demand is up from them, both in Korea and in Taiwan and Japan in January. And that, as you know, is our forecast. I will comment on seasonality a little. As Jim jokingly pointed out, we're not the best forecasters of seasonality here, but we're pretty good at the end market demand.
It's our intent on our production basically as we know it today is to run all of our facilities full out all year long. And the one thing that we have an advantage right now is that with the growing ability to sell Gorilla, that if we see some change statement in display, that we can ramp more capacity against Gorilla. So that's really helped us a lot in terms of that. But you should expect to see us run all of our capacity as we go throughout the year. And we do have some new capacity that will come on as we go through the course of the year, some of that in Taiwan.
Chris Goldsmith and Harris. Coming back to the display glass margin issue, during 2010, your unit costs of production came down more rapidly. Could you give us some insight as to the rate of unit cost reductions going forward?
Sure. I'll start, maybe let Jim amplify. So one of the benefits we had in 2010 compared to 2,009, you may remember in the 2010 compared to 2,009, you may remember the 1st part of 2,009, we actually had a lot of our capacity shut down. So in 2010, we basically were running a lot capacity that really helped our cost performance. But what we've said to investors for many years now is and as Jim showed in his chart that if we have what we call more normalized price reductions, and that's our moderate price decline strategy, which we are trying to move back to, that we believe we can keep up with that with our cost reduction.
I think Jim made that commitment that he could do that, he thought, over this 3 year period of time that we're talking about.
Thank you. A lot of analyst questions. I'm going to ask you a shareholder question. And it will be 2 parts like Could
you identify yourself as well, please?
Michael Friedman, Sawgrass Capital. Great. The indicated range for CapEx this year is probably about 50% higher than almost than any year I can recall at Corning. It's a big number. It approximated probably 10% of your equity market cap just a few months ago when you were trading at 8x earnings.
When the Board green lights a number like that, what type of return assumptions and what timeframe are they expecting to earn on the shareholders' capital? And then part 2, Wendell, 2 years ago, you were talking about micro reactors and improvements in environmental regulations. And you said the thing you were most excited about was Gorilla Glass. What are you most excited about today?
Okay. Why don't we start, Jim, would you tackle the question on how we look at returns and I'll amplify that if you'd like and then we'll go from there.
Okay. So, when we authorize CapEx, the Board will approve projects and they see a rate of return measured several different ways. Return on invested capital, once we get a reasonable way into the execution of the program, an internal rate of return, which we focus on for in a lot of our businesses that are more well known, and also how fast ultimately we get all the cash paid back. So, that is very for each business, but they are well above any kind of measure that I think we would say is our cost of capital. That's a little more difficult than some of our brand new businesses.
So, for example, the photovoltaic capacity we're building right now in Kentucky. It's hard for us to know exactly what the return will be. Clearly, this is our first tank. We certainly hope to be successful with a customer. And once we have that, if we have to add more capacity, we'll have a better idea of the rate of return.
But in general, we green light capital that has a higher return than what we perceive to be any kind of hurdle rate that our cost of capital would be. Relative to your comment, you think it's about double the highest, it actually isn't. It's probably about 30% higher than our previous high. As I said in my presentation, our capital tends to be lumpy. One of the I think the great news about this lump is that it's being driven by businesses where we clearly have the number one position and have great profitability and are outdistancing our competitors.
So we feel pretty good about that. It's kind of a high class problem to be able to have that kind of growth and have to put capacity in place for it. And now what are you most excited about?
I will respectively decline to pick favorites. All my children are above average and beautiful. Okay. Right here.
Hi. George Notter at Jefferies. I had a question about your market share in the LCD glass business. By your own metrics, you guys for 2010 saw glass and volume terms grow, I think, 29% as a market. And if I look at your wholly owned business, it grew low 20s, the SEP business, I think, on glass grew mid teens.
I mean, I know there's an adjustment there for yen, there's an adjustment for pricing. It seems like those adjustments kind of balance each other out. So it feels like there's some lost market share. Can you first of all, is that assertion correct? And then second of all, can you talk about kind of the root cause and then what you see for that going forward?
Thanks.
Okay.
Do you want to tackle that, Mr. Clappin?
So if you recall, going back to 2,009, we had a couple of events that created a supply disruption from us. The first event being an earthquake in Shizuoka, which took out our factory there. And the second event, a power failure in our Taichung factory. So recovering from these events over the first half of twenty ten did create some pressure on us from a market share standpoint. We've since fully recovered from that.
And as we move into 2011, we find that we're recovering that position, and we fully expect that we will with all our capacity up and running.
Now I want to make sure also that those of you who may have a question for life sciences or for telecommunications or for China that we also get some of those out as well. Clearly, each of those areas has some of our beautiful children in it as well. Let's go back here.
On your market assumptions
Could you please identify yourself?
Sure. Manish Goyal from TICREF. On Page 35, you are saying PC unit growth of 27%. Can you maybe amplify how you get to that number? It looks pretty high.
Similarly on Page 29, you have rest of the emerging markets growing at 21%, while developed markets growing at 4%. So it sounds like TVs in the small screen size geographic regions will grow much faster than TVs in the large TV large size market. So can you grow TV area faster than your unit growth during that period of time?
Mr. Clappin, do you want to start that one and maybe Mr. Floss, if you need your hand?
So the biggest growth category in the PC is the slate. We're predicting upwards of 60,000,000 slates sold this year. And I'm not exactly sure of the number in 2010. I think it was about 15 1,000,000. So a huge increase in the number of slates and that's part of the category and that's the biggest driver there.
And your second question was?
It was a combination on the regional and the core of it is can glass area grow more rapidly than television unit growth?
Right. So indeed emerging regions are the biggest driver of growth in the TV market. I think we've said that very clearly. I'd point out that China has the largest screen size of any region in the world. And China is growing rapidly too.
So I think in total, while if you go to perhaps small markets in South America or in Southeast Asia, you will find smaller screen size. Makes sense, right, given the ASP of the product. But in one of the largest markets that's still growing fairly rapidly, China, it is the largest screen size of any market in the world today.
I'd just like to add one thing on that, and that is the developed unit growth looks a little smaller next year, and this relates to an earlier comment that was made about why it was so great last year and that is because of this huge growth we saw in Japan. So we saw Japan televisions grow astronomically. Back in the month of November, just before the incentive came in, I think they grew 4 60%. We are actually predicting those televisions to go down this year and that I think makes the growth rate unit growth rate in the developed markets look a little smaller. And remember, Japan is not the area is not the leader in terms of large televisions.
As Jim mentioned, it's China. So I think that has some influence on those numbers.
It's Barry Stewart from Omega Advisors. My question relates to your market forecast for special materials out in 2014. Does that include Gorilla Glass applications outside of the consumer electronics realm? And what is the timing for introduction of volume production for non consumer electronic applications of Gorilla Glass?
So Mr. Clappin, do you want to take the first question on what's included in there? And then perhaps Doctor. Miller, you could touch on the AAA.
I'd like Jim. That's what was from his presentation.
So it does include a small amount for the non applications. But as I'm sure Joe will talk to you about, for example, in the auto industry, the auto industry doesn't move real rapidly. So, as we've learned in environmental, you're sometimes designing in for a platform quite a ways in advance. But it does include some forecast there for auto and appliances.
Joe? So we have very intense, I would say, programs in all three of those sectors, automotive, architectural and appliance. If the cycle time on appliance is going to be a lot tighter than the other 2, lots of testing has to take place in architectural and automotive. We have programs in all three areas. Really encouraging interactions with the appliance makers.
One appliance maker indicated they want to have glass basically in all their appliances across the kitchen and in other areas. So this is a particularly important year for us because all of our development agreements are directed at getting feedback that will allow more intelligent commercial decisions here by the middle of this coming year.
Thank you. It's Mark Hsu from RBC Capital Markets. Jim, in addition to dividends and share repurchase, are you considering any proceeds of Gorilla Glass for the National Wildlife Federation? That was just a joke. And then the question is, since Gorilla Glass is such a premium product, do normal pricing rules apply?
I know Corning did a pricing strategy change many years ago on display glass. Should we start thinking about price declines on Gorilla Glass?
I think it was you, Jim, right? I don't know. Was it
me? Yes, Jim.
So why don't we do it this way? Mr. Floss, why don't you start and then Clappen, you can amplify.
Okay. So we expect price declines in Gorilla Glass over time. We're it's a consumer electronics business and we expect that. And as Jim Clappin said, we expect to get cost reduction there. Actually, what's very interesting about Gorilla for IT and handheld, you have to remember this business is so brand new that, I mean, it was just a short while ago that we were kind of stealing parts of tank times and changing tanks back and forth.
And we're now about to get to the point where we have dedicated tanks get to operate all year long making this. So we have great cost reduction opportunities. And on your humorous remark, I believe we actually are doing something with the gorilla and you can talk to Mr. Collins, our Head of Corporate Communications. So we actually, I think, are paying off that gorilla in the commercials.
And I would just add to Jim's comment. As he stated, this is a consumer electronics business, right? It's going to be price pressure as there is in every single consumer electronics business, including display. As I made the commitment earlier, we're just getting going with this process. And all the usual suspects, speeds, flows, yields are all available to us to improve the cost of the product.
And I see great opportunity there. Like we do in display, I think we'll do exactly the same in Gorilla. We'll keep pace.
Yes. Thanks. It's Rod Hall with JPMorgan. I've just got two questions. One, you talked about the revenue growth over the period of the next few years, but I wonder what you're thinking about OpEx growth associated with that and how much operational gearing can you get out of the business with that much revenue growth, so I'd be interested in that.
And then secondly, didn't really hear an update on pricing, I don't think for Q1. So could you update us on glass pricing, what's happening in Q1? Thanks.
So I'll start and let Jim handle the pricing. So we tend to stick with the strategy we've had for a while of try to let our SG and A, a part of our OpEx, to grow, but grow at a much more moderate rate than our sales growth.
And that's a corporate philosophy we have and we're looking to implement
that again. Percentage of sales. It's more driven around that we expect R and percentage of sales. It's more driven around that we expect R and D to grow as our company grows, but it's more program driven. We really have great opportunities.
And so you should expect to see R and D grow faster than SG and A, but it's not just driven mathematically by a percentage of sales.
So we expect pricing in quarter 1 to be more moderate and price declines in quarter 4, driving towards back towards our pricing strategy. In 2,000 surely in quarter 1, but in 2011 overall, we don't expect to see any great imbalances in supply and demand of glass. If there are any imbalances, they'll be short term in nature. So overall, our plan is to drive back to our pricing strategy and be there for 2011.
So in my effort to continuing to draw out questions in other areas, I would point out a couple of things. First, did everybody check out that beating stem cell in Marc Beck's? That's pretty cool, isn't it? Perhaps you had a question around that? Or did anyone check out Mr.
Kinlin's plan to replace all those USB cables you have tons of with optical fiber? That could be an interesting market, I would think. But you ask about what you want. Where is the next question? Sorry, I got to get one of the people raising
your innovative your innovative discoveries when you're working in China?
Great question. Our man in China, Eric Muser.
Well, with a company that innovates the way Corning does, obviously, it's an important priority for us first to create intellectual property, then to protect it, and really to do that in any market we operate, including China. So as I mentioned, we're bringing our advanced technology in fiber display, life science and environmental products as we speak. And I think part of that starts with the work right from the outset on the facility design through to how we lay out and implement the manufacturing process down to the people in the organization, precautionary steps along all that. I think in addition to it, we've done an extensive amount of external consulting and benchmarking to make sure that we're really implementing the most state of the art best practices for IPR protection. And I think I would add finally that we actually audit ourselves quite rigorously and really test ourselves to see are we adhering to these policies and practices so that we are safeguarding our IPR in China just as we do anywhere else.
I think I'd add to that, that the core philosophy we bring actually, Clark Kinlan started when he had China for us not that long ago, which was we view it as a problem that you have to approach from 100% prevention, because cure is so difficult. So that is what our fundamental philosophy is. And I think Eric's answer gets to the core of that. Next question.
Okay, back with you. John Roberts, Buckingham Research. So I'll get life sciences and telecom all together here. But it sounded like those were the two areas of acquisitions. I think Jim said prepare for some additional activity in the next few months.
And as you look through the presentations, their growth rates of those businesses seem to be more linked to bolting some things on. Could you talk a little bit about your financial criteria around additional acquisitions and where in those two businesses are the gaps in the portfolio?
Why don't we start with Mr. Beck and then Mr. Kinlin will. Okay.
So the primary thing is this working? The primary thing that we look for in acquisition opportunities is the opportunity to realize significant synergies. And we can find those in different ways. For example, with the AxoGen acquisition, we took a company that was doing quite well with about 20 sales people, combined them to our well over 100 sales people. And quite frankly, we overwhelmed the plant with purchase orders and opportunity.
And it's unusual, but really wonderful thing when you can go out and capture significant revenue synergies. And of course, there's opportunities on the cost side as well, where we can teach the acquired company things that we've learned over our many, many decades of manufacturing life science products. So, those are some of the most basic criteria. And then of course, we have to earn back the cost of capital and then some to justify to our Board of Directors that this is truly going to add value for the corporation.
Yes. I'd add to that to Mark's comments on telecom. There's 3 things we look for in acquisitions. Typically, they are technology, market access or cost reduction capability. The announcement we made last week about mobile access directly addressed the first two.
So as we pursue adjacencies in the telecom space where we frankly see fiber having an opportunity to break over, what mobile access brought to us was unique market access capability in the wireless space. But in fact, in many ways, more important was depth in RF engineering that we needed to marry with our optical engineering capability to attack the DAS segment. So we've looked at a number of acquisitions. Our industry has begun the consolidation that many of us had expected several years ago. So we as we look at fiber and cable and then solutions acquisitions, they're either driven by an by market access.
Yes. By market access?
I think the fundamental philosophy that Mr. Macrae, who's sitting here in the front, who among other things in his portfolio is responsible for external development for the company, our philosophy is we really only want to apply that acquisition tool when we truly are an advantaged buyer, either because of our technology, our market position or some proprietary insights. So, that's the approach we try to bring to it. Pam?
Thank you. Wamsi Mohan at Bank of America Merrill Lynch. My question is on display, too. The question is related to LCD for LCD replacements. Your study showed a 6 year replacement rate.
However, in the past 6 years, we've gone through a significant technological transition, which has been HDTV, which has been a big source for upgrades. As you look out over the next few years, there seem to be less compelling technological upgrades. You didn't cite product breakages. So I'm assuming it's going to be driven partly by HDTV, but mostly by maybe 3 d or connected TVs. So is that a fair assumption?
And do you think 6 years would still be the right replacement rate based on those assumptions? Thank you.
Yes. I think you answered your own question. It's true, 1080p is pretty much in the market today, at least in LCD, And content is virtually everywhere now, high definition content, either direct through broadcasting or through devices such as Blu Ray. But there are a host of other innovations that are just getting launched. LED backlit TVs, for example, right, which create brighter sets, much thinner in look.
As I mentioned, design is going to become a bigger part of what you have hanging on your wall. You have a 60 inches TV on your wall, you want it to look good when it's off as well as when it's on. 3 d, look at all the blockbuster movies today being made in 3 d, one coming up this summer by James Cameron. So, these things these are all new. LED was, I think, 20% of the market in 2010, small, right?
Small part and a tough market because of the economy, but that's not going to be the situation forever, right? So there are many innovations coming up that are here now or will be next year or the year after that weren't in place last year or even the year before. And we think these will drive that replacement rate. I'd also point out that, that replacement rate, that study was conducted with people who actually replaced the TV, right? And we understood why they replaced that TV, right?
And now we project that forward with some of these changes, and we're reasonably confident that, that reflects the future in an LCD world.
It's Tycho Duroga.
Going back to the Gorilla question that I tried to pose earlier, When you think of Gorilla Glass this year, you said it could approach $1,000,000,000 What is the contribution from the TV market? And where do you think that will be by 2014? Thank you.
Yes. I won't divide it out. Clearly, the TV market is just getting started. There's one major maker, Sony, entering this market in a big way. Those sets aren't even available at retail yet.
That doesn't happen until March or April. So, like you, we're waiting to see just how popular this design comes and how big a part of the total Gorilla picture TV will be.
I think the way we try to think about Gorilla over time is when you have sort of enabling capability, actually market forecasting by application becomes quite challenging. And so what we try to do is focus our energy in 2 different ways. 1 is to ride the curve of those products that are already introduced that are obvious hits. And that is going to tend to follow touch technologies and moves up the migration path. So, I think the right way to think about it is step back versus look at the video and say, okay, what do I see in terms of the surfaces around me that I believe will go to touch technology?
There will certainly be large format touch technology. One of the reasons we pursued the large size Gorilla the way we did is because we view it as a multi functional capability we put in. The second piece of Gorilla is it potentially applies itself to other big trends, lightweighting and vehicles for fuel efficiency, lightweighting and construction, right, an ability to potentially change the look and feel of appliances and a bunch of other apps that we are continuing to be sort of inundated by people with ideas. It's a long way of saying, we've got a great capability in the concept of thin, strong, lightweight dielectric glasses that enable touch technology as well as other interesting properties, which will then in turn make our forecasting capability not exactly accurate. But the good news is, is every day passes we get more apps, not less.
So, is that a fair characterization, Joseph? Yes. Okay. Next question. We have time for a couple more.
I'm waiting for one of our folks. Pam, over here.
George Walsh, Guilford Securities. Just with reference to your estimates for revenues through 2014, what is your estimate for change in the headcount within the United States?
I'm not sure I have that number at my fingertips. Would you have it at your fingertips? You'll have to let us get back to you. We do expect some pretty significant headcount growth in the U. S.
As well as in our overseas ops, all within the confines of the sort of guidelines that you heard from the Vice Chairman. But if you give us a little time, we'll get back to you with that number. Just identify yourself to Ken and we'll get back to you. Yes?
I had two quick questions hopefully. On the chart that you showed consumers willing to pay for strength in color glass, the numbers for handhelds at $5 to $10 and tablets $25 to $50 I think are higher than what you're currently getting for Gorilla. So my question there is, am I wrong that I'm actually too low and these are the right numbers or are these the right numbers and you think that this presents an opportunity to add more functionality to actually get ASPs to go up? So that's my first question. Second question on plasma TV.
I believe the market grew this year rather than 2010 grew rather than decline. And I think most people had thought the split long term would be 90% LCD, 10% plasma. In your new forecast, you have plasma going to only 5%. If the market grew this year due to better pricing, why do you think that trend will reverse going forward? Thanks.
Great.
So first on that on the Gorilla chart, that is at the device level that the consumer is willing to pay that much more for a device with a protective cover that exhibits those characteristics. It's not necessarily what they're paying us, okay?
So in other words, our customers get to get that value in their price point and do we need Mr. Steiner to do a better job negotiating the other way. But
And on the plasma question, so it's true in units, Plasma grew in 2010. As a percent of large size TV, 40 inches or greater, it shrank worldwide. Okay? So the market was bigger, plasma's role in it was less. Now what was going on in it's really a U.
S. Phenomenon because virtually every other region shrank last year. So what was going on, if you look at the price premium or the multiplier between plasma and LCD, remember I was talking about the introduction of LED TVs, feature rich TVs that the big brands tried to push that met with some resistance given the economy they were pushing it in, okay? So, PDP coming in at the lower price points, big screens. In fact, the difference in price was about 1 third.
You could buy a comparable plasma screen for about 1 third less of the price of an LCD screen. And that attracted buyers, particularly on the lower end of the market. The price multiplier actually declined in the 4th quarter, right? And what we saw, a big drop in PDP sales in the 4th quarter. So that price multiplier is a bit of a problem, especially in the U.
S, but over time, that's going to come down, especially as more big fabs come on board, cost reductions occur throughout the industry as they have for the last several years. And when that happens, we think PDP is back up against the wall, okay? I'd also point out nobody is adding PDP capacity. There are 3 makers today fully ramped, not able to increase. But from a financial standpoint, it wouldn't be wise for them to increase and not making much money as Panasonic just recently announced.
We have time for one last question. Sorry to cut short the next paragraph on why plasma is not going to do well against LCD.
I'll take you up on I'll bite on your suggestion about the USB question.
Excellent.
Since there are several projects in the industry that are focusing on moving north and south bridge applications from electron to light wave. Maybe you can talk a little bit about progress there and what kind of timeframes?
Okay. So we have our fiber and cable business have 2 projects underway. 1 is a USB 3.0 application, 1 is essentially USB 2.0 application. All these and as you know, there's technologies like LitePeak out there that are enabling the conversion of electronic to photonic distribution of these signals. We are excited about 2 things.
One is that in the 2.0 regime, there is lots of cords sold out there. They are basically limited to adequate bandwidth and under 3 meters. And our technology, which we are in development with the major chipmakers on, allows you to extend that reach much longer at higher bit rates. The second challenge is actually moving to an entirely new platform, which would allow device makers to eliminate multiple ports on the side of their devices, whether those devices be televisions or PCs. We actually have one partner that is looking at form factors that allow you to deliver a PC with only one port on it.
The challenge in this space is for us to deliver at retail, integrated fiber, lens, connector and cable solutions at very, very low prices. We actually have completed development of unique fibers to do that and unique cables. We are in beta testing with the actual connection technologies and we're exploring now this year global manufacturing opportunities to determine whether it's in our best interest to offer a complete solution, essentially a consumer product, or actually to sell those components to others that do that. So we've committed to, basically, as we've said to Wendell, have one that works by the end of the year. And that has to work at both the price point and margin requirements as well as with the vendors out there that are looking for light peak