Ladies and gentlemen, thank you for standing by, and welcome to the Corning Incorporated Quarter 1 2010 Results. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ken Sofeo, Division Vice President of Investor Relations.
Please go ahead.
Thank you. Good morning. Welcome to Corning's Q1 conference call. Jim Flas, Vice Chairman and CFO, will lead the discussion Juan Delweake's Chairman and CEO will join for the Q and A. Today's remarks do contain forward looking statements under the meaning of Private Securities Litigation Reform Act of 1995.
These statements involve a number of risks, uncertainties and other factors that could cause results to differ materially. These risks are detailed in the company's SEC reports. Jim?
Thanks, Ken. Good morning, everyone. This morning, we released our results for the Q1, which can be found on our Investor Relations website. We have posted accompanying slides online as well. In summary, we're very pleased with our Q1 results as they exceeded our most optimistic expectations.
Before I get into details, I want to walk you through the key points we'll be covering this morning. Number 1, our Q1 performance was outstanding. Earnings per share were $0.52 up $0.08 or 18% from Q4 earnings per share, excluding special items of $0.44 Q1 EPS was also up significantly from last year, which was just 0 point 10 dollars We're clearly pleased with the progress the company has made since that time. 2nd, we had significant improvement in our gross margin in the Q1. Quarter 1 gross margin was 47%, up from 42% in Q4 and 27% a year ago.
The improvement was better than we expected and was driven by very strong manufacturing performance and higher volumes in our Display segment. I will have more on gross margin and Display performance in a few minutes. 3rd, our first quarter earnings benefited from a much lower tax rate than we had previously forecast. Our effective tax rate was 2% in Q1 versus our expectation of 10%. We expect 2% to be the effective tax rate for the rest of 2010.
The benefit of a lower tax rate versus our original expectation was worth roughly $0.04 per share in Q1. I'll talk more on the drivers behind the lower tax rate in a moment. 4th, we had significant free cash flow in the Q1. Free cash flow was 472,000,000 dollars While we have been successful in generating substantial free cash flow on an annual basis since 2004, our Q1 free cash flow is usually negative. This quarter was the first time in the last 10 years that we changed that pattern.
5th, retail sales of LCD televisions and IT products during the Q1 were stronger than our forecast. As a result, we're raising our 20 10 unit forecast for all LCD product lines. We're also increasing our glass market forecast. In the previous range of 2,800,000,000 to 3,000,000,000 square feet to 2,900,000,000 to 3,100,000,000 square feet. This represents glass volume growth of between 18% 27% over last year versus our previous estimate of 14% to 22%.
6, we expect LCD Glass volumes at our wholly owned business and SEP to be up in the mid single digits sequentially in the Q2 separately and in the aggregate and glass prices are expected to decline slightly. Lastly, based on the strong retail data in Q1 and expectations for the remainder of the year, we believe inventories in the supply chain are at appropriate levels heading into Q2. And I will walk you through our model in our display discussion. Now to the details. Our first quarter sales were $1,550,000,000 a 1% increase from the 4th quarter and a 50 7% increase from a year ago.
Our Q1 sales were negatively impacted by changes in exchange rates by about 17,000,000 dollars versus Q4. Moving down the income statement. Gross margin was 47.1% in Q1 compared to 42.4 percent in Q4. This improvement was the result of very strong manufacturing and higher volumes in our display business. Gross margin also benefited from the non repeat of the $10,000,000 in one time accelerated depreciation charges taken in the Q4 due to the Taiwan power outage.
Regarding operating expense, we are very pleased with our level of spending this quarter. SG and A was $235,000,000 or 15 percent of sales. R and D was $145,000,000 or about 9% of sales. Other income was $64,000,000 in Q1 and consistent with Q4. Equity earnings were $469,000,000 in the 1st quarter compared to $461,000,000 in quarter 4.
1st quarter equity earnings included a special item totaling 21,000,000 dollars relating to a manufacturing tax credit at Dow Corning. As a reminder, Q4 earnings at Dow Corning also had included a tax valuation gain of 29 dollars Now on to our tax rate. During the Q1, we made the decision to repatriate approximately $1,000,000,000 in cash from foreign subsidiaries. We plan on repatriating this cash to the United States later this year. As a result of this decision, we're able to use excess foreign tax credits, which have the impact of lowering our full year effective tax rate for 20.10 from our previous estimate of around 10% to around 2%.
This was also in our tax rate for Q1 and the benefit to our Q1 EPS was about $0.04 To be clear, this decision simply moves cash from overseas to United States. It does not change the total cash balance for the company. I will have some additional comments on our longer term tax rate in the outlook. Net income, excluding special items, was $818,000,000 in Q1 compared to $696,000,000 in Q4. Impact from exchange rates was immaterial and more than offset by a balance sheet hedge gain in the quarter.
We hedge our balance sheet against currency fluctuations. This resulted in a gain of about $7,000,000 in Q1. Don't expect this to repeat in Q2. EPS and EPS excluding special items were the same, dollars 0.52 per share. There were a few special items in the Q1, but the net impact was only 2,000,000 dollars Included in the special items are the $21,000,000 manufacturing tax credit to Al Corning I mentioned earlier.
In addition, we took a charge of $56,000,000 to reflect the increased future Medicare subsidy tax expense change, as shows in our tax line. You should note that EPS and net income excluding special items are non GAAP measures. The reconciliation GAAP can be found on our website. Our share count for the Q1 was 1,580,000,000 shares and consistent with the 4th quarter. Now let me turn to the segment results for the Q1 and I'll start with display.
1st quarter sales were $782,000,000 or 9% higher than Q4. Volume was up 12% and pricing was down slightly as expected. Sales were impacted by about $10,000,000 from the change in the yen to U. S. Dollar exchange rate, which averaged 91% in Q1 versus 90% in Q4.
Display gross margin expanded in the Q1 as the higher volumes resulted in improved manufacturing performance. In addition, there was the non repeat of the $10,000,000 accelerated depreciation charges I mentioned a moment ago. The drag on margins from Gen 10 facility remains small. Equity earnings from SEP's LCD Glass business were $344,000,000 in the Q1, an increase of 7% from the Q4. Volume was basically flat and pricing was down slightly as expected.
The increase in equity earnings was primarily due to a very strong manufacturing performance and non repeat of some year end accruals. For modeling purposes, SCP 1st quarter LCD sales were $1,100,000,000 and consistent with the 4th quarter. As a reminder, this represents SCP's LCD sales only. Our public filings will report SCP's total sales, which include CRT glass and other products. Net income in the Display segment, which included equity earnings, was $703,000,000 in the 1st quarter, an increase of 14% over the 4th quarter net income of 6.19 dollars As a reminder, Display's 4th quarter results included the effect of the accelerated depreciation.
Now I'd like to spend a few minutes discussing the current supply chain starting with retail. Retail demand in Q1 was strong across all major notebooks, monitors and LCD televisions. Worldwide LCD TV unit sales at retail were up 17% in January and 40% in February. We do not have complete data for March to provide a worldwide growth figure for that month. But for those regions that we do have data, it continues to be very positive.
As a reminder, worldwide retail sell through is the aggregate of data provided by different data vendors in each of primary television sales regions, China, Europe, Japan and the United States. Most significant growth regions were Japan and China. Japan LCD TV unit sales were up 79% in January, 65% in February and 167% in March. These growth rates were higher than our internal expectations. As a reminder, retail sales in Japan have been running in the high double digits since last May when the Echo Point program incentive was produced.
LCD TV sales in March have been even more robust due to the clearance sales of models that were not eligible for the new Echo Point specification starting in April. However, we recognize these higher growth rates may be an indicator of faster replacement rate. Another indicator of the faster replacement cycle is underway in Japan is the significant number of larger sized televisions being sold there. In March, there were 3 times as many 40 inches and larger LCD televisions sold in comparison to March of the prior year. The 40 inches and larger category has been consistently outperforming total LCD television growth during this Echo Point program.
As a reminder, LCD TV penetration is already over 90% in Japan and consumers have been purchasing there's been an acceleration in LCD TV replacement rates versus traditional CRTs. This is important to know as Japan could be a precursor to what occurs in other regions. We plan on sharing the findings from the studies with investors in the future. In China, unit sales were up 53% in January and 167% in February. We do not have the March data yet.
As a reminder, the Chinese New Year ran from February 1 through 14 this year. Last year, the holiday began in January. So you need to combine the 1st 2 months to have a more accurate picture of the growth rate. In China, January February combined TV unit sales grew 85%, again was higher than our internal forecast. Based on this retail data, we believe more than 8,000,000 LCD television sets were sold in the 1st 2 months of the year in China versus our expectation of 7,000,000.
So it appears that retail sales are very strong during the holiday. Now we are aware there were some in the industry who had higher expectations. We have seen reports that state there were up to 1,000,000 sets of excess inventory built. We do not view this number as being significant given that the industry expects at least 37,000,000 televisions to be sold in China this year. In addition, if there had been a significant amount of excess inventory or at least enough to impact display supply chain, we would have expected to see TV panel prices falling in March.
I'll cover panel pricing in a moment, but as many of you know TV panel pricing was very stable in March. So in summary, we don't believe there was an excessive amount of panels or set inventory built in China. In Europe, television unit sales were also strong. In January February, sales were up 12%. We don't have the March data for Europe.
In the United States, TV sales were down 19% in January, up 19% in February and up 14% in March. As a reminder, last January retail sales were influenced by the 1st round of digital conversion, which happened in February. In addition, Circuit City was liquidating their inventory last January and the Super Bowl occurred 1 week earlier. So the down 19% was in line with our internal forecast. If you combine January February sales are basically flat year over year in the United States.
We also have 2 weeks of April data for the United States television market and they were up 12% versus last year. As a reminder, a significant portion of the growth in LCD televisions this year will be outside the United States and Europe. We'll continue to monitor the week to week and month to month data from NPD, but the region we monitor most closely is China. Sales of monitors and notebooks have also started the year strong. For monitors, our data is based on shipments of the top 9 monitor brands, which make up about 80% of the worldwide monitor market.
In January, shipments from these brands were up 31% year over year and February up 11% for a year to date growth rate of 21%. These growth rates are much higher than our internal forecast. We don't have March data yet. For notebooks, our data is based on the top 5 ODMs, which make up between 75% 80% of the worldwide notebook market. In January, shipments were up 87% year over year and February up 46%.
Year to date, this growth rate for the 1st 2 months is 64%, again much higher than our internal forecast. It should be noted that monitor and notebook year over year growth rates are against a relatively weak environment in Q1 of 2019. So in summary, on the retail side, sales of television, monitors and notebooks have been very strong. As a result, we're increasing our 2010 Glass Market estimate to a range of $2,800,000,000 to $3,000,000,000 from $2,830,000,000 to $2,900,000,000 to 3,100,000,000 square feet. For those who are modeling, here are the new unit forecast based on the lower half of this new glass volume range.
LCD Television unit sales expected to be $177,000,000 versus our original estimate of 1.71 dollars This is an increase of 22% over last year's $145,000,000 Monitor sales are expected to be $184,000,000