Corning Gets Clean

[HenryTo]

Has anyone followed the upside action in Corning since the April lows?
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Corning Gets Clean

By CHARLES FISHMAN
September 9, 2005 4:28 p.m.

Corning Inc. has pioneered some of the sexiest technology of the past 100 years. The incandescent light bulb. The picture tube for color TVs. Windows for every NASA spacecraft. The glass screens for laptop computers and flat-panel TVs. And, yes, optical fiber. They invented it.

Then there's the tailpipe business. In the world of glamorous technology, it never hurts to have a dependable trade in something like cleaning up the exhaust of cars, trucks, and buses. More than 30 years ago, Corning developed the honeycombed materials that have become the guts of catalytic converters, dramatically reducing pollution. "Environmental technology," as Corning calls it, has been a steady business for the company ever since.

Then, four years ago, even as Corning's fiber-optics business was unraveling, the company's leadership decided to place a daring bet on cleaning up diesel exhaust. That bet -- which is just now beginning to play out -- commits Corning to spending upward of a half-billion dollars and harnessing the talent of hundreds of researchers to develop, manufacture, and sell a line of devices to dramatically reduce pollution from diesel-powered vehicles. Diesel engines produce slightly different pollutants -- including soot -- than gas-powered engines, and typical car technology is ineffective against them.

"This is not a wild leap off a cliff," says Joe Miller, Corning's chief technology officer. At the same time, Mr. Miller says, it was "a very, very gutsy decision." The collapse of the tech bubble was as vivid, and as traumatic, at Corning as anywhere. Indeed, it must have appeared to blow a hole in Corning's financial performance. The company's total quarterly revenue peaked in the fourth quarter of 2000, at $2.1 billion. Just eight quarters later, in the fourth quarter of 2002, Corning's quarterly revenue was down to $736 million.

In the midst of layoffs and factory closings -- only one of the five fiber-optics factories that Corning operated in 2000 remains open -- the company shut down research labs in New Jersey, England, Japan, and Russia. R&D spending was cut by $5 million per week -- nearly 50 percent from 2001 to 2003 -- affecting even Corning's storied Sullivan Park research complex. Meanwhile, diesel technology's share of the budget grew "fourfold," says Mr. Miller.

In fact, Corning didn't place just one bet on diesel antipollution devices, the market for which should grow quickly as stiff antipollution laws come into force around the world. Tom Hinman, head of diesel technologies at Corning, Mr. Miller and the Corning board made a pair of bets. The first was to build a factory to supply a market that didn't exist. The cost: $370 million. Total sales of Corning's diesel mitigation business the year the factory was approved: $12 million.

The second bet was even more daring. Corning abandoned the industry-standard filtration technology for diesel cars. As competitors scooped up business, and as construction proceeded on the new factory, Corning ordered up not just a new product from its research labs but a whole new materials-science breakthrough on which to base that product.

"We made a lonely choice," says Mr. Hinman. The existing ceramic material for diesel filters worked fine but was difficult and expensive to manufacture. Hinman's team thought it could come up with a new material that was as effective against pollution, more durable, and half as expensive for carmakers.

The company bet not just on the market -- which it expects to be $1 billion a year in 2008, and to grow from there -- but on its own heritage of inventiveness. In 2004, 90% of Corning's sales came from products less than four years old. Corning scientists have often come up with technology solutions under time and market pressure; in fact, they developed the material for catalytic converters under goading from automakers faced with the Clean Air Act of 1970.

The diesel R&D group ended up taking two years to zero in on the right material for diesel-engine filters -- aluminum titanate -- but it checked in with senior management every six weeks, and more often when necessary. "It was tough sledding," says Mr. Hinman. "You see the competition moving on....It required tremendous confidence."

Corning is already making heavy-duty diesel-engine filters at its new Erwin, NY, plant. Production of car filters--using the new aluminum titanate ceramic--should start before year's end.

Mr. Miller came to Corning in July 2001 as CTO, and he says that cutting R&D spending was very painful, but also instructive. "There is nothing," says Mr. Miller, "like that kind of experience to temper what you're hearing, to be sure you don't just look at these things with rose-colored glasses. "Even in a science-driven company, he says, "there is no algorithm to guide you on these decisions."

This article appeared Sept. 9, 2005 on the Web site of Technology Review, an MIT Enterprise.

[nodoodahs]

Big volume and another move down, that's two big volume downs since we last talked about this stock. Is the next technical support below 18 (at the 100 DMA)?

Analyst consensus is a "buy" which may be a good contrarian indicator.

I'm not convinced by the fundies that this is a buy. If you are, you could look at the 10% or so retracement as a buying opportunity.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

They’ve taken special charges in 4/5 previous years that have made them unprofitable (which is one reason I’ve never looked at them before, since I screen for companies with a history of profits). Keep in mind this stock was trading for $100 just five years ago. From 1996 to 1998 it was under $25, and from mid 2001 to now has been under $25.

Today it’s trading for 6x book and 7x sales, and close to 7x tangible book. Somewhere around 20x estimated 2006 earnings. Because of that big charge at the close of 2004, they have negative TTM earnings. Revenues are pretty much flat since 1997, with a spike during the peak of the internet bubble.

The recent action is probably because
(1) they’re cutting losses in the Telecom unit and starting to increase revenues there
(2) GLW controls 50% of the market for LCD glass,
(3) speculation on return to profitability

LCD demand may be higher from switch to laptops from desktops, increased LCD TV screens, and China demand. Does GLW have enough capacity to take advantage? If there is a global slowdown, how will this impact GLW? Will announcements of a China plant drive the price even further beyond the fundamentals of this company?

Concerning Catalytic Converters: I wonder how much lobbying GLW does with the EPA and other types? I wonder how involved they are (or were) in lobbying for automobile regulations in the U.S.? Gee, they developed the catalytic converter "more than 30 years ago" and it was just 30 years ago that every new car in the U.S. was required to have one? I wonder if GLW lobbies for items like the Kyoto Accord or spends money “educating” consumers about “global warming” and “greenhouse gases?” I wonder how much they spent lobbying for the tougher diesel emissions laws in the U.S.?

This is one way that being a "good corporate citizen" re: pollution can be profitable, especially if you're in bed with the regulators.

IMO the push for "clean diesel" in the U.S. and Europe is profiting a few companies at the expense of the broader public, worldwide. By discouraging (and making more expensive) the refining of diesel, both the oil refining capacity crunch and the price of light sweet crude are pushed up. Diesel is not only easier to refine, it can be refined from sour crude, and has more BTUs per gallon than gasoline. Diesel engines are cheaper to operate per mile, have less maintenance needs, and get better economy than gasoline engines. Pushing so hard for "clean diesel" to the extent that diesel is discouraged, is penny wise and pound foolish.
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.