Corning remains confident of its future

Hard hit by slowing global economies, Corning Incorporated is prepared for a prolonged recession, “but well positioned in key growth markets to take advantage of opportunities when the economy turns”,…

Hard hit by slowing global economies, Corning Incorporated is prepared for a prolonged recession, “but well positioned in key growth markets to take advantage of opportunities when the economy turns”, Wendell P. Weeks, chairman and chief executive officer, told more than 200 analysts and investors attending the company“s annual investor conference at TheTimesCenter in New York on 6 February 2009. “We are prepared for lower sales and earnings this year, with a conservative capital structure, ample liquidity, and a goal of generating positive free cash flow for the year,” Mr. Weeks said. At the same time, he explained that the company is continuing to invest in a portfolio of innovative products such as Gen 10 LCD glass, ClearCurve(R) optical fiber for next-generation data centers, DuraTrap(R) emissions-control solutions, and highly scratch-resistant Gorilla(TM) glass for computer and portable device applications. “After all,” he said, “we are in the midst of a recession, not an industry collapse. We believe we are on the right side of the technology substitution curve and the technology leader in all of our core markets. Liquid crystal display is the winning TV technology, optical fiber is the only choice for the expansion of high-speed telecommunications networks and there is no turning back in the demand for clean air”. Peter F. Volanakis, president and chief operating officer, reminded investors that in January 2009 the company announced restructuring plans to bring about USD 150 million to USD 200 million in annual cost savings. “As economic uncertainty increased, we took decisive action to realign our operations beginning in the 3Q of last year”, he pointed out. Mr. Volanakis explained that in the 3Q, Corning implemented discretionary spending controls, implemented a hiring freeze, and adjusted manufacturing schedules to manage inventories. By the 4Q, the company implemented some workforce reductions and eliminated temporary and contract worker positions, extended manufacturing shutdowns, and implemented zero-based capital budgeting for 2009. In late January, Corning announced it would reduce its workforce by 3,500 full-time positions, suspend salaried merit increases, and begin consolidating some manufacturing operations. “We are committed to preserving the financial health of the company,” he said. “These actions will result in a USD 115 million to USD 165 million pretax restructuring charge in the 1Q this year, and we will take additional actions if we do not see an improvement in our sales in the 2Q.” He pointed out that the company has already consolidated manufacturing in its Life Sciences, Environmental Technologies, and Telecommunications segments, and is considering further actions. Corning plans to spend about USD 630 million on research, development, and engineering in 2009, Dr. Joseph A. Miller, executive vice president and chief technology officer, added. “Even in these difficult times, our commitment to the development of technological breakthroughs continues,” Dr. Miller explained. He reviewed progress on products including Corning“s Gorilla glass for portable display devices and its extension into the notebook computer and desk-top monitor space, and delivery of customer samples of thin-film photovoltaics for solar-powered energy solutions. “We have a number of promising new business opportunities on the cusp of commercialization while we continue to explore new ideas, technologies and opportunities in specialty glass and ceramics”, Dr. Miller said. Expecting a smaller optical fiber, cable, and hardware and equipment market in 2009 compared to 2008, the company believes that continued innovation will enable future growth for Corning. “Optical fiber is winning”, Clark S. Kinlin, president and chief executive officer of Corning Cable Systems, said. “The substitution of fiber over copper lines continues as bandwidth requirements in individual homes grow”. Corning expects that the contraction in the global LCD supply chain will ease by the end of the 1Q and overall demand will increase in the 2Q, leading to a stronger 2H of the year. “We expect volume in the 1Q to decline 20% to 25% sequentially as the supply chain contraction continues”, James P. Clappin, president, Display Technologies Asia, said. He also noted that Corning has reduced its own glass production by more than 50% and its equity venture, Samsung Corning Precision Glass Co., Ltd., has idled more than 25% of its capacity. “We believe that the 2009 LCD glass market will be about two billion square feet, flat with last year”, he said. Corning expects that there will be an overall decline in 2009 in LCD monitor sales driven by the lower economy and notebook computers gaining market share. Mr. Clappin explained that LCD televisions will continue to gain share in the global TV market as CRT popularity and availability decline. Overall, LCD televisions will exceed 50% of annual TV sales in 2009, the company believes. Mr. Clappin pointed out that the worldwide installed base of televisions is about two billion sets and less than 15% are LCD, “so there remains a very large substitution base and future opportunity. A 1% increase in global market penetration for LCD televisions represents more than 200 million square feet in additional glass demand”, he added. James B. Flaws, vice chairman and chief financial officer, told investors that the company has designed its financial plan on a sales cycle that would result in about USD 5 billion of sales in 2009. “Our 1Q run rate will be less than USD 1 billion as we continue to grapple with the realities of the recession”, he said. “As we explained, we are expecting significant improvement in LCD glass demand in the 2Q, leading to stronger demand in the 2H of this year. If this improvement doesn“t occur, we are prepared to take additional restructuring actions to ensure the financial health of the company”. He pointed out that the company has prepared for the possibility of a prolonged recession with USD 2.8 billion in cash and short-term investments at yearend 2008, compared to only USD 1.6 billion in debt, 15% which is due in the next four years. The company has also significantly reduced its capital spending and suspended share repurchases to preserve cash. “This will be a challenging year”, Mr. Flaws told investors, “but the long-term growth drivers for our business are intact. We believe the new technologies in our labs today will provide exciting future commercial opportunities for Corning”.