Familiar Face Tries to Put Corning Back on Right Track
By CLAUDIA H. DEUTSCH
ORNING, N.Y., June 7 — James R. Houghton's seeming pleasure at being back at Corning, the company his family founded 151
years ago — and whose stock represents a solid chunk of his own wealth — is so palpable that one could forget for a moment that
he is there by need, not choice.
"I never missed being in charge," he said, exuding vitality, his cane — the omnipresent vestige of a horrendous car accident in 1993 —
resting ignored at his desk. "But I missed this place and its people."
Apparently, Corning missed him more. Since Mr. Houghton retired in 1996, the company, whose technology for making glass has taken it
into areas as disparate as cookware, TV screens and catalytic converters, has placed most of its bets on telecommunications. It sold its
housewares division and spent billions to acquire Pirelli's fiber optic business, NextOptics and other companies it thought would turn it
into an all-purpose supplier of optical fiber and components to the telecommunications industry.
In other words, it rode the telecommunications boom up — and right back down. In April, John W. Loose, who had been Corning's chief
executive for just 16 months, abruptly retired at age 60, and the board asked Mr. Houghton, 66, to help turn the company around.
He has promised to restore profitability before next year is out, but acknowledges that the path may be bloody.
"No one knows when the market will turn around, so we've got to take more restructuring moves," he said, chatting in the vast and still
unpersonalized office he moved into a few weeks ago. "But I have a record of leadership, and there's a feeling that a Houghton is back,
and everything will be O.K."
In fact, things are far from O.K. Corning earned $1.4 billion in 2000; it is on track to lose $400 million this year. Its debt has ballooned to
$4.8 billion. It has about $1.8 billion in cash, but it is burning through it at a rate of more than $1 billion a year.
"This company needs cash to expand, and they've handcuffed themselves," said Max Schuetz, an analyst with Credit Suisse First Boston.
Nor are Corning residents — most of whom either work for Corning or know someone who does — particularly sanguine. "People are
asking if this company has a future, no matter who's at the helm," said Sylvia Huber, chairman of the Corning Area United Taxpayers
Association.
Corning executives refuse to assign blame for the debacle solely to Mr. Loose, who declined to be interviewed. "We've had a huge
reduction in revenues, and our costs haven't come down fast enough," said Wendell P. Weeks, who ran Corning's optical fiber businesses
until his promotion to president in April.
They are coming down now. Last year Corning eliminated 12,000 jobs and wrote down the value of its acquisitions by $4.8 billion. Two
months ago, it said it would cut 4,000 more jobs and take a $600 million charge.
Corning is not in death throes. Its $2 billion line of credit does not expire until August 2005. Its nontelecommunications businesses, which
provide about 45 percent of revenue, are profitable and throwing off cash.
"It's not like the whole company is disappearing down an elevator shaft," said James B. Flaws, Corning's chief financial officer.
But investors are not impressed. Corning's bonds are rated triple B — "one notch above junk," Mr. Flaws acknowledged. Corning stock,
which peaked at $113 on Sept. 1, 2000, closed at $3.87 yesterday.
"Analysts aren't looking for a quick return to the black," said Charles L. Hill, director of research at Thomson Financial/First Call.
Indeed, many analysts doubt that the market for optical fiber will turn around before 2005, and are clamoring for Corning to close more
plants.
"Nothing in Corning's product portfolio needs fixing," said Joseph Wolf, an analyst with UBS Warburg Securities. "But it can't manage
demand, so it must manage supply."
Mr. Houghton certainly knows how to wield a corporate ax. When he first became chief executive, in 1983, he was soon called the Dark
Angel for how quickly he eliminated jobs.
Nonetheless, Corning's union applauds him. "Jamie's a very smart businessman, and getting him back is the best thing that could happen
to us," said Stephen A. Mandell Sr., president of the local chapter of the American Flint Glass Workers.
In a nutshell, Mr. Houghton's survival plan boils down to this: Make sure that Corning finds, and maintains, the right balance of healthy
nontelecommunications businesses — like specialty materials and display glass — and its ailing but potentially blockbuster businesses in
optical fiber and components.
Corning's diversity is already a saving grace. Peter F. Volanakis, president of Corning Technologies, the umbrella for
nontelecommunications businesses, says he cannot meet demand for liquid crystal displays, TV glass and nitrous oxide controls for
power plants. And he says that products like catalytic converters for diesel engines and calcium fluoride crystals for semiconductors will
soon take off.
He acknowledges that financing has been cut off for DNA Microarray, a package of glass slides for genetic research. But otherwise, he
said, research budgets are intact.
"We're not going overboard in spending," he said, "but I can honestly say, we haven't been cut back."
Nor will he be, promised Joseph A. Miller, Corning's chief technology officer. Mr. Miller, who joined Corning in July, is retired from
DuPont, which also resisted pressure from investors to focus on an area — in DuPont's case, life sciences — that turned out as bumpy
as telecommunications.
Mr. Miller has been combing through old and new research, seeking products that can be made in existing plants or sold through existing
distributor networks. One example: Corning is developing a protein array, made in a manner similar to the DNA Microarray, that can be
used to check the potential of various substances for use as drugs.
"I'm here to ensure a balance between old products, new uses for old technologies and totally new technologies," Mr. Miller said.
Despite its low stock price, Corning is unlikely to fall prey to a hostile takeover bid. Logical corporate suitors like Nortel are in worse
shape than Corning is, and New York laws would make it hard for a buyer to buy it and strip it of assets. Moreover, much of the voting
stock is held by the Houghton family — Mr. Houghton alone owns more than 600,000 shares — and by past and present Corning
employees.
"Our shares are in friendly hands," Mr. Houghton said.
He is less adamant about holding on to his job than he is about keeping his Corning shares.
"I'll leave when this team can run the place on its own," he said. "It'll be longer than six months, but it sure won't be 10 years."
Much will depend on how quickly Mr. Weeks, widely considered Mr. Houghton's heir apparent, demonstrates leadership skills. Just 42
and looking 10 years younger, Mr. Weeks readily acknowledges that he needs seasoning. "I've still got an awful lot to learn from Jamie,"
he said.
Mr. Houghton, in turn, probably has a lot to learn about leisure. When he was plucked from retirement in April, his life involved shuttling
among Corning; Boston (he is on the board that runs Harvard); his Manhattan apartment (not far from from Lincoln Center, where he
indulges a passion for opera, and an easy cab ride from the Metropolitan Museum of Art, where he leads the board); and his Maine
summer home.
"I managed it all because I'm one of the most organized people in the world," he said. "But the truth is, I really flunked retirement." |
