Corning Inc has a tradition of reinvention. Starting in the mid-1990s, it abandoned traditional businesses like branded cookware to become the world's leading supplier of fiber optic cable -- and a Wall Street darling.
But with the telecommunications industry in a deep recession and showing few signs of quick improvement, Corning, which once made the glass for Thomas Edison's incandescent light bulbs and is now 152 years old, is retooling itself again. It has cut costs sharply, aiming to regain its lost profitability and to help weather the industry's slump. And it is betting on businesses that it expects to achieve high growth, like the manufacturing of refined glass used in flat-panel computer and television screens.
Investors have liked what they have seen in recent months. Though Corning shares, now at US$5.43, are at a tiny fraction of their split-adjusted level of US$113 in August 2000, they have risen 64 percent this year -- the seventh-best gain in the Standard & Poor's 500, according to Bloomberg Financial Markets.
"Wall Street has agreed with us and our stock price has continued to climb back," said James R. Houghton, the chairman and chief executive, in his address at the annual shareholders' meeting on April 24.
Analysts attribute the gains primarily to the cost-cutting campaign, which has resulted in the closing of 13 plants and the layoff of about 18,000 workers in the last two years. At the height of the telecommunications spending boom in 2000, the company had a work force of more than 40,000.
Other telecommunications companies, like Lucent Technologies and Nortel Networks, have also engaged in painful downsizing amid waning demand after a huge buildup in infrastructure to transmit voice signals and data by phone and computer.
Though Corning has had eight consecutive quarters of net losses, attributable largely to its heavy exposure to telecommunications, it appears closer to returning to operating profitability. On April 22, it reported that it had a net loss of US$205 million in the first quarter. But excluding costs related to continuing restructuring charges and an asbestos litigation settlement, it broke even after taxes. That is US$0.03 a share better than analysts expected, according to Thomson First Call.
Company executives predict that Corning may be profitable, excluding restructuring costs, by the third quarter -- or even in the current quarter. Including restructuring costs, they say, it will return to profitability by next year, helped in part by a slow rebound in the telecom business late in that year. Over the past year, the company has also reduced its long-term debt to US$3.7 billion from US$4.5 billion.
But can Corning's stock price, which bottomed at US$1.10 in October, keep climbing in the coming months? Analysts aren't sure. Though John Harmon at Needham & Co has a buy rating on the stock and a price target of US$8 over the next 12 to 18 months, he conceded that the "stock isn't dirt cheap anymore."
Steven B. Fox of Merrill Lynch recently calculated that the company's enterprise value -- which combines its market value and debt before subtracting its cash -- is 21 times its Ebitda, for earnings before interest, taxes, depreciation and amortization, for 2004 and about 2.8 times sales. These multiples are higher than Corning investors have paid in recent years, he said.