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James B. Flaws, vice chairman and chief financial officer of Corning Inc., recently provided an update on the company’s current business environment and restructuring actions at the Barclays Technology Conference in San Francisco. Flaws told conference attendees that preliminary estimates of retail sales of LCD TVs in the U.S. for November, including Black Friday, were ahead of last year in this critical volume month.
“We were encouraged by this strong performance in the weak economic climate,” he said. “While the sales growth rates are lower than our original expectations, we were pleased to see the resiliency of this product with consumers. This gives us a measure of confidence there could be continued growth in this market next year.”
The company noted that some of the more recent monthly sales data from outside the U.S. was stronger than expected. In Japan, LCD TV unit sales increased 28% year-over-year in November, which was higher than expected. In Europe, preliminary estimates for October suggest demand for LCD TVs was stronger than expected (up 29% year-over-year). In China, LCD TV unit sales were up an average of 31% in September and October vs. last year, slightly lower than expected.
Flaws added that despite the recent strength of LCD TV unit sales at retail, the supply chain is still correcting for excess inventory. “Panel makers continue to run at very low utilization rates,” he said. “We are feeling increased pressure for pricing relief from our customers. While we have been able to stick to our pricing strategy in the third and fourth quarters, the strategy has always been based on the assumption that glass capacity was closely aligned with glass demand. The current end-market weakness, combined with the inventory correction, has resulted in a substantial mismatch between glass capacity and demand by our customers.” As a result, Corning expects to reduce glass prices in the first quarter of 2009 at a higher rate than in recent history.
Flaws also pointed out that all of Corning’s businesses, except Life Sciences, have been negatively impacted by the economic downturn. As a result, the company is moving rapidly to resize its current operations to align with a lower sales rate. In addition to previously announced actions to reduce capacity in the LCD business and to reduce capital spending, potential actions include permanent manufacturing capacity consolidation, reducing operating expenses to be flat or lower than 2008, and workforce reductions. Corning will announce any decisions on these potential actions in the company’s fourth quarter financial announcement in January. The company expects to reduce 2009 capital spending to $1.1 billion, of which about $450 million relates to construction completed in 2008.
“These are difficult and painful actions to take, but we are committed to our goal of maintaining positive annual cash flow and we have to manage the company accordingly,” said Flaws. “We believe that Corning is in a financial position to withstand a prolonged economic downturn. We have a strong balance sheet. We ended the third quarter with $3.2 billion in cash and short-term investments, and only $1.5 billion of debt.
“It is also our belief that the long-term fundamentals of our core businesses are sound. We may be in a slower demand cycle due to the economy, but the fundamental growth engines that drive our LCD business over the long term have not changed.” He reminded investors that while there are more than 1.9 billion televisions in use around the world today, currently less than 13% of these are LCDs. “We believe, at some point, almost all will be LCD,” he said. “We have seen signs of retail stabilization in November, including Black Friday. The demand level is lower than we had forecasted earlier this year, but if this level continues, it should help correct the supply chain imbalance. We believe we could see increasing demand starting in the second quarter of 2009.”
Corning’s presentation to investors at the Barclays Technology Conference is available online at www.corning.com/investor_relations.