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Eastman Kodak, Corning Air Makeover Plans for Growing Markets

Posted on: Friday, 21 November 2003, 06:00 CST

Nov. 21--Corning Inc. gave up casserole dishes for fiber-optic cable, only to see the telecommunications market shatter in 2001. Now it's getting a boost from its glass for notebook computer screens.

Meanwhile, Eastman Kodak is engineering a shift from chemical film to digital photography, hoping that profits will follow.

Two upstate New York companies with different products, but similar perils, opened a window onto their makeover plans at the Western New York Investors Conference on Thursday in Buffalo.

Changes in technology have forced the upstate giants to make a leap from tried-and-true businesses. Investors are along for the scary ride, and they aren't the only ones with fingers crossed for the companies' success. Also at stake is the economic health of company towns Rochester and Corning, which depend on their venerable corporate citizens for jobs and a tax base.

"For Corning, I think it was very difficult," said James B. Flaws, chief financial officer of Corning Inc., of the telecom downturn.

During the '90s boom Corning's employment in its hometown, about 130 miles southeast of Buffalo, swelled to over 7,000. Some factory workers and secretaries who had invested in the stock found themselves millionaires, as shares reached $100.

When the bubble burst, the plunge was steeper than anything the 150-year old company had faced before, even during the Depression, Flaws said. And its hometown felt the pain. "Regrettably, we had to close plants and lay off a lot of people."

Now the stock is about $10 and Corning's employment is down to 4,500, comparable to its pre-bubble level of 1998.

The company has stabilized, returning to profitability this year on the strength of its glass for flat-panel "liquid crystal display" or LCD screens, used in notebook computers. Manufactured abroad, the products help support Corning's headquarters and research-and-development staff in Steuben County.

Now a "golden age" of LCD is about to dawn, Flaws said, as larger computers and even televisions adopt the thin-screen technology. Corning Inc. has more than 50 percent of the market for LCD glass, with plants in Kentucky, Japan, Taiwan and a joint venture in Korea.

But the company is trying not to set itself up for another crash like the one it experienced with fiber optic cable, Flaws said.

"We spend a lot of time thinking 'where could we go wrong,'-- " he said. "We were clearly wrong, along with most of the rest of the world, regarding telecom."

Unlike with fiber optic cable, end-user demand for computer and TV screens is easy to monitor, he said, making it possible to avoid over-investment in production plants.

About 70 miles north of Corning in Rochester, Eastman Kodak Co. is plotting its own makeover as a technology company.

In September it announced plans to invest up to $3 billion into digital technology through 2006, and slashed its dividend by 72 percent to pay for the transition. Chief Financial Officer Robert H. Brust fleshed out the plan for investment managers during Thursday's conference.

"Kodak invented the digital camera in 1982, for the military," he said. But the company has been unable to make its know-how pay off. "The issue we've had over the years is profitability."

In coming years, digital cameras and print-out photo kiosks will drive profits, along with medical imaging and ink-jet printing products, Brust said.

Analysts complain that the company's plans to shift gears to new businesses have fizzled in the past.

"I've noticed over the years Kodak has missed the boat on just about everything," said Peter Greco, senior analyst at Saperston Asset Management in Buffalo. Though Kodak may have invented the digital camera, it was beaten to the consumer market by competitors like Olympus, and only recently became a major supplier.

Some shareholders worry that the steady profits from Kodak's traditional film business are being invested in a risky gamble with new technologies. Corporate raider Carl Icahn has signaled intention to acquire a significant stake in the company, adding to the pressure on management.

Despite his criticism, Greco said he doesn't think Kodak has any choice but to try to make the leap into growing digital markets. The company estimates that digital substitution reduced its consumer film sales growth by 3 percent last year, and it will hit 4 to 5 percent this year.

Like Corning, Kodak has also drastically downsized in its hometown, shedding 12,000 jobs over the past five years. Now its headquarters, research staff and remaining manufacturing plants employ about 21,000 in Rochester.

The pain may not be over, as Kodak squeezes its traditional film business for cash to invest in new ventures. "We have a large manufacturing footprint globally," Brust said, "we have to consolidate that."

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To see more of The Buffalo News, N.Y., or to subscribe to the newspaper, go to http://www.buffalonews.com.

(c) 2003, The Buffalo News, N.Y. Distributed by Knight Ridder/Tribune Business News.

GLW, EK,

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