Stock of the Day Corning Inc. — CFO, CNNfn

xfdce CNNfn-THE-MONEY-GANG-03

Show: THE MONEY GANG >

Date: October 24, 2003>

Time: 13:00:00>

Tran: 102403cb.l26>

Type: INTERVIEW>

Head: Stock of the Day: Corning Inc. — CFO, CNNfn>

Sect: Business>

Byline: Ali Velshi, Pat Kiernan, Greg Clarkin>

Guest: James Flaws >

Spec: Business; Liquid Crystal Displays; GLW (NYSE): SIC: 3679>

Time: 13:29:00>

PAT KIERNAN, CNNfn ANCHOR, THE MONEY GANG: Corning (Company: Corning Inc.; Ticker: GLW; URL: http://www.corning.com/) makes everything from kitchen wear, to fiber optics to glass products for televisions, VCRs and flat- panel displays. The company recently posted its first profit in more than two years. That ends a streak of nine consecutive quarterly losses.Corning is our “Stock of the Day”, we`ll talk to the CFO in just a moment. First, our Stocks Editor Greg Clarkin for more on the company.

GREG CLARKIN, CNNfn STOCKS EDITOR, THE MONEY GANG: Hi there, Pat.

Remember how in the late `90s everybody kind of woke up and said, wow, Corning`s not just kitchen wear. They also have fiber optic. Well after the telecom crash, everybody was like, well, Corning has other things besides fiber optics, and that`s really what is helping to drive the company`s growth.

The company really pushed into fiber back in the late `90s, actually even before that, mid-`90s or so. That really hurt the company in recent years as telecom collapsed so they have made a new push to offer their ceramic products to automotive and industrial manufactures.

Now just two days ago, the company posted their first quarterly net profit in more than two years and that was in part due to big demand for their liquid display panels, used in laptops as well as desktop computers.

Let`s take a look, if we can, at the shares of Corning, give you an idea of what the company did in the most recent quarter. They posted earnings of two cents a share, excluding items it was four cents a share. And you can see what the stock has done over the last 52 weeks.

Yes, that is correct. A 558 percent from around $2 and change, up to $11 a share or so about a month ago before trading lower today with the overall kind of tech sell off that we`re seeing. And there you get a five-year look, down 12 percent. Look at that spike there, in the late `99 to 2000 and then back down to those low single digits level from which it built off of.

We should point out — analysts say one of the growth drivers really is the LCD business, those liquid crystal displays. It has shown eight straight quarters of sequential growth.

Pat and Ali.

ALI VELSHI, CNNfn ANCHOR, THE MONEY GANG: Greg, stick around. For more on Corning, let`s bring in the company`s chief financial office, James Flaws. He joins us now from Corning, New York.

Jim, thank you for being with us on the show.

JAMES FLAWS, CHIEF FINANCIAL OFFICER, CORNING: Thanks for having me. I`m glad to be here.

VELSHI: Tough, tough place to be in, you and other companies that were sort of top of mind day after day in the late `90s. Big investors always talk about fiber optics. The company, as Greg has indicated, trying to turn a corner, doing some very specific things. But we – again, this is a company we get a lot of phone calls on from investors. What do we do with our Corning stock? What happens to Corning as a company over the next five years?

FLAWS: Well we`ve always viewed ourselves as a technology company driven by research and development in materials. We follow that where it`s going to go, whether it was fiber optics or liquid crystal displays.

So right now, we`ve had a major effort to build ourselves back to profitability by cutting costs in telecom. But meanwhile, we are emphasizing growth areas. As you mention, liquid crystal display being one that`s really hot for us right now. Principally, it`s been in monitors for desktops or laptops but coming up, we expect to see even more growth coming from liquid crystal display televisions.

KIERNAN: Jim, looking at research — well KMI (ph) put together a prediction for the optical networking market, overall, whether it`s through purchases of Corning or elsewhere. In 2000, something like $30 billion in spending, in 2001, $25 billion. It has dropped down to the $10 billion range. It isn`t expected to go back up anywhere near that $25 or $30 billion amount in the foreseeable future.

What do you do as a company when you`ve got a piece of a market that`s just that much smaller? Is that why you need to be revisiting something like the LCD displays and open up a new market?

FLAWS: Well we always felt that we have balance. LCDs are not new. We`ve been selling them almost 10 years. The environmental business that you mentioned in the opening we`ve had for 30 years. But, clearly, telecommunications came to dominate our results in `99 and 2000. And, obviously, it was very difficult for us when that market collapsed.

Nevertheless, we see some stability now in that market. Our volume has been pretty stable, now, for about four quarters. We`re not expecting much of an uptick until late next year but we`ve honed our position down by cutting capacity quite a bit. So where we`re actually cash positive in telecom, although not quite profitable in that segment at this point and time.

Now we really believe there will be some telecom recovery later, particularly with what we call fiber to the premise or fiber to the home, coming on the heels of the recent FCC decision. So we`ve not abandoned telecom at all, but we really are emphasizing LCD and environmental right now.

CLARKIN: Jim, continuing kind with that topic, I mean, in terms of the fiber demand, is there ever a point in time when you think, you know, you`re going to see anything rivaling or even half as much demand that you saw in the late `90s? A lot of folks kind of wondering about the over capacity out there. What`s your read on that? Will that come back to be, you know, a decent driver of growth for the company?

FLAWS: We think it will be a reasonable driver. We`re not expecting it ever to pop back to the levels that we saw in `99 and 2000. But most of the over capacity in the fiber that exists is really in the long-distance part of the network. And we really think most of the fiber going forward will be, in this country, mostly in metro and access. And so we do think there`ll be growth opportunity again here, but unlikely to be what we saw in `99 and 2000.

VELSHI: Jim, you said a few minutes ago that you still got some faith in the recovery of the fiber optics telecom business, the fiber to the home is kind — is this the last mile we used to talk about?

FLAWS: I`m sorry …what?

VELSHI: Is this the discussion we used to have in the late `90s about the last mile, fiber that gets new applications to the home? How big a market is that likely to be?

FLAWS: We think it`ll be quite large but it`s not going to be a very quick market. It`s a major construction project. You`ve seen companies like Verizon (Company: Verizon Communications; Ticker: VZ; URL: http://www.verizon.com/) announce that they`re going to begin bringing fiber to the home. You often hear them talk about we`re going to do a certain number of homes passed per year.

We think it`s likely to be more like a 15-year project to wire up this country with broadband to the homes just as it has been in Japan, which is well ahead of this country in bringing fiber to the homes. So it will not have, if you will, the hula-hoop nature that we saw with the long distance networks in `99 and 2000 but perhaps could be slower, but steadier growth.

CLARKIN: Jim, you mentioned you guys kind of go where technology and research takes you. You mentioned the LCD. We talked about the fiber quite a bit. What out there right now is kind of emerging that has some big promise?

FLAWS: Well we`re really excited by our opportunity in environmental to extend into diesel. We`ve been big in catalytic converters for cars for a lot of years. But now there`s increased regulation both in this country and in Europe for diesel filters, in traps to catch particulate matter, and control exhaust gases for diesel. And so we think that`s going to be a big opportunity.

We built a new plant right here in Corning, New York, which we open next year. Actually are sold out already in the small basis but we expect that to be a big growth opportunity. But, again, that will build slowly over the back half of this decade. But that`s looking like it could be equal to in size to our automotive business, which is a $400 million business to us.

KIERNAN: Jim, I want one of these flat screen plasma LCD TVs for my apartment. So I`ve been watching the price and seeing it come down from $5,000 retail, for a 42 inch, down to close to the $3,000 range here and the prediction is they continue lower. That`s the retail side of the equation from the finished product.

But what`s the pricing like in terms of the components that you supply to these LCDs? Is there a similar decline there and are you able to make up for that with volume?

FLAWS: No. It`s the other way around. First of all, I want to distinguish plasma is different than LCDs.

But what we have seen — it is a technology business and our pricing comes down a little every year. But, in fact, we sell per square footage of glass. And it is the larger generations that we`re producing that actually enable our customers who have the fabs to lower their costs so dramatically to lower the retail price to you.

So we think you`ll see more of that coming, but we will be only lowering our prices more in a normal rate in the upper-single digits every year. And you should be able to get a color television at a very reasonable price over the next couple of years.

KIERNAN: Jim, thank you.

FLAWS: Thanks very much.

KIERNAN: Jim Flaws is the CFO of Corning, our “Stock of the Day”, joining us from Corning, New York.

VELSHI: Thanks also to our Stocks Editor Greg Clarkin.

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