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Corning To Cut Wholly Owned Glass Capacity 30%-40%

Post Time:Oct 30,2008Classify:Company NewsView:386

Corning (GLW) plans to cut the production capacity of its wholly owned glass business by 30%-40% in response to a slowdown in the LCD television market, CFO Jim Flaws said this morning in an interview with Tech Trader Daily on the company’s disappointing fourth quarter outlook.

Flaws noted that the company has been operating with a “conundrum in the LCD business” for most of the year: while there have been constant fears about the economy, LCD demand through most of the summer remained strong. But he notes that after Labor Day, weekly data has shown a decline in LCD TV sales at retail. Flaws says the combination of rising unemployment, low consumer confidence and weak financial markets have lead people to “retreat” on LCD television spending. He says unit growth is still positive, but nowhere near the 37% level seen in the first 8 months of the year.

Flaws said the company was affected by slowing demand from the supply chain in the third quarter, but that the impact on Corning’s business has accelerated in recent weeks. In the fourth quarter, he says, “there is not going to be strong end market demand for LCDs.” Flaws notes that other Corning businesses have also been affected by the weaker economy. The catalytic converter business, he notes, has been hurt by U.S. weakness in auto sales that has spread to Europe and Asia. In the company’s telecom business, he says, private network spending is beginning to diminish, though carrier spending remains solid. At Dow Corning, he says, demand for silicones was robust until August, but that orders have since begun shifting down there, as well.

Flaws notes that the company is taking down about 30%-40% of its glass production capacity; that does not include the Samsung Corning joint venture in South Korea, where demand has held up better than in Corning’s wholly owned business. He says the venture is likely to feel the pain as well, however. Flaws declined to give a specific number on how many jobs will be affected by the production cuts; some manufacturing employees will be affected, but Flaws says the company has made no decision on reducing other employees.

Flaws notes that this is the sixth recession since he’s been at Corning; he thinks this one is worse than the “tech unwind” in 2001, or the Gulf War-related recession in the 1990-1991 time period. He thinks it could be more similar the mid-70s or early ’80s downturns. “We’ve been in a housing recession, the financial markets are in upheaval and now consumer spending has been crushed,” he says. Flaws says that when consumer confidence falls, people tend to feel bad but keep spending anyway; this time, they’re actually cutting spending.

Corning today is down $1.05, or 9.2%, to $10.37.

Source: Barron's BlogsAuthor: shangyi

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