VideoYou don't normally associate the word "resilient" with glass. Yet resilience is exactly the quality that's seemed to have helped Corning, the 158-year-old glass-making giant, survive two disastrous economic downturns over the last decade. Indeed, following a strong contraction in the supply chain incorporating LCD glass, Corning's biggest-selling product, the company has bounced back with a vengeance.
On June 30, James Flaws, the company's CFO and vice chairman, announced a drastic upward revision of the company's expectations for its second-quarter sales volume. "Second-quarter glass demand is much stronger than we anticipated even a few weeks ago," Flaws reported in a company press release. Because of that surge, the company boosted its second-quarter sales projection by about 100% at its wholly owned businesses. Corning had originally predicted a second-quarter sales-volume rise of more than 50%, and at the end of May hiked those expectations to more than 75%.
What happened was that, accordion-like, the supply chain for televisions, notebook and desktop computers, and other products featuring liquid-crystal-display screens had sharply contracted in anticipation of dire effects from the financial crisis. Meanwhile, as they long have done during recessions, consumers continued to stay at home and watch television and even buy some new sets, Flaws told CFO editors earlier this month.
As the supply chain snapped shut, Corning used up its inventories. With the growth of buyers of sets and the accelerating changeover from cathode-ray-tube screens to LCD, underlying demand for Corning's products has surged. The widening gap between supply and demand has thus brightened the company's sales expectation considerably.
Such a comeback is nothing new to Flaws, who has seen the company last out six recessions since he joined it in 1973. He's seen it make drastic shifts in its product mix, spinning off its blood-testing and pharmaceuticals businesses and selling its housewares operations, for example. Most seriously, he's helped guide it all the way back from "the edge" following the telecom bust of 2000-2002. Through all those changes, however, the company has remained a mainstay of what Oppenheimer analysts call a "glass oligopoly." In the case of LCD glass, Corning is one of only four or so providers in the world, according to the finance chief.
- "This is my sixth recession since I started working at Corning. And all six have actually been somewhat different in nature." — Corning CFO James Flaws
In his career, Flaws appears to have displayed his own kind of resilience. Since becoming CFO in 1997, he's served under four different chief executives. "The number-one reason CFOs lose their jobs is a change of CEOs," he notes, wryly.
In a wide-ranging interview with CFO deputy editor David Katz, senior editor Vincent Ryan, and senior writer Alix Stuart on July 1, Flaws discussed his approaches to inventory, cash, and working-capital management, bank credit, human capital, and much else. An edited version of the interview follows.
What has driven the bounce-back in sales?
The primary bounce-back has been in the display business. It stems from the fact that our customers in the fourth quarter and the beginning of the first quarter dramatically cut their production, really emptying the supply chain from us through the end consumer. We sell to the panel maker, the panel maker sells to assembly, then it ends up in Best Buy. In the fourth quarter of last year, there had been a little bit of a buildup in inventory. But with the bankruptcy of Lehman and the stock market dropping dramatically in October, there actually was a fear that there would be no Christmas in this country. So everybody's supply chain started to back way off. What happened to us was that our sales volume was cut almost in half in the late fourth quarter and in January.
But if you look at what actually happened, [products that use LCD glass] continued to sell quite well in retail and didn't really contract at all during the fourth quarter and in the first quarter. What happened was that the supply chain wanted to bring inventories way down because they were afraid of things going wrong. Now they've realized that that hasn't happened, and, in fact, the supply chain is too thin, and therefore our sales volume is ramping up. We focus all the time on how the supply chain builds and contracts — on how many notebooks, how many televisions are going to be sold — because ultimately that's what drives our volume.
So the downturn isn't having as bad an effect as the rest of supply chain thought it would.
Yes. So, for instance, IT products are definitely down, probably approaching 10% down. But although television growth may have slowed a little from what it was supposed to be originally, it's remained very strong.
The supply chain is now realizing that this wasn't the end of the world and that the LCD business is doing fine. That's not true for all of our businesses and obviously for a lot of other companies. For example, we make catalytic converters for the car industry around the world. The car industry around the world is in a depression, so that business is down. And it's down not just because the supply chain is down, but because people aren't buying cars.
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