The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

11 January 2009

A filter for coal plants designed to neutralize poisonous mercury... and an investment possibility

Corning/GLW is one of my all-time favorite, long term investment opportunities... despite its share price decline -- er, plummet -- during the past (almost) 9 years.

[click on chart to enlarge]

Articles, such as the one below, help reveal why I feel as I do: the best companies continually reinvent themselves; never staid, never stodgy. And while price creates opportunity (for investors) it does not determine value, for price is ephemeral but value endures.

Full Disclosure: Not long Corning/GLW yet, but will be soon.
-- David M Gordon / The Deipnosophist

A jolt brings Corning back to its research roots
In need of another big hit, Corning explores a mercury filter for coal plants
AP Business Writer

By day, Kishor Gadkaree puts samples of a honeycomb-shaped filter into a miniature gas chamber that simulates the insides of a coal-burning smokestack.

These rigorous tests will take years. But by night, Gadkaree dreams that this filter — which is designed to neutralize the poisonous mercury spewed by the world's coal-fired power plants — will be the next big hit for a nearly 160-year-old company that recently survived a brush with extinction.

At its newly expanded research haven, Corning Inc. is betting tens of millions of dollars that tougher environmental regulations, plus a few more years of experiments, will turn the mercury trap into something that can generate at least $500 million to $1 billion in annual sales.

"We are going over those hurdles one by one," Gadkaree said as he showed off his shelf-top mini-flue at Sullivan Park, a hilltop campus outside this rural town of 10,000 that gave the company its name. "We can show it works. Now we're trying to find out how much customers will pay for it."

Corning is famed for entwining specialty materials in potent technologies, from figuring how to make light bulb blanks for Thomas Edison in 1880 to devising the hair-thin optical fibers that helped spur the Internet revolution.

"We have set ourselves up to be patient," said Mark Newhouse, who oversees Corning's development of new technologies. "We talk about how many businesses we will create in a decade, not in a couple of years."

But while Corning amassed a decade-after-decade array of breakthroughs ranging from ovenproof Pyrex dishes and cathode-ray tubes to auto-pollution filters and space-telescope mirrors, the company has had to endure multiple reincarnations.

Never did a cyclical slide turn so ugly as in 2001-2002, when the dot-com bust punctured the booming telecommunications equipment market.

Lopsided investments in fiber optics almost capsized Corning: Its stock tumbled from $113 in September 2000 to a mere $1.10 in October 2002 as annual revenue shrank to $3.2 billion from $7.1 billion.

Corning quickly retooled itself as the world's biggest maker of liquid-crystal-display glass for flat-screen televisions and computers. The ultra-thin monitors delivered 90 percent of Corning's $2.2 billion profit in 2007.

Nonetheless, the company has learned the hard way that it needs to spread its risks over a variety of high-growth businesses.

During its perilous downturn, former Chief Executive James Houghton came out of retirement to right the ship launched by his great-great-grandfather, Amory Houghton Sr., when he bought a stake in a Massachusetts glassmaker in 1851.

Known to some as "Dark Angel" for his 1980s moves to shelve slow-growth Corning businesses, upon his return James Houghton mothballed fiber plants and slashed the work force from 43,000 to 22,500. He offloaded the once-stellar photonics business, which made the optical switches and other exotica that manage the rapid flow of light signals through optical fiber.

The patriarch and his chosen successor, Wendell Weeks, also turned back the clock. They championed wider exploration of arenas in which Corning boasts expertise, a more freewheeling philosophy once associated with Bell Laboratories and other high-tech powerhouses.

One key difference: While ensuring an unusually high 10 percent of revenue is allocated to research, Corning's management imposed a more rigorous, companywide system for nurturing the best ideas along step by step.

Out of hundreds of projects each year, it chooses to keep pursuing just a handful seen as likely to hit a jackpot. Among the latest high-wager hopefuls, in addition to the mercury filters for coal plants: green lasers to equip cell phones with projectors, micro-reactors to enhance chemical processing and silicon bonded to glass to extend battery life for handheld electronics.

"Anything related to glass and glass derivatives, they have probably the best, most concentrated group of experts on the planet," said analyst C.J. Muse of Barclays Capital.

With the economy hurling spitballs, Corning's stock stands around $11 a share, down from $28 in May. The company recently trimmed its plans for 2009 capital spending by up to $200 million after an abrupt slowdown in LCD-TV sales — a nagging reminder that relying on one colossal cash cow product leaves it vulnerable to cyclical swings.

So far, research is largely unscathed. With lab space enlarged by a $300 million investment last year, Sullivan Park is packed again with 1,800 scientists, engineers and technicians, up from 1,100 in 2002.

Gadkaree, who has 67 patents in 25 years at Corning, is one of 15 active research fellows who are given more leeway to explore projects of special interest.

In the 1990s, he developed a water-purification filter that was shelved because the market wasn't deemed big enough. But because it was also capable of capturing metals, the filter got another look in 2004 when signs resurfaced that a long-anticipated federal law eventually could impose a 90 percent reduction on mercury emissions.

Burning coal sends an estimated 300 tons of mercury into the air annually, with U.S. plants alone accounting for nearly 50 tons. As many as 630,000 children born each year in the U.S. are at risk of learning disabilities and physical ailments related to the neurotoxin, according to the Environmental Protection Agency.

Laws in New Jersey, Connecticut and Massachusetts already require coal plants to snare at least 85 percent of mercury emissions, and more than a dozen other states led by Maryland and Pennsylvania are imposing their own stringent restrictions beginning in 2010.

Corning expects its carbon filter will be more cost-effective than a current technique of injecting activated carbon-based chemicals into flue gas. While the chemicals absorb mercury, they can also contaminate a plant's fly ash residues, which are an ingredient in cement and other construction materials.

The new filter employs a ceramic honeycomb that was invented by Corning in the early 1970s and sits at the heart of the smog-busting catalytic converter in automobiles. The filter contains hundreds of tiny passages impregnated with chemicals that stabilize and corral mercury particles.

The big question is whether the filter will be able to capture 90 percent of mercury "as we make the filter larger and run ever longer periods," Gadkaree said. "Back in 2004, I would have said the probability (of success) is about 10 percent. Now I'd say maybe 50 percent."

Even those odds are encouraging to Corning, given how big the market for mercury abatement could be. Coal-fired utilities are the largest source of mercury pollution that remains unregulated by the EPA, and yet coal is plentiful and homegrown.

Despite the rise of wind, solar and other renewable-energy alternatives, "there's at least 20 years where even we will concede that there's a role for coal," said John Rumpler, senior attorney for Boston-based Environment America. "That's a long time horizon for anybody to be investing in mercury-control technologies."

Gadkaree, 55, knows too well that without customers, great innovations go nowhere. He hopes this one can leave a bigger mark.

"Getting a paycheck, everybody can do that, right?" he said. "But `you did something good' — at the end of my career, I want to be able to say that."

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