The Decision: In the midst of the tech crash, Corning put big money into the development of a sleepy technology: pollution filtration for diesel engines.
Corning has pioneered some of the sexiest technology of the past 100 years. The incandescent light bulb. The picture tube for color TVs. Windows for every NASA spacecraft. The glass screens for laptop computers and flat-panel TVs. And, yes, optical fiber. They invented it.
Then there’s the tailpipe business. In the world of glamorous technology, it never hurts to have a dependable trade in something like cleaning up the exhaust of cars, trucks, and buses. More than 30 years ago, Corning developed the honeycombed materials that have become the guts of catalytic converters, dramatically reducing pollution. “Environmental technology,” as Corning calls it, has been a steady business for the company ever since.
Then, four years ago, even as Corning’s fiber-optics business was unraveling, the company’s leadership decided to place a daring bet on cleaning up diesel exhaust. That bet–which is just now beginning to play out–commits Corning to spending upward of a half-billion dollars and harnessing the talent of hundreds of researchers to develop, manufacture, and sell a line of devices to dramatically reduce pollution from diesel-powered vehicles. Diesel engines produce slightly different pollutants–including soot–than gas-powered engines, and typical car technology is ineffective against them.
“This is not a wild leap off a cliff,” says Joe Miller, Corning’s chief technology officer. At the same time, Miller says, it was “a very, very gutsy decision.” The collapse of the tech bubble was as vivid, and as traumatic, at Corning as anywhere. Indeed, it must have appeared to blow a hole in Corning’s financial performance. The company’s total quarterly revenue peaked in the fourth quarter of 2000, at $2.1 billion. Just eight quarters later, in the fourth quarter of 2002, Corning’s quarterly revenue was down to $736 million.
In the midst of layoffs and factory closings–only one of the five fiber-optics factories that Corning operated in 2000 remains open–the company shut down research labs in New Jersey, England, Japan, and Russia. R&D spending was cut by $5 million per week–nearly 50 percent from 2001 to 2003–affecting even Corning’s storied Sullivan Park research complex. Meanwhile, diesel technology’s share of the budget grew “fourfold,” says Miller.
In fact, Corning didn’t place just one bet on diesel antipollution devices–the market for which should grow quickly as stiff antipollution laws come into force around the world. Tom Hinman, head of diesel technologies at Corning; CTO Miller; and the Corning board made a pair of bets. The first was to build a factory to supply a market that didn’t exist. The cost: $370 million. Total sales of Corning’s diesel mitigation business the year the factory was approved: $12 million.
The second bet was even more daring. Corning abandoned the industry-standard filtration technology for diesel cars. As competitors scooped up business, and as construction proceeded on the new factory, Corning ordered up not just a new product from its research labs but a whole new materials-science breakthrough on which to base that product.
“We made a lonely choice,” says Hinman. The existing ceramic material for diesel filters worked fine but was difficult and expensive to manufacture. Hinman’s team thought it could come up with a new material that was as effective against pollution, more durable, and half as expensive for carmakers.
The company bet not just on the market–which it expects to be $1 billion a year in 2008, and to grow from there–but on its own heritage of inventiveness. In 2004, 90 percent of Corning’s sales came from products less than four years old. Corning scientists have often come up with technology solutions under time and market pressure; in fact, they developed the material for catalytic converters under goading from automakers faced with the Clean Air Act of 1970.
The diesel R&D group ended up taking two years to zero in on the right material for diesel-engine filters–aluminum titanate–but it checked in with senior management every six weeks, and more often when necessary. “It was tough sledding,” says Hinman. “You see the competition moving on….It required tremendous confidence.”
Corning is already making heavy-duty diesel-engine filters at its new Erwin, NY, plant. Production of car filters–using the new aluminum titanate ceramic–should start before year’s end.
Miller came to Corning in July 2001 as CTO, and he says that cutting R&D spending was very painful–but also instructive. “There is nothing,” says Miller, “like that kind of experience to temper what you’re hearing, to be sure you don’t just look at these things with rose-colored glasses. “Even in a science-driven company, he says, “there is no algorithm to guide you on these decisions.” – By Charles Fishman