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9/20/2005
Five Variations on Creative Destruction on the NYSE

"Creative destruction" is the name given by the economists Joseph Schumpeter and David Ricardo to the process whereby companies pursuing their changing comparative advantage destroy the old and grow the new. It's a buzzword for the great deeds that the Wintels performed in the '90s and the dotcoms in the Oughts.

Looking through the 42,000 entries on Google, "creative destruction, NYSE" one finds a patchwork quilt ranging from the most virulent pro-capitalist writings of Becker and Posner, the always politically astute centerpiece of almost every Alan Greenspan speech to 500 references to the job destruction, the discrimination against women, and the "monopolistic" nature of the leading retailer, and numerous references to the churn and turnover of all the typically used indexes with particular reference to that old standby, GE, the one company from the original Dow that is still with us, to numerous academic studies on such matters as performance of companies by concentration ratios and time of entry in this or that index. The subject cries out for some current work free of the slow-moving , retrospective, out-of-dateness and political biases that makes work of this nature so hard to pick the wheat from the chaff.

If there's one prime example of creative destruction, reinvention, flexibility, churn and dynamism on the NYSE, it has to be Corning, which sold at 113 in 2000, 1.1 in 2002, and now has ground back to 20, with sales of $3 billion projected for 2005, down from $8 billion in 1996 but up some 25% from 2003. Its major business read like a poster for what is, was or will be good in tech: display technologies, environmental technologies, control substrates, optical fiber cable, life science equipment, diesel engine filters, advanced materials -- what a whirlwind it is. Hardly a quarter goes by without a major spinoff, acquisition or joint venture, shift in strategy, changed core, sale of now non-core, restructuring of the balance sheet, change of chair, major contract ready to be signed or business ready to enter, closing of factories, massive layoffs, etc.

Amazingly, Corning has done this repeatedly since its founding albeit on a slower time scale. Yes, this is the same company that used to be known mainly as a sleepy manufacturer of plate glass, fiberglass and cookware in the formerly sleepy upstate NY company town of Corning.  Some of the things they've pioneered and subsequently deemphasized include fiber-optics, glass for the first light bulbs, traffic lights, all the plate glass and cookware of the '30s, specialty glass for cookware in the '40s, lab service in the '70s, the artful spinoff of bankrupt Dow Corning in 1995 and Qwest, selling off consumer brands in late '90s. Five billion dollars of acquisitions in 2000 in optical fibers. Laid off 25% of its staff in 2002, closed plants.

In short, a company that changes its game to keep in step with the pitiless consumer, the consummate Rod Laver of tennis who can hit any shot from anywhere on the court with four kinds of spin, the very model of a flexible young-hearted company at 140 years old. Definitely not the kind of company that the Sage would buy, and that's probably a good summary of one of the reasons that Corning is within a stone's throw of its five-year high and the Sage's company at a 25 month low. Subsequent installments will provide a systematic study of the performance of companies manifesting various syndromes of creative destruction.

 

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