A year that began with millennium fever and fear of the Y2K computer bug is coming to a close with more prosaic concerns revolving around a slowing economy.
The top Rochester business news stories of the past 12 months-a mixed bag of progress and setbacks-reflect this turn of events.
The fortunes of Rochester’s largest companies took a sharp turn for the worse in 2000, even as smaller companies forged ahead and prospered in a tight labor market and an economy that had weakened dramatically by year’s end.
Others worked to transform the city itself, breathing new life into sections that had nearly been written off following the past decade’s flight of businesses to suburban office parks and setting the stage for what may be a renewal of Rochester’s urban core.
The year saw a reversal of fortunes for the Web-based businesses that were the darlings of 1999. And where 1999 saw companies holding wildly successful initial public offerings, 2000 brought the value of many of those stocks crashing back to earth.
Trouble in the land of giants
Rochester’s Big Three were hit with a series of unpleasant surprises in 2000. The region’s giants fell prey to weakening overseas demand for their products, growing competition and internal struggles.
Xerox Corp. was plagued by competitive and financial challenges throughout the year, and in the third quarter the company posted its first operating loss since the mid-1980s. The firm’s troubles have since been compounded by competitors such as Canon Inc. and Heidelberg Digital LLC eating away at its leading position in the world copier market, the ongoing impact of a bungled sales-force restructuring and its current cash crisis, all of which have left it searching for ways to sell billions of dollars’ worth of assets and slash costs.
The company, which in March announced plans to shed some 2,000 jobs in Monroe County and 5,200 worldwide, intends to make additional payroll cuts.
Over the past year, Xerox shares (NYSE: XRX) peaked at $29.75 before plunging to a near-record low of $3.75 a share. In May 1999, its shares had traded as high as $63.69.
Eastman Kodak Co.’s stock (NYSE: EK) has fallen nearly 40 percent since the beginning of the year, owing in large part to a film-industry slowdown and concerns over what the move to digital imaging could mean for the photography behemoth even though the consumer market for digital is relatively small and health imaging-the company’s strongest segment-is heavily digital.
In mid-September, sales plummeted and its stock price nosedived; the company blamed a global slump in demand for its products.
Slackening consumer demand also was blamed for Bausch & Lomb Inc.’s continued problems in all of its businesses.
Along with a decline in contact-lens sales to new customers, the company has been forced to contend with the effects of a weakened euro and competitor Alcon Laboratories Inc. adding a “no-rub” claim to its packaging in an attempt to boost its market share.
To help ease its financial difficulties, Bausch & Lomb identified some $20 million to $30 million in annualized cost savings through the elimination of 450 North American non-manufacturing jobs.
Bausch & Lomb shares (NYSE: BOL) this week were trading around $40, half their 52-week high of $80.88.
Even with all the difficulties the Big Three face, says George Conboy, managing director of Brighton Securities Corp., none is down for the count. Although he cautions that investors should not expect to see Xerox’s or Kodak’s share prices roar back to their previous levels, Conboy thinks that their businesses are fundamentally sound and that they will be a force in the Flower City for years to come.
Bausch & Lomb could be the first to bounce back, he says, noting that its core technologies are not threatened and industry watchers have undervalued the stock.
Conboy also thinks Kodak will successfully make the leap to digital technology, eventually figuring out a way to profit from the increased volume of photographs that the new technology is likely to spawn and also capitalizing on its traditional film technology in developing overseas markets-actions which should serve to revive its share price.
Xerox’s challenges are more severe but not insurmountable, he says. Although some of Xerox’s technologies are dated, the company should be able to regain its footing, given time.
“I see Xerox as having a troubled, tortuous road back to profitability,” he says. “(The company’s) problems are magnified by having a terribly demoralized work force.”
Over the next year investors should not hope to see the document company’s stock price rise to the peak it achieved in March. If it breaks the $10 mark, he suggests, the company will be doing well.
Quietly manufacturing progress
The troubles besetting the companies that traditionally have been the backbone of the local economy were not universal; many other firms throughout the region turned in very successful years. With little fanfare, some smaller manufacturers grew their operations and work forces, and expanded their production facilities.
Even with increased pressure from overseas competitors that has sparked a recent wave of consolidations, several of the region’s plastics companies this year continued to benefit from a demand that has generated continuous growth for nearly three decades. Industry insiders note that metal-to-plastic conversion is an ongoing process and new resins with new uses are being developed almost daily.
Likewise, traditional manufacturers such as Emerson Electric Co. subsidiary ENI, Hover-Davis Inc., Liberty Precision Industries Ltd. and Nationwide Precision Products Corp. are increasing their manufacturing space.
The four companies-which expect their work forces to grow by a total of some 335 jobs-cite a growing demand for their products as the driving force behind their expansions.
Others, like CEN Electronics Inc., do not plan to build or buy new facilities, opting to grow their businesses in exist-ing spaces as they work to feed their customers’ appetites.
The coming year promises further growth in the region’s manufacturing base.
Photonics and fiber-optic giant Corning Inc. in recent months unveiled plans to open an $80 million facility in Henrietta that will employ some 440 staffers. So far, more than half of the plant’s managers have been hired.
Downtown is hip again
Other new work spaces are emerging from older downtown buildings once thought to have outlived their usefulness. A handful of local developers this year continued their redevelopment efforts, transforming once-vacant structures into magnets for the area’s growing crop of tech-savvy workers in cyber businesses.
Following in the footsteps of cities such as Boston, Cleveland and Austin, Texas, Rochester is seeing these spaces refashioned into the trendy offices and apartments that are the environs of choice for the twenty- and thirtysomething workers who staff New Economy businesses.
Developers James and John Loftus have poured some $3 million into renovations and high-tech upgrades in the 105-year-old M.D. Knowlton Building in an effort to attract high-tech business tenants to the Cascade District office complex.
Likewise, developer Ben Kendig invested some $2 million into rewiring the 45,000-square-foot High Falls Building, outfitting it with high-grade security systems for staffs that work all hours of the day and night and making it attractive to high-tech businesses such as Fresher Information Corp.
On the other side of the Genesee River, Home Properties of New York Inc. spent some $7 million developing the 77-unit Chevy Place in the East End into a mix of high-end apartments and townhouses. The location also is home for SPoT Coffee Inc., which in late summer moved into the chrome-filled former Hallman’s showroom on East Avenue.
That project, says Heidi Zimmer-Meyer, vice president of Rochester Downtown Development Corp., has been a catalyst for other residential development in the center city.
In the coming year, she predicts, the city will need to tackle the challenges presented by the protracted legal battle over the fate of Midtown Plaza, which some officials have suggested could become home to a proposed performing arts center.
The plaza’s owner recently filed a Chap-ter 11 bankruptcy reorganization plan, a step that could put the plaza into the hands of lender Blackacre Bridge Capital LLC as early as February.
“We’re in limbo as a community until (Midtown’s fate is known),” Zimmer-Meyer says. “We need to work hard to resolve this.”
Nationwide, 2000 was the year of the dot-com collapse, and several of Rochester’s Web-based businesses fell victim to it. Web Product Realization Network Inc., a prominent Internet venture created to serve as an online broker of services for the electronic-product manufacturing industry, filed a Septem-ber bankruptcy petition seeking to liquidate. The announcement came less than a year after the Monroe Fund LLC invested $500,000 in the start-up, tainting its willingness to sponsor other Internet-based enterprises.
Meanwhile, WebHouse Club-an offshoot of Priceline.com that allowed shoppers to name their own price for groceries-signed a deal with Wegmans Food Markets Inc., only to go belly up before the local chain could begin e-tailing its groceries on the site.
Web sites run as part of established bricks-and-mortar businesses were not immune to the troubles plaguing the Internet sector. Transmation Inc. announced that its B2B e-commerce offering, MetersandInstruments.com, lost some $400,000 in a single quarter. Nonetheless, the company plans to continue to work to expand the site as a means for generating low-cost sales.
Although a slowing economy could make it even harder for Web-based businesses in Rochester and across the country to achieve profitability, dot-coms are not a doomed business model, says Jan Pisanczyn, regional director of the Small Business Development Center at SUNY College at Brockport.
“There are a lot of people out their licking their wounds right now,” he says. “I think you’ll see a phoenix come from the ashes here and there.”
In the coming year he expects investors, especially venture capitalists, to be more cautious about which enterprises they choose to back financially, selecting those that have strong plans for generating profits.
A spoiled crop of IPOs
Just as 2000 was unkind to many Web-based ventures, it also punished the stocks of several local companies that conducted high-profile IPOs the year before.
Internet pollster Harris Interactive Inc. (NASDAQ: HPOL) went public a little more than a year ago, with shares initially priced at $14 and jumping to more than $20 in early trading. The stock’s value has since plunged, failing to break $5 a share since July and currently trading around $3 a share.
When off-road vehicle developer Torvec Inc. (OTC BB: TOVC.OB) went public early last year, its shares initially traded in the range of $12. The stock has not closed above $10 since November 1999, however, and currently is trading between $3 and $4 a share.
In a November 1999 IPO, data storage and semiconductor industry equipment manufacturer CVC Inc. saw its stock (NASDAQ: CVCI) begin trading at $10 and rise to more than $25 a share. Its short life as a public company ended when CVC was bought by Veeco Instruments Inc.
At the time of its IPO, CVC had 394 employees, including some 220 local staffers. The acquisition by the Long Island-based Veeco resulted in 213 jobs being cut, including 70 locally, as part of a plan to eliminate redundant operations.
This year’s offerings have fared little better.
Choice One Communications Inc. (NASDAQ: CWON), which began trading publicly on Feb. 17, conducted its initial public offering at $20 a share and watched the stock rise to almost $30 in its first day of trading, raising $164 million. After reaching a peak of $71.38, the stock’s value has tanked. This week, it was trading for less than $8 a share.
After a late July IPO, Genencor International Inc.-a joint venture of Eastman Chemical Co. and Danisco A/S that uses gene technology to produce enzymes employed in health, agriculture and other industries-saw its stock (NASDAQ: GCOR) rise from slightly more than $21 a share to a September peak of more than $34. It recently has traded in the range of $13 to $15 a share.
Some companies that announced plans for public offerings have been forced to put those ambitions on hold.
PaeTec Communications Inc. filed IPO documents with the Securities and Exchange Commission in April, but the offering has yet to take place. Element K Corp., which provides online learning services, likewise has opted not to proceed with its planned offering.
The local companies’ humbling post-IPO results are not surprising, says Pisanczyn, noting the recent slowdown in the economy and uncertainty in the markets.
“Right now is not exactly a seller’s market,” he adds. “A lot of investors are stepping back because (IPO stocks) are not a slam-dunk anymore.”
What may come
As the Big Three struggle to regain their former glory, young public companies seek to pump new life into their share prices and dot-coms strive to hot-wire their business models, 2001 shapes up as a year of rebuilding.
It doubtlessly will bring new challenges and surprises that will push the headlines of the past year into distant memory, much as this year’s events supplanted concern over
Y2K computer failures and a national economy growing too fast for its own good.