Corning CEO Likes Lasers, China

Corning CEO talks about industry consolidation, cash, and China's telecom consumption binge -- UPDATED 06/08, 10:30 AM

June 6, 2001

4 Min Read
Light Reading logo in a gray background | Light Reading

ATLANTA -- Supercomm 2001 -- Service provider spending is down, fiber deployments in long-haul networks have slowed, and recent research forecasts show that optical components are dropping off as well, compared to last year's liveliness. Which component firms should be worried? In a recent Light Reading interview, Corning Inc. (NYSE: GLW) president and CEO John Loose said businesses in ancillary markets and firms without a war chest might be in for a hurt.

"Six months ago we said we felt this [economic slowdown] would only last six months," says Loose. "So that begs the question: What about companies with cash-flow needs and not as big a war chest as they would like? We're going to see companies not making it, and its really unfortunate because a lot of these firms have some really wonderful technology."

Loose, who joined Corning in 1964, is no stranger to economic fits and starts. In 1995, Corning sold off its consumer products business and other businesses to focus on telecom components, optical fiber, glass screens for laptops, and similar undertakings. The company's revenues shrank from around $5 billion a year to a $2.5 billion a year. As Loose recalls it, the Asian economic crisis of late 1997 and 1998 tested Corning's commitment to high-growth businesses, such as photonics.

Now, though, Corning is heading towards $8 billion a year in revenues, with about $1 billion of that being in photonics. Loose says Corning's photonics business will be flat to down slightly this year. Overall, though, he sees Corning having a double-digit revenue increase this year, but with profits down from the $1.1 billion made last year (see Corning: Solid Quarter, Sour Outlook).

But the company has also slowed expansion of its Concord, N.C., optical fiber plant and its construction of another plant in Oklahoma City, Okla. The Concord plant expansion won't be making new fiber until next year and the Oklahoma City plant won't be online until at least the latter half of 2004.

As always, cash is a big deal during an economic slowdown. And Loose says that the slowdown in spending from service providers is allowing Corning to reflect on how it can improve manufacturing. "This industry has to automate, and we've created an advanced engineering group of about 100 people who are dedicated to that. This problem has to be solved, and there's not a lot of commercially available equipment" to make components.

"That's not new to us," he adds. "Some fifty percent of our patents are in the manufacturing processes and equipment used to make our products. We're typically inventing tools, and we don't license our manufacturing technologies. For us it's a competitive advantage."

This, naturally, differs from the view of some startups, such as Chorum Technologies Inc., which see contract manufacturing (outsourcing) as a way to improve their businesses and save money.

So which will be the first components startups to run out of cash? Loose wouldn't entertain us with specific picks. But the question of how fast components firms will consolidate did get him going. "Last year we did about $10 billion in deals. This year we've done very few. Mergers and acquisitions activities are way off for a variety of reasons... but we're certainly prepared to make a strategic acquisition if it enhances our position."

Loose says transport lasers are an acquisition area of interest right now. "We are virtually in all portions of the business, but we do not have significant presence in transmission lasers."

Last year, besides all the deals it completed, Corning was known to be in talks to acquire both Nortel Networks Corp.'s (NYSE/Toronto: NT) optical components division (those talks dissolved) and SDL Inc. (acquired by JDS Uniphase Inc. [Nasdaq: JDSU; Toronto: JDU]). And, as Lucent Technologies Inc. (NYSE: LU) continues to talk to Alcatel SA (NYSE: ALA; Paris: CGEP:PA) about unloading its fiber group, Loose says he's not as sure as he once was that systems companies would sell off their components divisions.

"Today we see evidence of both horizontal and vertical business models. We favor the horizontal model, but I think all systems companies struggle with that decision. It comes down to whether they want to put resources against the systems business or network development. On the other hand, it can be very comforting to systems houses to have control over supply, and we respect that."

Where are the opportunities? Though Corning has seen a slowdown in optical amplifiers and its long-haul fiber business, Loose remains bullish on new orders from international markets, China specifically. "Our shipments to China have doubled this year, and three major long-haul carriers, including China Telecom, have announced that they're using our fiber," Loose says.

"Everything we've observed there says that China will be the largest telecommunications market in the world in just five years."

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like