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Corning Cuts Again

Citing a range of factors related to the worldwide telecom slowdown, Corning Inc. (NYSE: GLW) disclosed plans to lay off an additional 4,000 employees and close or idle fiber-making plants worldwide (see Corning Is Warning).

Corning also expects to fall below third-quarter consensus estimates of 12 cents earnings per share (EPS). The company says it plans EPS to be in the range of 2 to 6 cents for the quarter that ended September 30.

And that may not be all. Spokespeople say everything about Corning's business is being reconsidered in light of reduced expectations.

In its dire warning last night, the world's leading fiber maker told Wall Street it expects fiber sales to be down overall by 10 percent for 2001. Originally, it planned a growth increase of 15 percent.

The company's new EPS figures represent a further drop from Corning's performance during the second quarter, when it reported pro forma EPS of 9 cents (see Corning Posts Q2 Results). And both Corning's second-quarter and estimated third-quarter EPS are significantly lower than they were in 2000, when Corning posted EPS of 31 cents for the second quarter and 28 cents for the third.

Fiber and fiber cable comprise roughly 75 percent of Corning's overall revenues, so any hit to that business is a hit to the heart. But other parts of Corning's business apparently aren't faring well, either: The firm says sales in its Photonic Technologies division are expected to be between $475 million and $500 million for 2001 -- 25 percent lower than originally expected. Even growth in liquid crystal display glass will be down about 10 percent, Corning says.

To cope with all this, Corning says it plans to permanently close one of its five optical fiber manufacturing plants and temporarily halt production at four others.

The plant to be closed is located in Deeside, North Wales, and employs about 436 people. Corning says it will be negotiating severance with employee representatives at Deeside but plans to run the operation at reduced levels and then close it by year's end. There will be no effort to sell the facilities, Corning says.

Staff at the company's other fiber plants in Wilmington and Concord, N.C.; Neustadt Bei Coburg, Germany; and Noble Park, Victoria, Australia, will be laid off and the plants left idle from late October through the start of 2002. The employees affected in these temporary shutdowns haven't been included in the 4,000 to be permanently laid off by the end of this month.

Corning plans to take up to $1 billion in restructuring charges for 2001, including $350 million in the third quarter.

The company also cut capital spending estimates for 2001 and 2002. Originally, Corning said it would spend about $2.5 billion on facilities expansion this year. That figure has steadily been reduced, and now is set at $1.8 billion. For 2002, the company will keep capex to "under $1 billion."

Ironically, CEO John Loose attributes Corning's problems in part to causes he scoffed at last quarter -- namely, price reductions in fiber worldwide.

"In late August, we announced a significant slowing in orders across all fiber product lines from North American and European customers," he said in last night's prepared statement. "We've recently experienced another decline in worldwide single-mode fiber and cable orders, and, as previously expected, pricing pressures are now increasing." [emphasis added]

But back in August, Loose resisted analyst's warnings of price erosion, particularly in China. Indeed, Corning continued to defend the heavy and sudden growth in fiber demand there (see Corning Catches Cold). During its second-quarter conference call in July, Corning execs bashed analysts by name for raising the spectre of unsound China fiber deals (see Corning Price Cuts Scrutinized).

So what's next for Corning? Analysts say it will weather the storm but probably be slower than other companies to recover. According to David A. Jackson of Morgan Stanley Dean Witter & Co., "The fiber market will lag other areas of technology in a recovery, due to the substantial installed base of fiber and continuing cuts in carrier capex."

Morgan Stanley has lowered its 2001 estimates on Corning's revenues to $5.71 billion from $6.26 billion, and it expects normalized EPS to be 60 cents instead of 78 cents.

Midmorning today, Corning shares were trading at $7.87, down 1.13 (12.56%), despite an apparent ongoing rally in optical stocks.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
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