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Corning Outlook Still Grim

Corning Inc. (NYSE: GLW) whittled another $25 million off expected revenues and announced a fresh round of pre-tax operating charges totaling $178 million last night (see Corning Outlook Dims).

The news was released in anticipation of Corning's fourth quarter 2001 report set to take place after market close on January 23, 2002.

Corning now expects quarterly revenues of $975 million instead of about $1 billion as originally forecast -- and in contrast with the $2.1 billion it reported at the same time last year (see Corning Slams on the Brakes and Corning Meets Low Expectations). And with the new charges, the company expects a pro forma net loss of $0.28 to $0.29 per share, a reduction of about of 4 cents more than originally planned.

Still, Wall Street appeared ready for the worst: At noon today, the company's shares were trading up 0.16 (1.63%) at $9.97.

The new charges result from a range of items, including $90 million related to an employee stock compensation plan, $60 million in excess photonics components inventory that must be written off, and $28 million for intellectual property -- which some analysts think may be related to the purchase of component technology that has lost value. The company also is reporting a $600 million pre-tax restructuring charge, related to ongoing layoffs, plant closings, and other cost-cutting measures.

When all is said and done, Corning says, the adjustments will result in a fourth-quarter net loss per share of $0.69 to $0.70.

Analysts say the changes don't affect the investment prospects of Corning's stock (the consensus appears to be "Hold"), but they do highlight Corning's ongoing pickle, namely: How it will keep its revenues up while restructuring?

For instance, the company announced it will reopen two of the five fiber plants that were idled this past fall in an effort to cut costs (see Corning's Plant Restarts: A False Spring?). According to Morgan Stanley Dean Witter & Co., Corning needs to keep the reopening trend going in order to maintain revenue levels.

At the same time, though, Corning faces gloomy market prospects. "Given our expectation of a 20% decline in capital spending by the RBOCs in 2002 and further capex cuts by IXCs, we believe evidence of a more meaningful recovery in Corning's fiber sales is limited," write Morgan Stanley analysts David A. Jackson and Arif Mawji in a note to clients today. They say Corning's plant reopenings don't signal any uptick in business because Corning's "fiber sales (and production) in 4Q were at unsustainably low levels, in our view."

They also don't see much promise in Corning's component writeoffs. Corning says the writeoffs will bring its excess inventory to about $70 million, still a large figure, and according to Jackson and Mawji, one that signals a drop in fourth-quarter business: "We estimate that Corning shipped roughly $35 million in optical components during 4Q01, and $69 million in 3Q01," they write.

Considering that Corning's fiber and photonics businesses account for roughly 75 percent of its overall revenues, this probably isn't good news. Further, it's clear that moving forward, Corning will face a juggling act, trying on one hand to meet demand by reopening idled facilities, and on the other to maintain its cost structure throughout the downturn.

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