Corning: 'We've Hit Bottom'

Corning Inc. (NYSE: GLW) has reached the bottom of its economic slump, its management says. And while execs can't say just how long its sojourn there will last, they say renewed telecom spending could help fuel a rebound in the second half of this year.

These were the main messages given during an investor conference held by the company this morning at New York's Plaza Hotel (see Corning CEO Provides Guidance).

”Good liquidity, strong governance, complete disclosure... compliance, and integrity are the bottom line,” Corning’s CEO John W. Loose told analysts during the presentation. He said the company expects to report a net loss between $0.14 and $0.18 per share on revenues of $925 million to $950 million for its first quarter of 2002. In the same timeframe, Corning will take a $225 million charge for ongoing severance of employees as part of its restructuring plan. Net cash is estimated to be $1.5 billion, and the company says it’s got a $2 billion credit line. Capital spending will fall in the $500 million range, and the firm plans to invest about $100 million in cash in new properties. The report is officially due in April (no date’s been set).

Management was cautiously optimistic about prospects for its telecommunications segment, which accounts for more than half of Corning’s annual net sales and has suffered the most from the recent market downturn.

Wendell P. Weeks, Corning’s president of optical communications, says a slight upturn in recent orders indicates a return to seasonal effects associated with a healthier telecom market. And, despite further estimated capex reduction of 25 to 30 percent by carriers this year versus 2001 spending levels, he sees demand for bandwidth leading to inevitable wallet-opening in the second half of 2002.

"We think carriers are at greater than 55 percent of their wavelength utilization," Weeks said. That means networks are starting to show wear at the seams. Where present applications require more bandwidth, in will go new fiber -- or DWDM gear to expand the capacity of existing fiber.

Weeks said Corning is aiming to address these needs with new fiber built to accommodate the needs of metro providers and DWDM components like amplifiers and multiport optical switch fabrics that are aimed at strengthening the vendor's position in components segments where it already has a leading share.

Weeks said most telecom growth will occur in local access, where central offices connect to remote terminals for distribution to businesses and homes, and in metro rings, where more capacity at core and edge are needed to match customers' existing requirements.

Overall, Weeks said, Corning fiber shipments are expected to go up more than 15 percent in the first quarter, mainly in North America. Interestingly, Corning, which was criticized last year for its overemphasis on the China market (see Corning Touts China, Rips Analyst), says competitive issues in that country will take several quarters to resolve themselves, putting Corning's main focus on other parts of the world.

During the Q&A, analysts questioned Weeks's assertions about capex, and he was quick to say he wasn't completely certain about the ultimate outcome. ”Our order rates, analysis, and customer dialogue tell us we are at the bottom. How long do we stay here? We’re not sure."

Still, the Street seemed to take Corning's presentation to heart. At press time, shares were trading at $7.21, up $0.77 (11.96%).

— Mary Jander, Senior Editor, Light Reading

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