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Optical/IP

Corning May Sell Avanex Stake

Corning Inc. (NYSE: GLW) is vacating its board seat at Avanex Corp. (Nasdaq: AVNX), possibly in preparation for liquidation of its stake in the company.

Corning's representative, Joseph Miller, will step down from Avanex's board on Oct. 27, Avanex announced yesterday. Avanex attributed the move to Miller's "expanded responsibilities" at Corning. Avanex also lost its CFO, Rich Yonker, yesterday (see Avanex CFO Leaves ).

The CFO's departure grabbed the headlines, but Miller's decision might have bigger implications for Avanex, as it's believed Corning is getting ready to drop its remaining 10.7 million Avanex shares, a 7.4 percent stake.

That's because Corning will be free to sell the shares as of Oct. 1. Corning obtained 21 million Avanex shares in 2003, when Avanex acquired optical components divisions from Corning and (see Avanex to Buy Alcatel, Corning Units). The contract puts restrictions on how much stock Corning can sell, but Corning has been taking advantage lately by selling what shares it can.

"It's my belief Corning is going to sell all its remaining shares once it's allowed to," says Dave Fore, an analyst with Sur Terre Research LLC.

Fore takes Miller's departure as good news. It's further evidence that Corning wants out, and a quick selloff might be less painful for Avanex's stock.

"There's been an overhang on the stock since Corning started selling its shares," Fore says. "I feel there are investors out there who would be willing to take the stake Corning has."

Corning isn't spelling out its plans precisely, but the company has told Avanex it's not nominating a successor to Miller, according to Avanex's proxy statement filed with the SEC yesterday. "We have been selling those shares periodically and will continue to do so," a Corning spokesman says. "It's not our habit to hold onto company shares long-term."

Alcatel, which also got stock in the Avanex acquisitions of 2003, still holds 35.4 million Avanex shares, according to Avanex's proxy statement.

Yonker's departure, meanwhile, is a "job-fit" issue and not necessarily a sign of trouble, Fore says. Still, Yonker was on the job only five months, and investors weren't keen on his quick exit. Avanex stock was down $0.06 (6.7%) at $0.84 in late trading today.

About that stock price: Avanex got a warning from Nasdaq last month, saying the company risked delisting if its stock price remained less than $1. Avanex has until March to correct the situation (see Nasdaq Warns Avanex ).

— Craig Matsumoto, Senior Editor, Light Reading

Stevery 12/5/2012 | 3:01:31 AM
re: Corning May Sell Avanex Stake Bookham gets so much more message traffic than Avanex ... I'm wondering what people think Avanex's chances are.

Neither has any viable long term strategy as far as I can tell. I'd love to hear differently though.

As for the message traffic, people tend to post more when a company is near bankruptcy. This should be obvious from a graph vs stock price of the LU posts.
Pete Baldwin 12/5/2012 | 3:01:31 AM
re: Corning May Sell Avanex Stake Bookham gets so much more message traffic than Avanex ... I'm wondering what people think Avanex's chances are.

They've got a bigger cash cushion than Bookham, but they're in a similar boat -- trying to shift operations to Asia before the money runs out. And, of course, banking that the move helps make money in the long term.
allidia 12/5/2012 | 3:01:30 AM
re: Corning May Sell Avanex Stake Good Question. Last I heard AVNX had negative Gross margins and were losing money faster than BKHM. I figure BKHM by means of the NT deal (improved GM's for a few more Q's) and recently selling the Real Estate now has a good 4-5 quarters to reach profitability. AVNX has no such white knight as GLW is selling shares in AVNX and ALA has all but abandoned them. I give AVNX 2 Q's and then they start selling patents and key products to generate cash. No one is interested in them so they are first to close shop.
dmw_qqqq 12/5/2012 | 3:01:29 AM
re: Corning May Sell Avanex Stake I am still seeing Yonker's being listed in AVNX website...maybe the webmaster was let go also.

D
deauxfaux 12/5/2012 | 3:01:24 AM
re: Corning May Sell Avanex Stake Avanex and BKHM really are two peas in a pod: both were unsuccessful (financially) bubble IPOs that raised a lot of cash, wasted most of it, and went on to buy the cash-draining, cast-off component businesses of NT and ALA.

AVNX's liquidity situation is not precarious in that their current ratio is about 1.5, but they don't have a lot of cushion either. There is little danger of bankruptcy in the next 2 quarters.

After that, as the cash gets drained into paying restructuring charges that have previously been written off, things get a bit dicier. The real question is whether or not they can start to generate some operating margin headway (toward CF breakeven). As I see it, they don't have the product mix to do it, and won't have it in the forseeable future.

Jo is obviously betting that he can convert his operations group into a full "yuan" cost structure. I think that this will take years more than he has. I think that Jo is a great guy, very intelligent and hard working, but not up to this job.

AVNX needs a clear thinking operations expert, not a PhD at the helm
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