Optical/IP Networks

Corning Still High in Fiber

Corning Inc. (NYSE: GLW) still dominates the fiber market, judging from the company's third-quarter results, announced this morning.

Corning earned $317 million, or 35 cents a share, up from $148.1 million, or 19 cents a share, in the previous year's third quarter. Analysts expected the company to earn 34 cents a share, according to a survey by First Call/Thomson Financial. Quarterly revenue grew 54 percent to $1.9 billion from $1.25 billion a year earlier, with Corning’s optical amplifiers sales up 113 percent.

But the strongest segment of the company's business is the optical fiber and cable business, which increased 67 percent from the third quarter of last year (45 percent, excluding the impact of acquisitions) according to Max Schuetz, optical networking analyst at Thomas Weisel Partners.

The company also announced a four-year contract to supply Level 3 Communications Inc. (Nasdaq: LVLT) with 10 million kilometers of fiber over the next four years.

There are a couple of reasons why Corning’s fiber business is red hot. For one, the company has about 85 percent market share. Lucent Technologies Inc. (NYSE: LU) is a distant second with only about 10 percent market share, and its recent internal problems and plummeting stock price don't exactly position them as a major threat to Corning’s business. Coming in at third is Alcatel SA (NYSE: ALA: Paris: CGEP:PA) at roughly 5 percent. Threats from startups are relatively non-existent, due to the high cost of building out production facilities, says Schuetz.

“This is a phenomenally profitable product line that is essential to next-generation networks,” he says. “And Corning is the only vendor that can produce it in large volumes. They’ve got the best competitive placement on earth. It’s something that never happens in markets like this.”

Corning’s fiber business should continue to be a big winner for the company as capacity demand on long-haul networks increases, forcing carries to upgrade to more advanced fiber like Corning’s Leaf optical fiber products. Why? Even though advanced fiber is more expensive than less advanced singlemode fiber, it provides a multitude of benefits that will save carriers costs over time. For example, it provides more channels for transmission and it reduces the number of amplifiers and regenerators needed on a long-haul link.

“Clearly, successive generations of fiber have lowered unit costs for carriers,” says Jack Waters, group VP and CTO of Level 3. “Over time, providers who haven’t deployed this kind of fiber will be at a cost disadvantage. The old standard of singlemode fiber just won’t work anymore.”

Despite the a good earnings news and a hot multiyear deal, as of middday today Corning had dropped $6.13 (5.78 percent) to $99.25.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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