Corning: 'We'll Do What It Takes'
"There will be no sacred cows when it comes to returning this company to profitability," said CFO James B. Flaws on a conference call with analysts. If the telecom sector continues to be dampened by a lack of investor confidence and a famine in carrier spending, he said, Corning will consider closing more plants, laying off even more workers, selling off "non-core" businesses, and engaging in "additional capital market activities."
Ironically, Flaws's candor seemed to fare well in a market weary of corporate doubletalk: At press time, shares were trading at $3.34, up $0.17 (5.36%).
Corning announced a net loss of $370 million, or $0.39 per share, on second-quarter sales of $896 million. Last quarter, the company reported a net loss of $90 million, or $0.10 per share, on sales of $898 million (see Corning Announces Q1 Results).
Overall, sales of $437 million in the telecommunications segment dwindled by 6 percent sequentially. Within the segment, fiber and cable revenues came in at $212 million, down 17 percent sequentially, which Corning attributes to lower than expected demand from incumbent carriers and cable TV operators in North America, along with ongoing market pressures that have resulted in 10 to 15 percent declines in fiber pricing worldwide.
Wendell Weeks, the company's president and COO, said that North American sales represented over 50 percent of fiber volume (India accounts for 15 percent and China for 20 percent). North America also accounts for most of the company's telecom pain, since ILECs and cable TV players aren't buying new fiber and may indeed be reconsidering what they're using (see Solution for the Fiber Glut: Turn It Off?).
Further, what carriers are buying is strictly run-of-the-mill singlemode fiber, Weeks said. Corning's premium MetroCor and LEAF fibers now account for less than 10 percent of cable revenues, compared with roughly 20 percent at this time last year (see Corning Catches Cold).
Weeks said part of the problem is that Corning's premium fiber is aimed at saving long-haul costs -- and the telecom long-haul market's not growing (see Startups Adjust to Long-Haul Reality). So Corning's in the process of redesigning its premium MetroCor fiber to meet the more immediate metro-area market requirements of RBOCs and other incumbents.
Interestingly, Weeks's promotion to COO at the end of last quarter hasn't resulted in any replacement for him as president of Corning's optical communications division. But company spokespeople say that's not due in any way to the ongoing downturn in sales there; instead, it's a reflection of new CEO James Houghton's organizational judgment. Weeks, in effect, has assumed more duties as president, taking on all Corning technologies in addition to optical.
In other parts of Corning's telecom business, photonic components brought in $39 million, down 30 percent sequentially; connectors, splicers, test gear, network interfaces, and other non-cable parts accounted for $153 million, up 13 percent, thanks to a ramp-up in enterprise installations.
In contrast to all this, Corning said its non-telecom businesses, including advanced materials and information displays segments, showed 4 percent and 9 percent sequential increases in revenue, respectively. Also on the plus side, Corning says it's repaid a chunk of its debt, increased its operating cash flows, and stands in good stead with a $2 billion credit line.
But in order to hit its goal of profitability in 2003, Corning says it must cut an additional 4,400 jobs this year, most from the telecom business. Added to the nearly 12,000 jobs the company cut in 2001, the cuts represent a 60 percent reduction in Corning's employee census since January 2001.
Corning's guidance for the present quarter is for $825 million to $875 million in sales and a net loss of $0.07 to $0.10 per share.
Analysts seem to support Corning's sense that it hasn't hit bottom yet: In an early note to investors last night, David A. Jackson of Morgan Stanley Dean Witter & Co. wrote that recent capex cuts from key North American incumbents like BellSouth Corp. (NYSE: BLS) and SBC Communications Inc. suggest "a delayed rebound in systems purchases and fiber sales, which we think will lag an overall recovery in telecom equipment." Jackson also thinks reduced earnings from the optical system vendors that Corning depends upon -- such as Ciena Corp. (Nasdaq: CIEN), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT) -- indicate that "stabilization in component sales, especially EDFAs used in long-haul transport, is unlikely in the medium-term."
— Mary Jander, Senior Editor, Light Reading