With Writedown, Corning Joins Ranks of Telco Realists
Scott Moritz
07/09/01 - 06:55 PM EDT
Updated from 4:20 p.m. EDT:
Corning GLW acknowledged Monday what the rest of communications network investment community has known for several months now: New long-distance Internet construction has ground to a halt.
Talking to analysts on a conference call Monday afternoon, Corning executives recounted a now familiar story of confronting an abrupt and "unprecedented" industry downturn just as the company had completed a vast production-capacity expansion.
Cisco CSCO, for one, told a
similar tale a couple months ago.
But Corning's postclose warning indicated the gearmaker is at least coming to grips with the new reality of the telecommunications business. The company set a $4.8 billion second-quarter charge to write down the value of goodwill, or the premium it paid for acquisitions, including
Pirelli's optical business last year. In doing so, Corning joins
Nortel NT, which last month said it would record a
$12.3 billion charge related to acquisitions, and
JDS Uniphase JSDU, which is enlisting the
Securities and Exchange Commission's assistance to deal with a
$40 billion-plus goodwill overhang. Implicit in these writedowns is the notion that the companies overpaid for acquisitions during the telecom boom and that the stock values reached last year and in 1999 aren't coming back.
Mystery Man
While Corning said Monday on the call that it will beat second-quarter operating profit expectations of 18 cents per share, company executives said the rest of the year will be a mystery. Taking the opportunity to play economist, Corning CEO John Loose predicted the telecom industry will lag the rest of the economy by some six months, putting a turnaround at least 12 to 18 months away.
The once highflying photonics business, which makes amplifiers and laser pumps that sit at the core of fiber-optic networks, has been the quickest part of Corning's business to fall off.
Corning said it would close three factories and slash 1,000 jobs as it cuts back its photonics business. The telecom equipment maker set a staggering $5.1 billion charge to cover the cost of those moves and the writedown of recent photonics acquisitions.
The company also discontinued its 6-cent quarterly dividend and reduced second-half financial expectations, pointing to the industrywide spending slowdown. Corning said second-quarter revenue in the photonics business would fall as much as 40% short of expectations and that second-half numbers for the company would be weaker than expected, but declined to offer more extensive financial guidance.
Including Monday's actions, Corning will have cut 5,900 jobs, or 15% of its workforce, in 2001. Some 3,500 of those jobs will have come from the photonics unit.
Corning shares, which were halted at $15.09 on Monday, resumed trading in after hours down 4% to $14.41.
Corning is expected to report its second-quarter results after the market closes July 25.
