Warmed-Over Corning Prepares for More Cuts

With optical networking sales plunging into the abyss,

Corning

(GLW) - Get Report

says it will shrink two business units into one and shuffle management as it

prepares to slash some 4,000 jobs in its telecom-related operations.

The reorganization comes a day after optical component rival

JDS Uniphase

(JDSU)

warned of lower-than-expected sales this quarter and laid plans to cut 2,000 more employees from the payroll. The news is only the latest blow to the beleaguered telecom sector, which has shed billions of dollars in market value amid a massive slump across the industry this year.

Corning shares, already more than 70% off their 52-week high, slid 5% Friday, dropping 31 cents, to $6.52. JDS dropped 48 cents, or 10%, to $4.55.

Trim and Fit

JDS is on track to reduce its workforce to roughly a quarter of its size during the peak Internet buildout two years ago. Corning, meanwhile, has already cut 11,000 jobs since its staff maxed out at 43,000 workers in 2000. The latest cuts will trim the workforce to about 27,500 people -- about a third less than its peak.

Cutting is about the only option left for companies such as Corning, says Credit Suisse First Boston analyst Max Schuetz, who rates Corning hold and JDS strong buy. CSFB was an underwriter of a recent Corning bond sale.

"I don't think there is a telecom recovery out there to happen," says the analyst. "We certainly have seen that with JDS,

Alcatel

(ALA)

and everyone in this sector. It doesn't matter what you do right now, you are very much a victim of the macro market."

Telecom stocks of all stripes have melted down during 2002 amid worries about declining revenues and massive debt loads at the big telcos. As the big telcos scrimp and save to avoid debt downgrades, their spending on capital gear is falling sharply. And as their spending falls, orders for outfits such as Corning and JDS dry up.

Corning plans to combine its photonics and optical devices units bringing the telecom unit count to four from five. And while the executive shuffle involves seven top managers, some observers don't expect much radical change for what has traditionally been a very clubby organization.

Bring It to the Table

Prior to 1996, Corning was a combination of businesses that ranged from medical testing to dinnerware. But as fiber-optic telecommunications started to bloom, Corning spun off those units and focused on selling components and glass cable to the free-spending network builders of the era.

Today, about 70% of Corning's business is related to telecom, with the remaining operation concentrated on businesses like computer screens and other glass products.

In three years, Corning pumped $4.6 billion into capacity expansion, says Schuetz.

"The tough thing about this industry is that demand grew so fast, these companies were building capacity as fast as they could, and no one, including myself, stepped back to ask if this growth would be sustainable," says Schuetz.

With phone companies

cutting $4.5 billion out of their spending plans in the past few days alone, there's little reason for investor optimism as the latest cuts filter through the supply chain.

But then, you probably already knew that.