After market close Monday, the maker of optical network parts and fiber said it would record a $5.1 billion charge in the second quarter to cover inventory write-offs and reflect the reduced value of acquisitions made last year.
Corning plans to take a third-quarter charge of $300 million to $400 million to cut 1,000 jobs and close three U.S. plants involved with its Photonic Technologies division, which makes amplifiers, pump lasers and other devices used to build fiber-optic networks.
"Demand has not materialized," Corning CEO John Loose said during a conference call with analysts.
Corning expects to report second-quarter earnings that will top First Call's consensus analyst forecast of 18 cents per share. Fiber revenue has been better than expected recently, although the trend continues to move to cheaper, lower-margin fiber, rather than to Corning's premium LEAF product, Loose said.
But second-quarter revenue from optical components fell 30 percent to 35 percent from the first quarter, Loose said. Corning now sees 2001 revenue of $600 million to $700 million in optical components, down from $1 billion last year.
The division had been increasing sales 75 percent to 100 percent annually in recent years. Corning originally expected similar growth in 2001 and added manufacturing muscle for it.
Now the company will be closing one plant that opened just a year ago in Pennsylvania and one in New Hampshire that hadn't opened yet. A plant in Massachusetts that came with last year's NetOptix acquisition will close, and its operations will be moved to a nearby facility, company spokesman Daniel Collins said. The bulk of the job cuts unveiled Monday will come from a plant at Corning's headquarters in Corning, New York.
Job cuts will be carried out by the end of the year, the company said.
Including this week's announcements, Corning will have eliminated 5,900 jobs, or about 15 percent of its staff in 2001. About 3,500 of those job cuts are in the company's Photonics unit.
Corning is the third optical components maker to announce job cuts in a week. Avanex and Luminent announced them last week. Earlier this year, industry leader JDS Uniphase also announced layoffs.
Slump in communications sector
Given the downturn in optical components, more cost cuts from Corning shouldn't surprise many people, said George Hunt, analyst with Wachovia Securities. "I think people expected something," Hunt said.
Much of the industry's problem stems from a slump in expansion of networks for transporting data across large distances, Corning executives said. A recovery in the communications sector might not occur until the middle of 2002, they said.
Although some telecom-equipment makers believe a rebound could happen this year, Corning is probably right, Hunt said. "There's some ray of hope, but a betting man would have to say it's not likely to happen until 2002."
Major communications carriers have reduced their network expansions because their would-be rivals, competitive local exchange carriers (CLECs), have run into financial problems, Hunt said. Data business has lower profit margins than voice business, so large carriers such as regional Bell operating companies don't have as much incentive to upgrade their networks, he added.
"Without competition, the carriers are going to go back," Hunt said. "If they're being pushed by CLECS to offer anything other than basic T1 lines, that's mostly what they'll offer."
Also Monday, Corning said it would eliminate cash dividends on common stock. The company had been paying a quarterly dividend of 6 cents per share.