|
Corning hit by Nortel news
|
 |
February 16, 2001: 8:39 a.m. ET
Fiber-optics equipment maker lowers revenue growth, mulls job cuts
|
NEW YORK (CNNfn) - Optical equipment maker Corning Inc. said Friday it is examining "work force reductions" and other cost control measures in an effort to maintain its earnings targets for 2001. The action follows a drop in business from Nortel Networks, a key customer, the company said.
Corning's announcement comes less than 24 hours after Nortel Networks (NT: Research, Estimates), its largest customer for photonics technologies, equipment used for high-speed telecommunications, warned that it will post a first quarter loss and will cut 10,000 jobs.
"Nortel is their largest customer for optical equipment. A sharp slowdown at Nortel in deployment of optical systems certainly is not good for Corning, and I think this new lowered information accelerates or adds a little bit to the time frame (for a turnaround)," Salomon Smith Barney Analyst Timothy Anderson said."
Corning Spokesman Paul Rogoski said Nortel's announcement prompted the new measures, but declined to say how many jobs could be cut. However, he added that Corning sold out of its fiber products in 2000, pointing to healthy growth in demand for broadband services.
 Corning said it now expects 2001 revenue growth of 50 percent, down from 75 percent to 90 percent as previously announced, the company said. Additionally, Corning said it is considering further cost cutting measures including "the need for further work force reductions."
The company also reiterated its first-quarter earnings guidance, saying it still expects full-year earnings to fall between $1.40 and $1.43 a share.
Corning (GLW: Research, Estimates) was down $6.01 to $36 shortly after the markets opened Friday.
In a research note issued late Thursday, Anderson said Nortel's scaling back will lengthen the time Corning needs to adjust inventory levels, and that if Nortel opts to add traffic to existing lines and equipment, that could result in even softer demand for optical equipment from Corning.
As a result, Anderson said he is lowering his price target on Corning for the first half of 2001 to $55 a share from $90.
Although the news certainly puts pressure on Corning's stock and creates more risk, Merrill Lynch Analyst Steve Fox said, it's important to remember that photonics makes up just 15 percent of Corning's total sales and that the segment has much lower gross margins than the fiber optics business, which remains fairly healthy.
Fox said he is lowering his 2001 revenue target for the company by 45 percent, or $300 million, to $1.4 billion from $1.7 billion.
Check out other networking stocks
"There's still risk with the fiber part of the story, but the good that came out of the Nortel (conference) call is that the metro market is doing well. They're selling a new high-end fiber into the market, and overseas they're still seeing good trends," Fox said. "I think the stock will be under pressure in the near term, but as long as the fiber business continues to hold out, they should be in a good position going forward."
Check out telecommunications stocks
Fiber optics equipment manufacturers have come under pressure of late as the telecommunications carriers that buy their equipment for high speed communications re-evaluate strategies and scale back spending and growth.
Lucent Technologies (LU: Research, Estimates) and JDS Uniphase (JDSL: Research, Estimates) have stumbled on a telecom slowdown of late. But Ciena Corp. (CIEN: Research, Estimates) reported better-than-expected first-quarter results Thursday, cheering analysts and investors on the long-term outlook for the sector.
In addition to Nortel Networks, AT&T Corp. (T: Research, Estimates) announced in October it is splitting itself into four companies in an effort to boost shareholder value. Both AT&T and WorldCom (WCOM: Research, Estimates) reported lackluster results in January following big dips in consumer long-distance. 
|
|
|
|
|
 |
|
