Corning Inc. (Corning, NY) has outlined its plan to lower the cost structure of its Photonic Technologies business in response to the severe downturn in market demand for photonic components and modules. The cost of this plan will be included in the firm�s third-quarter results. In addition, its second-quarter results will include pretax charges totaling approximately $5.1 billion to reflect the impairment of goodwill and other intangible assets related to recent acquisitions and the write-off of excess and obsolete inventory.
In related news, Corning�s board of directors announced that the company is discontinuing the payment of dividends on its common stock. This policy is based on the board�s decision to reinvest all cash generated by Corning�s businesses into the future growth of the company to create greater, long-term shareholder value. The company�s last quarterly dividend on its common stock was announced on April 27, 2001 at $0.06 per share, payable June 29, 2001, to holders of record June 4, 2001. The board intends to continue the dividend on the Series B 8% convertible preferred stock.
Reacting to the market
“With the dramatic reduction of infrastructure spending across the telecommunications industry, and our expectation that this market downturn could last 12 to 18 months, we are taking decisive action to lower costs and improve the future profitability of our Photonic Technologies business,” says John Loose, president and chief executive officer. Corning Photonic Technologies develops and manufactures photonic products including erbium-doped amplifiers, Raman and advanced amplifiers, dispersion compensation modules, fiber-based components, DWDM multiplexers and demultiplexers, and pump laser products. The business had revenues of $1 billion in 2000.
According to Loose, the firm�s Photonic Technologies business grew 75 to 100 percent per year for the past three years, and company management originally anticipated similar growth again this year. This resulted in the addition of significant capacity and fixed costs to meet expected market demand that did not materialize. Corning now expects sales this year in the range of $600 million to $700 million for this business, with significantly lower sales of optical amplifiers and other photonic components.
“The abruptness of this industry downturn is unprecedented,” adds Loose. “Nevertheless, we have to deal decisively with these new market realities. We do not take these actions lightly. We fully appreciate the difficulties these decisions will have on individuals, families and communities. We deeply regret these unavoidable actions. However, it is important for our shareholders that we improve the profitability of our photonics business.”
Corning is initiating a process to close three manufacturing facilities by the end of 2001--the Photonic Technologies Benton Park facility in Benton Township, PA; Corning Lasertron�s Nashua Park in Nashua, NH; and the Corning NetOptix operation in Natick, MA. In addition, the company will scale back its Photonic Technologies operations in Erwin Park (Erwin, NY) and at the remainder of its photonics facilities. These actions will result in 1000 employee reductions.
Including the 1000 anticipated layoffs, Corning will have eliminated 3500 Photonic Technologies positions since the beginning of the year. This will bring Corning�s total 2001 reductions to 5900 positions or about 15 percent of its total global workforce of approximately 40,000.
Loose reports that the firm is continuing to evaluate the need for further personnel reductions and other restructuring actions elsewhere in the company. Costs related to these potential additional actions and the photonic manufacturing facility closures are expected to result in a third quarter pretax charge in the range of $300 million to $400 million, of which approximately 75 percent is noncash. Corning expects to realize annualized pretax savings of approximately $150 million from these combined actions.
Corning will announce its second quarter 2001 results after the market closes on July 25, 2001. While the results will include the impact of today�s announced charges, the company is operating slightly ahead of analyst expectations for the quarter without these charges. However, Corning said as a result of the reduced forecast for its Photonic Technologies unit and the low level of visibility across the telecommunications industry, it believes that pro forma earnings for the second half of the year will be below the current consensus of analyst estimates. Corning said it will not provide earnings guidance going forward, but will provide an update on the status of its businesses in its second-quarter earnings announcement.