Corning Inc., a maker of optical telecommunications components, plans to cut 1,000 workers from its rolls and close three manufacturing plants by the end of the year, and also take a US$5.1 billion charge against earnings to write down inventory and the value of acquisitions, the company announced late Monday. The dramatic moves come "in response to severely reduced market demand for photonic components and modules."
Corning's setback mirrors that of other major telecommunication equipment makers like Alcatel SA, which announced another 2,500-worker set of layoffs on Monday, or Nortel Networks Corp., which posted one of the largest quarterly losses in history last month with a $19.2 billion loss attributed mainly to write-offs and one-time charges.
The companies that buy Corning gear, mainly big telephone businesses, competitive local exchange carriers, and the companies that build equipment for them, are in the middle of the revenue stream that started five years ago with the dot-com expansion. That stream is a trickle now, and as each stop on the creek looks to cut costs, it leaves less for the next company down the line.
The company's photonic technologies business segment will bear the greatest force of Corning's moves, said John Loose, Corning's president and chief executive officer, in a statement.
The growth of the photonics segment of 75 percent to 100 percent per year for the past three years and sales of $1 billion in 2000 compare to an expected revenue reduction in the $600 million to $700 million range this year, a 30 percent contraction.
Corning had bulked up its photonics department for continued double and triple-digit revenue growth, only to see a "dramatic reduction of infrastructure spending across the telecommunications industry," the company said.
Corning's photonics business makes pump laser products for fiber optic communications, amplifiers to boost the power of laser light through fiber optic lines, network equipment components to prevent data corruption from laser beam spreading, dense wavelength-division multiplexers and demultiplexers to increase the amount of data a fiber optic strand can carry, and other fiber optic-based components.
About $300 million in inventory will be written off as excess and obsolete, primarily due to significantly reduced customer orders, the company said. Corning will take a $4.8 billion non-cash, non-tax deductible charge related to the acquisitions of Italian optical technology company Pirelli SpA. and Massachusetts-based DWDM thin-film filter maker NetOptix Corp. in 2000.
The company plans to close its Photonic Technologies Benton Park facility in Benton Township, Pa.; Corning Lasertron's Nashua Park in Nashua, N.H.; and the Corning NetOptix operation in Natick, Mass. Of Corning's 40,000 workers, it dropped 2,500 photonics workers and 2,400 other employees earlier this year.
The board of directors of Corning also announced that the company will discontinue the payment of dividends on its common stock. Corning expects to miss analysts earnings estimates for the second half of 2001, and does not see a rebound in the moribund telecom sector for another 12 to 18 months.
Analysts and economists have been predicting an end to the economic slowdown by the end of the year. Corning's pronouncement that the end of the drought could be more than a year away is a sign, barring extraordinary events, that everyone may keep their belts tightened for just a little longer, exacerbating the situation.