Demonstrating how quickly the telecommunications sector is slowing, Corning Inc. slashed its revenue-growth forecast for this year, sending its shares down by more than 21%.
Citing the capital crunch…
Demonstrating how quickly the telecommunications sector is slowing, Corning Inc. slashed its revenue-growth forecast for this year, sending its shares down by more than 21%. Citing the capital crunch for telecommunications carriers and the slowdown in the U.S. economy, the Corning, N.Y., company said it now forecasts that revenue for its US$1 billion photonics unit, which makes components that manage optical signals, will grow 50% this year. That marks a steep decline from the 75% to 90% in revenue growth the company had predicted 24 January. Corning, which forecasts 2001 revenue of some US$9 billion, maintained its earning projections, but said it will lay off employees and cut costs to meet them. Corning declined to elaborate. The news alarmed investors, sending Corning shares plunging by US$ 9.01 to US$ 33, a 52-week low. Corning blamed the current capital crunch in the telecom sector as a factor in its slowing growth rate. “Capital markets are not giving people the money to build new networks and projects,” Jim Flaws, Corning“s chief financial officer, said in an interview. “We“ve all been surprised by the very rapid reduction in capital spending that started in November and December.” Corning is one of the world“s largest makers of optical fiber, tiny strands of glass capable of carrying billions of bits of data over pulses of light. These are the building blocks of networks being assembled by telecom carriers of all sizes. Its photonics business more than doubled from 1999 to 2000, surging 25% from the third to fourth quarters of 2000 alone. Big equipment makers such as Corning are at the mercy of telecommunications carriers, which have been struggling amid declining prices for their services and shrinking profit margins. This has unleashed a chain reaction of events that has left even the biggest companies humbled. Nortel Networks Corp., a major Corning customer, late last week sharply reduced earnings and revenue estimates for the current quarter and the year. Like Corning, Nortel blamed the slowing economy and spending delays by U.S. carriers. Nortel Chief Executive Officer John Roth put it bluntly: “No one“s building new routes,” Mr. Roth said. “They“ve got no capital.” Mr. Roth predicted a “rocky period” for the telecom sector this year, as some carriers continue to encounter financial difficulty and possibly seek to consolidate. On a positive note, he said corporate-data traffic continues to grow steadily and predicted that carriers would eventually resume building their networks. Telecom carriers are suffering from fierce price competition and a continuing contraction of the capital markets, which are essential to build-out efforts. The capital crunch has already driven a number of smaller rivals out of business, taking pressure off the bigger companies to move ahead with their build-out plans. Indeed, just in the past three months alone bellwethers such as Worldcom Inc. and Williams Communications Group have said they plan to reduce spending. But even next-generation optics companies are feeling the pinch. Shyam Jha, marketing chief at Corvis Corp. in Columbia, Md., said it was only a year ago that Corvis salespeople could land deals by just talking to a carrier“s CEO. Nowadays, he said, CEOs are insisting on taking deals directly to their boards for approval.