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Corning posts 71% profit gain but cuts forecast

US optical fibre manufacturer Corning Inc., posting a quarterly profit increase of 71%, slashed its earnings forecasts for the rest of 2001 as it suffered from a dramatic slowdown in spending across t…

US optical fibre manufacturer Corning Inc., posting a quarterly profit increase of 71%, slashed its earnings forecasts for the rest of 2001 as it suffered from a dramatic slowdown in spending across the telecommunications industry. For the first quarter, the N.Y. company“s net income totalled US$ 132 million, or 14 cents a diluted share, up from US$ 77 million, or nine cents a share, in the year-earlier quarter. Earnings excluding one-time costs, amortization and goodwill totalled US$ 277 million, or 29 cents a share, a six-cent increase from year-earlier results of US$ 188 million, or 23 cents a share. Revenue rose 42% to US$ 1.92 billion from US$ 1.35 billion a year earlier. Corning officials said things are expected to get worse before they get better as demand falls further for fibre-optic cable. “We“re reacting to specific customers telling us that they“re not going to take as much as they previously ordered,” James Flaws, Corning“s chief financial officer, said in a recent interview. Corning said it will now earn 90 cents to US$ 1.00 a share for the year, excluding items, compared with previous guidance of US$ 1.20 to US$ 1.30 a share. Revenue for the year is expected to drop to US$ 7.8 to US$ 8 billion from previous estimates of US$ 8.2 to US$ 8.5 billion. In particular, Corning officials said that spending on long-haul networks has evaporated as industry concerns about overcapacity have mounted. “It“s strictly related to what we“re seeing with telecom networks and the lack of capital for builds,” said Mr. Flaws. In recent months, Wall Street has pulled back sharply on the amount of capital flowing into companies building long-haul networks as concern about overcapacity grows. Such capital was the key to the explosive growth of companies such as Corning in recent years. Now, with an excess of capacity prompting price cuts and big problems for telecom carriers themselves, it is unclear when demand for Corning“s core products will return. Indeed, Corning officials said they are seeing a drop-off in demand for once-hot optical components as well, which use beams of light to send data across fibre-optic lines. Sales at the company“s component division increased 28% compared with the year-earlier period. Compared with the prior quarter, however, the level is down 32%. To meet its scaled-back expectations for 2001, Corning said it would cut back 1,000 positions from its photonic technologies business. That brings the total lay-offs in that unit to 2,500 and company-wide reductions to 4,300 for the year from a total work force of about 40,000. Corning officials said they may cut still more workers, and that the company may take a restructuring charge in the second quarter because of work-force reductions. Analysts weren“t surprised by the results and say the future remains extremely uncertain. “Somehow they managed to surivive this quarter,” said Raj Srikanth, a telecommunications analyst at Deutsche Bank Alex Brown. “The reality is that their customers are not spending on new fibre.” This marks the third time that Corning has lowered its estimates for the year. In March, the company reduced its guidance twice, underscoring just how quickly and significantly the downturn has hit the entire telecom sector. Corning“s performance does shed greater light on what is happening across the world“s telecommunications carriers. For instance, Corning said that demand for its premium fibres, designed to carry multiple wavelengths of light, has slackened to 25% of total fibre sales – down from an original expectation of 35%. North American network builders are some of the biggest customers for the premium fibre, but they have recently announced a slide of capital-expenditure cuts. Meanwhile, demand for cheaper, single-mode fibre has increased, Corning said, with particular interest coming from Asia.

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