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2HRS2GO: Corning investors tremble with Nortel thoughts

    Monday ramblings:

    Shares of Corning (NYSE: GLW) tumbled more than 10 points this morning after the Wall Street Journal reported the company was talking to Nortel Networks (NYSE: NT) about buying the latter's optical components business. The reported asking price of roughly $100 billion has GLW -- when will Corning change that Glassware ticker symbol to reflect the modern business? -- investors trembling.

    Observers point out the cost of NT's optical unit would be roughly in line with the price JDS Uniphase (Nasdaq: JDSU) offered for SDL (Nasdaq: SDLI) on a price-to-sales ratio. Still, issuing $100 billion in stock means more than doubling the number of GLW shares outstanding to buy a business with annual revenue estimated at $1 billion, or less than 5 percent of Corning's sales over the last 12 months reported.

    The optical market is growing rapidly and components carry higher margins than the commodity fiber that now generates most of Corning's revenue. Nortel's components unit might add to earnings sooner than people think if Corning manages expenses well.

    But it's still $100 billion for a relatively nascent business. And if you didn't want to shell out $41 billion for a major name like SDL, how are you going to sell shareholders on a deal more than twice as large?

    Unfortunately, Corning doesn't have many options left. If regulators let JDSU-SDL pass muster, Corning could be marginalized in the field of optical networking parts. And if that happens, Corning's entire network strategy unravels.

    To prevent that, almost no price would be too high at this point.

    Stocks of some wireless carriers fell in early trading despite gains for the Nasdaq as a whole (Update: As that was being typed, the Nasdaq turned south and proceeded to plunge more than 100 points below Friday's close), following the public confirmation of a VoiceStream Wireless (Nasdaq: VSTR) acquisition by Deutsche Telekom (NYSE: DT) for more than $50 billion. But look at it this way: declining share prices may make an acquisition affordable for someone else, like Worldcom (Nasdaq: WCOM) or British Telecom (NYSE: BT).

    Some folks believe these wireless companies deserve high prices, takeover or not. "Nextel (Nasdaq: NXTL) is undervalued relative to its peers on a cash flow basis, pure and simple," writes reader Scott Messina

    Yet even if the businesses are sound, how much of a future does an independent wireless company have? If the major telecom providers are correct, integrated offerings -- wireless with wireline, Internet access and data transmission -- will rule the communications world.

    Perhaps the large companies are wrong, but certainly the stock market agrees with them, so shareholders ought to take that attitude as well. We can all decry Wall Street as an irrational beast, but to ignore the Street's viewpoint is to leave money on the table.

    Contrarians, now is your time to buy, judging by PaineWebber's monthly Index of Investor Optimism.

    About 78 percent of those surveyed in February thought it was a good time to invest. July's results indicate that figure has now fallen to 29 percent. Sentiment can't bottom out much more than that.

    Today's Journal also rehashes the traditional, lofty, Economic Theory argument against the free digital file swapping enabled by Napster, Scour Exchange, Gnutella and their peers: if artists cannot sell their art repeatedly, they will have no incentive to create.

    Not so.

    I might consider the Economic Incentive thesis valid if Homer earned royalties whenever a Hellenic minstrel recited the Iliad. Perhaps if Chaucer's estate collected a percentage from each transcription or printing of the Canterbury Tales. Or if Handel's register rang with every sheet music sale of the Hallelujah chorus.

    Unfortunately for their heirs' wallets, none of that happened or were likely to happen in the lifetimes of those artists. Yet somehow -- magically, miraculously, if you believe the recording and film companies -- great works were created.

    Of course, we know those artists didn't need the "incentive" of copyrights or trademarks or international distribution fees. They created art because they wanted to.

    Blind Homer (if he really existed) probably got paid for each recitation. Chaucer worked for the government. Handel found a patron.

    Not that I necessarily disagree with the concept of licenses and distribution control. Maybe artists should get paid for the reproduction of their work, notwithstanding the fact that "intellectual property" is a relatively new idea in the history of art.

    But to claim worthwhile creative endeavors will cease because copyright enforcement disappears? That only undermines what might be an otherwise credible cause. 22GO

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