Corning confirmed expectations for the first quarter, but ratcheted down growth targets for the full year and said it may announce layoffs in response to news from Nortel, one of its biggest customers.
Shares in fiber-optic giant Corning (NYSE: GLW) closed up $3.11 to $42.01 Thursday. The stock took a dip in late January when the company topped estimates for its fourth quarter, but announced a grim outlook and got a couple of downgrades.
Analysts downgraded Corning immediately after Nortel's Thursday warning that its earnings and sales would be lower due to the slowing economy. Corning's photonics group, which makes up 15 percent of overall revenue, gets much of its business from Nortel.
First Union analyst Stephen Koffler cut his rating from "buy" to a "market perform" advisory.
"Aside from Nortel being a large customer to Corning's Photonics business, the new outlook provided by Nortel has broad, troubling implications," Koffler wrote in a research note.
Koffler initially downgraded Corning after its fourth-quarter report, on concerns the company is deep into a fiber capacity expansion, while demand is clearly weakening.
"Earlier, we were concerned about supply and demand coming into balance and negative implications for Cornings valuation. Now, we could see a period of oversupply sometime this year which would clearly have negative pricing implications," Koffler wrote.
Koffler cut estimates for Corning, lowering his revenue for fiscal 2001 to $8.5 billion from $9 billion and earnings to $1.30 per share from $1.38 per. Those numbers could go "substantially lower" given the potential for pricing pressure, Koffler added.
Merrill Lynch analyst Tom Astle also said that the company's photonics business was likely to suffer as a result of Nortel's announcement, but added that Nortel's news probably won't affect Corning's fiber business, which accounts for 20 percent to 25 percent of total sales.
Corning said it remains confident that first-quarter earnings per share will be within its previously forecasted range of 28 cents to 31 cents.
However, the company said that because one of its "key customers in the photonic technologies business has reduced its growth rate," it is lowering expectations for year-over-year revenue growth. It now sees year-over-year revenue growth of about 50 percent for its photonics business, as opposed to the previously expected 75 percent to 90 percent.
Corning plans to tighten cost controls and consider layoffs.
These actions, coupled with continuing strength in its optical fiber programs, should allow it to hit previous earnings expectations of between $1.40 a share and $1.43 a share for the full year, the company said.
Corning said it is continuing with its previously announced plan to shift optical fiber volume to customers it had previously been unable to supply. The company still sees strong demand in the metropolitan marketplace.