Shares in fiber-optic giant Corning closed up $3.11 to $42.01 Thursday. The stock took a dip late January when the company topped estimates for its fourth quarter but announced a grim outlook and earned a couple of downgrades.
Analysts began downgrading Corning immediately after Nortel's profit and revenue warning Thursday.
On the bright side, Corning said it remains confident that first-quarter results will be within its previously announced estimate range of 28 cents to 31 cents a share.
However, the Corning, N.Y.-based 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 that growth to be about 50 percent for its photonics business, as opposed to the previously expected 75 percent to 90 percent.
Corning also said that the revenue cutback will prompt it to tighten cost controls and look into layoffs. These actions, coupled with continuing strength in its fiber- optical programs, should allow it to hit previous earnings expectations of between $1.40 and $1.43 a share for the full year.
The company said it's continuing with a previously announced plan to deal with the softer market. Its plan to reallocate fiber-optical volume to customers it had been unable to supply is on track, and it still sees strong demand in the metropolitan marketplace.
Analysts grow wary
After Nortel's announcement, some analysts lowered expectations for the company.
First Union analyst Stephen Koffler cut his rating from "buy" to "market perform."
"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 had already downgraded Corning after its fourth-quarter report, on concerns that the company was deep into a fiber-capacity expansion even as demand clearly weakens.
"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 added.
Koffler cut estimates for Corning, lowering his revenue expectations for fiscal 2001 from $9 billion to $8.5 billion, and his earnings expectations from $1.38 to $1.30 a share. He cautioned that the numbers could go "substantially lower," given the potential for pricing pressure.
Merrill Lynch analyst Tom Astle also said that the company's photonics business is likely to suffer in the wake 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.