Corning's troubled times persist

The fiber-optic giant's business is continuing to unravel, and the company could be facing a "nuclear winter," according to a Merrill Lynch analyst.

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Corning's fiber-optic business is continuing to unravel and could be facing a "nuclear winter," said a Merrill Lynch analyst Thursday.

Shares closed at $16 at the end of trading Thursday, down $1.35.

Merrill Lynch analyst Steven Fox downgraded the stock to "neutral" from "accumulate" Thursday and predicted a "nuclear winter" for the maker of fiber-optic cable. Wit SoundView analyst Kevin Slocum also said Corning was in trouble.

Corning, which has issued three recent profit warnings, makes optical-fiber, cable and photonic components. Fox said recent checks with Corning's customers lead him to believe that the company's high-margin fiber business, which accounts for 20 percent to 25 percent of sales, has taken a turn for the worst.

The North American fiber market will see "extraordinarily weak demand in the second half of the year," Fox wrote. And "pricing pressures (may) even spread to healthy markets in Asia," he added.

Last week, Corning delayed construction of its Oklahoma City fiber plant as well as the expansion of its Concord, N.C., plant, to match cut costs. Corning said it will delay the Oklahoma City project by about 12 to 18 months, with expected initial production in late 2004 or early 2005.

Though the fiber business was the impetus for the downgrade, Fox also said that the company's other communications business, which makes up 70 percent of sales, may perform worse than expected. Fox kept a "buy" rating on Corning.

Wit SoundView's Slocum issued a bearish report on the stock Wednesday. The analyst cut his financial estimates based on fiber-capacity cutbacks and research into optical-component demand.

"A quick round of calls to any set of industry contacts these days will turn up nothing but bad news," he wrote.

Though Slocum made no changes to his second-quarter numbers, that's not because he thinks the company won't reduce its projections. First Call's consensus predicts the company will pull in earnings of 18 cents a share.

He did cut his estimates for annual results. For the company's Photonics division, Slocum cut estimates by about $100 million this year and $300 million for next. He cut projections for overall gross margins by 50 basis points for this year, and 200 basis points for 2002.

What's worse, Slocum said his estimates for the year may have to drop even further. "We are uncertain that these represent the bottom. We are maintaining our "buy" rating but see little near-term impetus for above-market performance," he said.