Corning units on the block
Copyright 2002 The Deal L.L.C.
The Daily Deal...07/26/2002
From LexisNexis
Sarah Cohen
from CED Broadband Direct, July 26, 2002
Corning Inc. has a number of auctions in the works
to raise cash and help reach profitability by 2003, sources said
Thursday.
Optics analyst Jim Jungjohann at CIBC World Markets said Corning,
the world's largest maker of optical fiber and cables, is selling
Corning Gilbert, its connector business. The unit could fetch
more than $100 million, he said.
Connectors plug electronic devices together. They are a critical,
if mundane, part of electronics manufacturing.
Hasan Imam, a partner with Thomas Weisel Partners LLC in San
Francisco, said that the company is also trying to sell its optical
components business, which analysts value at about $50 million.
Corning wants to sell the unit because it is "difficult
to justify the R&D spending that Corning would have to continue
to sink into this business and the excess manufacturing capacity
on its books," Imam said. "The business was not profitable
even at the peak of the market."
In a conference call with analysts Wednesday, Corning Chief Financial
Officer James Flaws said the company will sell or discontinue
production of non-core product lines if telecom spending continues
to deteriorate. "We'll spare no sacred cow in bringing us
back to profitability," he said.
On Tuesday Corning reported a loss of 39 cents per share for
the quarter ended June 30 and cash of $1.3 billion, down from
$1.8 billion sequentially.
Corning this week canceled plans to build an optical fiber plant
in Oklahoma City and decided against expanding another plant in
Concord, NC, in attempts to cut costs. But Flaws said that if
telecom spending continues to decline, the company must accelerate
cost-cutting initiatives further to reach profitability next year.
"We are unwavering in our commitment to profitability next
year," he said.
Max Schuetz, an optical component analyst with Credit Suisse
First Boston, said Corning has a better chance selling its connector
business than its optical components unit. "Gilbert probably
generates cash, and if it can be acquired at a decent price the
business is cyclical enough that there will be upside to its earnings
when the recovery comes," he said.
Jungjohann said possible bidders for the connector business include
Andrew Corp. an Orland Park, Ill., wireless device maker that
made two acquisitions this spring; Hickory, N.C.-based cable maker
CommScope Inc.; and Wallingford, Conn.-based connector manufacturer
Amphenol Corp.
Corning's controls and connectors product unit generated $33
million in revenue in the quarter ended June 30. In the company's
quarterly filing Wednesday, Corning said it sold its appliance
controls group, part of the controls and connectors business,
to New York private equity firm Jacobson Partners in May for $24
million in cash and note proceeds of $6 million.
Completing a sale of the optical components business could be
tough. The unit makes optical amplifiers, for which there is little
demand, Jungjohann said. He estimates the division generated about
$13 million in the June quarter and that, as of spring quarter,
its revenues have fallen 96 percent from the year-earlier period.
Schuetz said Corning is more likely to shutter the optical components
business than to sell it, noting that inventories for optical
components remain high.
Possible bidders for the unit will likely be limited to financial
buyers, analyst said.
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