CORNING CUTS TO THE CORE IN FIBER PRODUCTION HALT

Corning's plan to idle almost all its fiber production for the rest of the year may be the harshest evidence yet of the telecom slowdown, but the eventual ramp-up of those operations could be a useful tool for measuring an eventual market recovery.

The announcement affects about 1000 workers at four Corning facilities. The company also plans to permanently shutter a fifth fiber manufacturing plant in Deeside, North Wales. Corning has no timetable for restarting production, but it will be a gradual process, a company spokesman said.

“We'll have to decide [how and when to ramp up] when we get into the first quarter,” he said. “It won't be all the lights coming on at the same time.”

Until Corning resumes production, it will rely on its inventory to meet carriers' needs. In recent months, the company has tried to run through its inventory, reducing the level from $1.22 billion at the end of the first quarter to $977 million at the end of the second.

But the first signs of a market turnaround will not come from the optical-fiber space. Instead, equipment manufacturers — and their components makers — likely will be the first vendors to see an upswing in orders as carriers buy gear to increase capacity on existing infrastructure, said Drake Johnstone, analyst for Davenport & Co., LLC.

New network builds obviously will involve fiber sales. Therefore, tracking Corning's fiber sales and production ramp-up should provide insight as to when an economic recovery might occur.

“When it comes to new fiber, [renewed production] is going to closely correlate to capital expenditures in the industry,” said Jay Patel, senior analyst for The Yankee Group.

But when demand for optical fiber does increase, it likely will be below the high levels of the late 1990s, analysts said.

Corning's decision to halt fiber manufacturing came as a result of capital-expenditure reductions at established carriers such as Qwest Communications and AT&T, analysts said. When these companies are ready to build again, they will do so based on revenues and demand, not overly optimistic projections of future bandwidth usage.

When Corning decides to reopen the plants, it could face a challenge securing skilled workers to produce fiber. Some plant employees will be out of work for several months, and many will be forced to pursue new employment.

Those workers still are considered Corning employees and get benefits and pay on a case-by-case basis, the company spokesman said. But the longer the manufacturing facilities are idle, the more likely it is that employees will get new jobs.

“[Losing skilled employees] is always a risk we run when we downsize to such a degree,” said Patel. “On the other hand, you've got no alternative. When things turn around, you can always recruit the same people if they are available.”