Corning photonics cuts another 1000 jobs

Smarting from the sharp drop in carrier spending, Corning’s fiber-optic component division announced the closure of three manufacturing plants and 1000 more job cuts. The company also said it will take a $5.1 billion charge in the second quarter due to the deterioration in value of two acquisitions as well as excess inventory.

Including the 1000 layoffs, Corning’s photonics unit has reduced its head count by 3500 since the beginning of the year. Across the company, Corning has cut its work force by a total of 5900 jobs, or 15% of its global work force of 40,000.

Corning’s photonic components and models business develops and manufactures erbium-doped fiber amplifiers, Raman and advanced amplifiers, dispersion compensation modules, fiber-based components, DWDM multiplexers and demultiplexers, and pump lasers. The photonics unit, which had revenues of $1 billion last year, now expects sales for the second quarter to drop about 30% to 40% sequentially and to fall in the range of $600 million to $700 million for the year. Sales of optical amplifiers will be particularly slow.

“Our Photonics Technologies business grew 75% to 100% per year for the past three years, and we originally anticipated similar growth again this year,” said John Loose, president and CEO of Corning Photonics Technologies. “As a result, we added significant capacity and fixed costs to meet this expected market demand. And that demand has not materialized.”

As a result of the “severely reduced” market demand for photonic components and modules, Corning’s second-quarter results will include a pre-tax charge of about $300 million to write-off excess and obsolete inventory. Additionally, Corning will record a $4.8 billion non-cash, non-tax deductible goodwill write-off related to last year’s acquisitions of NetOptix and the Pirelli optical-components unit. Corning paid about $5.8 billon for the two businesses.

The NetOptix manufacturing plant in Natick, Mass., will be closed and consolidated with a thin film filter facility in Marlboro, Mass. Additionally, Corning will close a plant opened just last year in Benton Township, Pa., and will stop construction of a plant in Nashua, N.H. Corning said it will also scale back operations in Erwin, N.Y., and other photonics manufacturing facilities.

The costs of the facility closures and work-force reductions will be reflected in a third-quarter charge of $300 million to $400 million, 75% of which will be non-cash. The company expects to realize annual savings of about $150 million pre-tax.

Not counting the one-time charges, Corning management said the company is operating slightly ahead of analysts’ expectations. According to First Call/Thomson Financial, analysts were expecting Corning to earn about 18¢ a share in the second quarter, down from 31¢ per share one year ago.

Furthermore, the company said pro forma earnings for the second half of the year will be below the current consensus of analyst estimates as a result of the reduced forecast for photonics and the “low level of visibility across the telecommunications industry.”

“We won’t see a turn in telecom for at least another 12 to 18 months,” Loose said.

Also, Corning said it is continuing to evaluate the need for further job cuts and other restructuring moves elsewhere in the company. It is scheduled to release its second quarter results after market close on July 25.

Separately, Corning announced it is discontinuing its common stock dividend, because it wants to reinvest its cash into the company’s growth. The dividend on Corning’s Series B 8% convertible preferred stock will continue.