Corning Inc., the world's largest fiber-optic cable maker, said Monday that it would cut 1,000 jobs, close three plants and take second-quarter charges totaling about $5.1 billion because of the slowdown in the telecommunications sector.
The company said the slowdown could last 12 to 18 more months. It added that its second-quarter results excluding the charges related to the restructuring will beat estimates, but the second half of the year will lag behind expectations.
Corning said it will discontinue dividends on its common stock.
The company said it was trying to lower the cost structure of its photonics technologies business in response to severely reduced market demand for photonic parts. The cost of the plan will be included in its third-quarter results.
In the second quarter, pretax charges of about $5.1 billion will be taken as a result of recent photonic acquisitions and the write-off of excess and obsolete inventory, the Corning, N.Y.-based company said.
"The abruptness of this industry downturn is unprecedented," said Chief Executive John Loose. "Nevertheless, we have to deal decisively with these new market realities. We do not take these actions lightly."
Loose said he doesn't expect the general U.S. economy to improve until the end of this year at the earliest, possibly not until the middle of 2002.
The telecom sector's problems have been caused by the general weakness in the economy; financial uncertainty at many companies, especially newer entrants; high inventories; and capital markets' continued shortage of funds, Loose said. Nevertheless, he said, the company continues to believe bandwidth demand will grow 60% to 80% a year.
Corning said it expects to realize about $150 million in annual savings from the latest actions.
Shares of Corning fell 55 cents to $14.55 in after-hours trading after its announcement. During regulartrading, the stock had fallen 3 cents to close at $15.10 on the New York Stock Exchange.
The reduced outlook prompted Standard & Poor's Corp. to cut Corning's senior unsecured debt rating to A-minus from A and its short-term debt, or commercial paper, rating to A-2 from A-1, both with a negative outlook. The cuts could raise Corning's borrowing costs and make it harder for the company to sell commercial paper.
Another rating agency, Fitch, revised its outlook for Corning's ratings to negative from stable.
Corning said it will not provide earnings guidance but will provide an update on the status of its businesses in its second-quarter earnings report.
The company plans to close plants by year-end in Benton Township, Pa.; Nashua, N.H.; and Natick, Mass.
It also will scale back operations in Erwin, N.Y., and at the remainder of its photonics facilities.
Including the latest job cuts, 3,500 photonics jobs will have been eliminated since the start of the year, bringing Corning's total job cuts this year to 5,900, or 15% of its total work force of about 40,000.
The need for further job cuts and other restructuring actions is being weighed, Corning added.
Loose said the company's photonics business grew 75% to 100% a year for the last three years and the company had anticipated similar growth this year. Corning had added significant capacity and fixed costs to meet expected demand that did not materialize.
He said the photonics unit should see sales this year of $600 million to $700 million, compared with $1 billion last year, with significantly lower sales of optical amplifiers and other photonic parts.