Copyright 2002 The Deal L.L.C.

The Daily Deal…07/26/2002

From LexisNexis

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.