February 3, 2000
Internet Pushes Corning to Expand
Its Fiber-Making Capacity by 50%
By TIMOTHY AEPPEL
Staff Reporter of THE WALL STREET JOURNAL
Corning Inc. has seen the light.
Already the world's biggest maker of fiber-optic lines and a leader in
making the complex components that piece together optical networks, the
company is planning a massive 50% expansion of its global fiber-making
capacity. The price tag: Some $750 million. Details are to be announced
Thursday.
"Our strategy has always been to be a key player in the optical layer," says
Roger G. Ackerman, the company's chairman and chief executive.
Corning holds an estimated 40% of the global
market, or about twice the reach of its next
closest competitor, Lucent Technologies Inc.
Corning, based in Corning, N.Y., has fiber-making factories in the U.S.,
Britain, Germany and Australia. But Corning views fiber as just one part of
a broader push to provide all things needed to build advanced optical
systems, such as powerful lasers. "We're using our unique combination: An
understanding of both the physics of moving light down the pipe and how
you go about manipulating that light," says Mr. Ackerman.
Fiber essentially is a pipeline, an ultrafine glass strand capable of carrying
pulses of light that convey information. Corning was a pioneer in the field,
investing heavily to develop the technology since the 1970s. But even just a
few years ago, many people questioned whether the investment was smart.
Optical fiber appeared to have limited prospects. It could do amazing
things, to be sure, but it was costly compared with conventional systems,
which transmit information electronically rather than with light.
Wave of Innovation
The Internet revolution changed that. Optical systems are seen as the most
promising way to move vast amounts of information through networks --
which is critical as the Internet continues to grow and develop applications.
This exploding appetite for "bandwidth" has sparked a wave of innovation
in the fiber-optic industry, ranging from better types of high-capacity fiber
to better ways of packaging and arranging components to maximize the
carrying capacity. The upshot is that the economics suddenly seem right for
a vast expansion in the use of fiber optics.
Wendell Weeks, who heads the group that oversees Corning's fiber and
optical-equipment businesses, predicts the cost of moving data over optical
systems will plunge to just 1% of its current level by the end of this decade.
"That's the type of dynamic that's driving the growth in applications that
previously weren't practical," such as delivering high-quality video signals
over the Internet, he says.
"Over the next four years, the amount of information flowing over the
public networks will increase by 17 times," he adds. "And that's really just
the start."
The fiber-optic boom has created huge business opportunities and forced
Corning to invest heavily in expansion. Indeed, the company's latest
fiber-expansion plan comes after it completed a 50% expansion of
capacity just in the fall.
Trend to 'Optical Devices'
While fiber remains crucial for Corning, the company has attracted even
more attention by its recent push into providing more types of optical
equipment, broadly referred to as photonics. The company has long
produced so-called passive devices, the basic tools that fiber-optic
systems use to split, monitor and combine light signals. But the big money
these days is in "active devices," such as what are called pump lasers and
transmission lasers, used in growing numbers in the most advanced
systems.
So Corning went shopping. In November, the company acquired Oak
Industries Inc. in a stock deal valued at about $1.8 billion. Analysts and
investors cheered the move, viewed as clear proof Corning intended to
move more directly into optical components. By acquiring Oak, Corning
gained control of Lasertron, an Oak subsidiary that is a leading laser
producer. Just a month after buying Oak, Corning announced it was
acquiring for about $1.15 billion the optical-cable and hardware businesses
of Germany's Siemens AG and the 50% it didn't own in two joint ventures
with Siemens.
These moves have helped solidify Corning's position as a one-stop shop,
says Mr. Ackerman, the CEO, who notes his customers increasingly want
to simplify their dealings with suppliers.
Not that such investments are without risk. By moving into lasers, Corning
is directly challenging powerful component makers such as JDS Uniphase
Corp., San Jose, Calif., which has a much more-focused components
business, as well as industry giants such as Lucent, Murray Hill, N.J.,
which also is a big Corning customer. Corning is investing heavily in
research and development to improve Lasertron's technology and will have
to continue pouring money into the fast-changing field to stay abreast of
changes that are certain to sweep the field.
'Bandwidth Glut' Concern
Some analysts also point to the potential for a "bandwidth glut." During the
past three years, while the amount of fiber in the ground has increased
more than 65%, some of the fiber already installed still isn't being utilized
for transmission. Corning argues the growth of technologies and
applications swiftly is filling this void and creating pressure for more fiber.
The best measure of this, it adds, is the growing thirst for fiber.
Meanwhile, Corning is benefiting from its recent strategic moves. Since it
announced the Oak acquisition, Corning shares have soared as the
company has acquired the warm glow of a high-tech telecommunications
stock in the eyes of many investors and analysts. At 4 p.m. Wednesday,
Corning was up $1 at $148.25 on the New York Stock Exchange. In
addition, after the market closed, Moody's Investors Service Inc.
upgraded the company's debt ratings. The higher share price, in turn, also
is improving Corning's ability to compete, since it reduces costs of
stock-based acquisitions and helps it retain its most-talented employees.
Once known for kitchenware, Corning says telecommunications accounted
for about 60% of its $4.37 billion in 1999 sales, up from 21% of sales four
years earlier. The rest of Corning's business today is in information-display
screens and advanced materials, such as ceramic substrates used in auto
catalytic converters. |
