Corning press release:
Corning Announces Major Expansion of Optical Fiber Production
Three-quarters of a billion dollars in capital spending to be phased in over several years
Corning, New York, February 3, 2000 -- Corning Incorporated (NYSE: GLW) today announced that its board of directors has approved a plan to invest three-quarters of a billion dollars in capital expenditures to expand and enhance the company?s optical fiber manufacturing capabilities. The company expects the expansions to ultimately increase overall capacity by more than 50%.
As a world-leading supplier of optical fiber, Corning is increasing its manufacturing capacity to keep pace with demand for its fiber products, while also allowing for new product development and commercialization. This includes Corning© LEAF© fiber, the communications industry?s fiber of choice for long haul, high-data-rate networks
Corning?s multi-year plan includes equipment enhancements and/or plant expansions at three different sites of its global manufacturing network - the Wilmington and Concord plants located in North Carolina, and its Noble Park plant in Victoria, Australia. This is the first major plant expansion at Concord, the company?s newest fiber- making facility, which began production in 1999. The additional capacity being announced today will more than double that plant?s fiber production capability.
?The primary drivers behind our expansion plans are the strong, worldwide demand for Corning fiber, particularly our new, advanced products, and projections for significant network growth in Europe, the Far East and other regions of the world,? said John W. Loose, president and chief operating officer for Corning Incorporated. ?It is the rapid absorption of bandwidth, and the world?s seemingly insatiable demand for more, that is creating the opportunity for Corning to meet the requirements of telecommunications service providers as they rapidly deploy optical networks around the world.
?As an industry leader we recognize that we must continue to invest in our manufacturing capabilities by expanding and enhancing our technologies in this area,? Loose continued. ?Our Concord, North Carolina, plant will utilize the latest generation of Corning manufacturing technology throughout its operations.?
?North Carolina can take pride that a dynamic company like Corning continues to recognize the quality of our work force and the long-term value of investing in our state,? said North Carolina Gov. James B. Hunt, Jr. ?With Corning?s latest announcement?the single largest investment in our history?North Carolina can claim its place as the worldwide center of optical fiber manufacturing.?
Market analysts? reports placed worldwide demand for fiber in 1999 at more than 60 million kilometers. The fiber market is expected to continue to grow about 20 percent annually, reaching approximately 100 million kilometers a year by 2002.
In recent years Corning announced expansions at its Wilmington facility and in 1996 announced construction of the Concord plant. Corning has also recently acquired from BICC ownership of optical-fiber manufacturing operations in Deeside, Wales and Noble Park in Victoria Australia. Both the Deeside and Noble Park operations had previously been 50-50 equity investments with BICC.
Most recently, in December of 1999 Corning announced that it had reached an agreement with Siemens AG, based in Munich, Germany, to purchase its entire worldwide fiber, cabling and related hardware businesses. As part of this acquisition, which closed February 2, 2000, Corning assumed full ownership of the former Siecor G, a fiber-manufacturing plant in Neustadt, Germany. Siecor G was previously an equity investment between Corning and Siemens.
WSJ:
February 3, 2000
¶ Major Business News
Corning to Pump $750 Million
Into Its Fiber-Optics Business
An INTERACTIVE JOURNAL News Roundup
CORNING, N.Y. -- Faced with booming demand for products that can handle the explosion of traffic on Internet networks, Corning Inc. announced a plan Thursday to spend $750 million to expand and enhance the company's optical-fiber manufacturing capabilities. Corning said it expects the expansion to increase its capacity by more than 50%.
Corning is already the world's biggest maker of fiber-optic lines and a leader in making the complex components that piece together optical networks. Corning holds an estimated 40% of the global market, or about twice the reach of its next closest competitor, Lucent Technologies Inc.
Corning's multiyear plan includes equipment enhancements or plant expansions or both at the company's Concord and Wilmington, N.C. plants and its plant in Noble Park, Australia.
The company cited the need to keep pace with demand for its optical fiber products while allowing for new product development and commercialization. The global expansion of fiber-optic networks and the need for greater bandwidth has pushed up demand for Corning's optic fibers, especially overseas.
Corning, which had $4.37 billion in revenue in 1999, makes optical fiber, cable and photonic products for the telecommunications industry, and sells high-performance displays and components for the television and other communications-related industries.
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February 4, 2000
¶ Dow Jones Newswires
SMARTMONEY.COM: Is Latest Fiber-Optic Play Enron?
By KARYN MCCORMACK
Smartmoney.com
(This story was originally published Thursday.)
NEW YORK -- Investors can't get enough fiber. And we're not talking about a bowl of Cheerios or Special K.
We're talking about fiber optics.
Telecommunications companies such as Qwest Communications (QWST), Global Crossing (GBLX) and Level 3 Communications (LVLT) are racing to build new fiber-optic networks so that high-bandwidth applications like video can travel faster and be clearer when they reach the desktop. The huge growth of the Internet has increased the need for more capacity on old fiber and copper wire networks. All sorts of new switches, routers, servers and software are being used to build the new networks and beef up the old ones.
The need for fiber and gadgets that enhance networks prompted Corning (GLW) - that erstwhile dishmaker - to announce Thursday that it will spend $750 million to increase its fiber-optics manufacturing capacity by 50% over the next few years. And the trend has sent stocks like JDS Uniphase (JDSU), SDL (SDLI) and Sycamore Networks (SCMR) through the roof.
The excitement over fiber optics and increasing bandwidth is also juicing up shares of an old natural gas and electric company called Enron (ENE). True, Enron isn't a typical energy or utility company: The Houston-based company is known for leading the charge of wholesale marketing and trading of gas and electricity. But Enron has never been considered a telecommunications company.
Until now.
After trading between $28.75 and $44.875 last year, Enron shares shot up 65% to a new high of $73.06 last month, after the company held its annual analysts' conference where it unveiled its new communications strategy and a surprising joint venture with Sun Microsystems (SUNW). Wall Street was smitten. 'Although this is still an energy company, in our view, Enron fits the description of a 'new economy' stock' because it has moved its wholesale trading operations online and announced a unique broadband strategy, wrote Donato Eassey, a Wall Street Journal All-Star analyst at Merrill Lynch.
Enron has been building its broadband business since 1997, when it acquired Portland General Electric, which started building a fiber-optic network. Enron invited both telecom analysts and the usual contingent of natural gas analysts to its Jan. 20 meeting. The company presented its new network, which is based on fiber; servers that are ramps on and off the network; 'pooling points,' which are essentially switches that connect its network to other networks; and software to control the transmission of data. The company is using networking gear mostly from Lucent Technology (LU) and Cisco Systems (CSCO). By the end of 2001, Enron expects to increase its network to 18,000 miles from about 13,000 miles now - a sizeable slice of the roughly 200,000 miles of fiber in the U.S.
The company also announced a joint venture with Sun Microsystems to develop a standard technology for accessing real-time bandwidth and supply Enron with 18,000 servers. With Sun CEO Scott McNealy at their side, Enron executives said Sun will purchase broadband video streaming services from Enron. 'All we can say is WOW!' wrote Edward Tirello Jr. at Deutsche Bank Alex. Brown in a note after the show. 'Just when we began to ponder the potential with a very healthy skepticism, Enron brilliantly anticipated the reaction and thrust Sun Microsystems' billionaire CEO Scott McNealy into the mix.'
Fund managers have been intrigued by Enron's transformation, too. Back in December, the Janus Fund (JANSX) snapped up 15.6 million shares of Enron, bringing its stake to more than 25.5 million shares and making it by far the largest holder of the stock, according to the latest monthly data from Morningstar. And Fidelity's huge Magellan (FMAGX) fund nearly doubled its stake in Enron to 4.6 million shares in December. Says Marion Schultheis, managing director at J. & W. Seligman, who owns the stock in two growth funds and is looking to buy more: 'Now there are real tech people looking at Enron.'
Analysts think Enron's stock can climb even higher. 'In January, it was just the first step of the market realizing what this company is doing,' says Erik Ruben, an analyst at Janus Capital. 'It is such an extraordinary story.' Wall Street Journal All-Star analyst Rick Gross at Lehman Brothers agrees. The natural gas analyst is quick to point out that the stock is also reflecting strength in Enron's wholesale gas and electric business and the company's success in turning its energy services business profitable for the first time in the fourth quarter.
Enron plans to use its network in two ways. The first business is bandwidth intermediation, which involves using its own network and other networks to provide businesses and Internet service providers with full bandwidth needs. Enron aims to lower the cost of using networks by charging customers for only the time and space they use on the network. Right now, customers that need space on a network have to enter long-term contracts for preset amounts of capacity with major telecommunications providers such as AT&T (T) and MCI WorldCom (WCOM). Enron has also developed a standard bandwidth contract that pools existing contracts or unused capacity that can be traded in a marketplace (see story for more).
Basically, the company plans to make money on the spread between buying and selling prices for bandwidth, along with financing services. The company has already proved it can profitably buy and sell natural gas and electricity contracts in the same manner. Ronald Barone at PaineWebber figures that the bandwidth intermediation business will generate gross operating income of more than $500 million in 2004, from an estimated $9 million this year.
The second business is providing broadband content services such as video conferencing and streaming. The company is using its own messaging software (acquired from a company called Modulus), along with Inktomi (INKT) caching software to control distribution of content across its network and RealNetworks' (RWNK) video streaming software. It is also using switch routers that control data flows made by a privately held company called Avici Systems. The company expects to generate content revenue of $2.5 billion in 2004, up from an estimated $45 million this year, according to Barone.
The whole broadband services unit is expected to spend $650 million and lose $60 million (before interest and taxes) this year, Barone says. But right now, the stock is hardly reflecting this business, says Lehman's Gross. 'The non-broadband business is valued at $55 to $60, so there's very little in the stock for its broadband assets,' he says. Many analysts have raised their 12-month stock price targets to $90 to $100, giving Enron's broadband business a value of $30 to $40 a share.
Enron's broadband strategy is catching a lot of attention, but some of the established telecom companies, such as MCI WorldCom (WCOM), doubt that it will be successful. Still, Global Crossing, which was the first to sell bandwidth between New York and Los Angeles to Enron in December, has indicated that it thinks the bandwidth-trading concept can work. It's just a question of when. 'Enron is going to be a winner in bandwidth trading,' agrees Brad Bradshaw, senior director at the Yankee Group. 'It's going to take a while, though.'
Even if the broadband plans don't work out, Enron has a thriving energy business to fall back on. The company owns gas pipelines, sells wholesale gas and electricity in North America both traditionally and online and manages energy needs for large companies such as Chase Manhattan (CMB) and Simon Property Group (SPG). Says Janus' Ruben. 'Its energy businesses are equally paradigm-breaking.'
For more information and analysis of companies and mutual funds, visit SmartMoney.com at smartmoney.com
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