To: Curtis E. Bemis who wrote (17712 ) 2/3/2001 12:33:03 PM From: Tunica Albuginea Respond to Corning Puzzled By Stock Market Reactioninvestors.com Corning Puzzled By The specialty-glass maker, whose products include fiber-optic components for fast networks, recently reported those big fourth-quarter gains and that outlook for parts of its business. Its shares fell 20% the next day, and haven’t recovered. They especially don’t want to hear that word applied to Corning’s fastest-growing business, optical telecommunications products. The company said one segment of its optical business, photonics, may be flat in the first quarter compared with the fourth quarter, not vs. the year-earlier period. Photonics accounts for about 15% of Corning’s revenue. It includes the optical amplifiers that boost laser signals down glass cables. Chief Executive John Loose points to the continuing strength in fiber sales as the best guide to his company’s health. He recently spoke with Investor’s Business Daily about the optical market. We expect photonics revenue to grow about 75% to 90% this year. What people get hung up on is sequential growth, which is, quite frankly, new to us. About a year ago, you started hearing about sequential growth as a way to measure high-growth businesses. It puzzles us a bit. IBD: What’s wrong with sequential measurement? We made more amplifiers in the fourth quarter than we did in all the previous year. Quite frankly, taking a brief pause in manufacturing isn’t that bad. Our visibility on photonics has never been quite as good as it is on fiber.When carriers start building a new network, the first thing they decide is which fiber they’re going to use. Then they go talk about what systems to put in. Carriers view optical systems much like people view a PC. If I wait one more week, there’s going to be something better out there. That’s why carriers wait until the last minute to buy their systems. Loose: We brought on over 40% more capacity in fiber last year. This year, we’ll be bringing about 20% more capacity. We expect to add 30% more in 2002. We’re not slacking off our capital spending one nickel. We’re just finishing off a major expansion at our Concord, N.C., plant. We have another new plant going up in Oklahoma City. Last year, the mix of fiber volume has moved up to 30% coming from premium fiber. We expect the premium fiber mix to increase to 35%. We’ve now started to roll out new fibers. Last fall, we introduced fiber for metropolitan networks. It’s our latest fiber, and it began shipping in the fourth quarter. What’s next is a system that can send 40 billion bits per second. It’s a very difficult technical problem to make something blink 40 billion times a second. In that instance, there’s a problem with laser light called dispersion. It will require a new type of fiber to control dispersion. You’ll probably be seeing it roll out in the first half of 2002. New fibers are very important. They could all use automation. At some point a lot of these functions will be done on a chip. We’re spending a lot in this area. We expect work in this area to be coming out over the next five years.
