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Smooth-as-Glass Rise for Shares of New Corning

CEO Roger Ackerman has shed familiar lines to lead company into fiber-optics, telecom equipment fields.


Corning Inc. made the glass for Thomas Edison's first lightbulb, and years later built the mirror for the huge Mt. Palomar telescope. Its CorningWare and Pyrex cookware became household names. And less than a decade ago, Corning's biggest business was health care.

No more. Through a frenzy of sales and purchases since 1995, Corning and its chief executive, Roger Ackerman, have jettisoned those lines and dramatically reshaped the company into a provider of fiber-optic cable and other leading-edge telecommunications equipment that's in very big demand these days.

Corning is now an industry leader in fiber-optic lines--those hair-thin strands that use pulses of light to carry voice and data at high speed. It also makes "photonics" gear, the equipment that manipulates and guides the light pulses traveling through the cable. Its customers include major telephone companies, specialized telecom firms such as Williams Cos. and Level 3 Communications Inc., and Internet-networking companies.

Corning also is a top producer of the specialized glass used in liquid crystal displays, or LCDs, that are now commonplace on computers, wireless phones and other electronic devices. And it makes a variety of so-called advanced materials used in the semiconductor and scientific fields.

All to the delight of the 149-year-old company's investors. Corning's stock price has quadrupled in the past 12 months--adding $36 billion to the company's total market value--and the stock has outpaced the benchmark Standard & Poor's 500 Index by nearly 3-to-1 over the past five years.

On Friday, Corning's stock rose $2.25 a share, to $193.31, giving it a gain of more than $27.50 for the week, in New York Stock Exchange composite trading. That also means Corning--whose GLW ticker symbol dates back to its days as a mundane supplier of glassworks--has a stock that's trading for a whopping 82 times the company's expected per-share earnings for 2000.

And Ackerman is using Corning's rich stock to make even more deals and, he hopes, turn Corning into a central shopping mart for optical-network supplies.

Just last week, the company agreed to pay $2 billion in stock for NetOptix Corp., which makes filters for facilitating optic-fiber transmissions. Corning also signed a joint venture with Samsung Electronics Co. of South Korea to package the filters for use in various network components, and it agreed to acquire the Photonics Technology Research Center owned by British Telecommunications for about $66 million.

Yet even with all these deals, "Corning has narrowed its focus," said Kevin Slocum, an analyst with SoundView Technology Group in Stamford, Conn. "Around 1997, Corning began emerging as a communications company."

Ackerman, though, said Corning's latest shift--this time to exploit the new economy of technology and information--is in fact old school for Corning, which is based in the bucolic town bearing its name in New York state.

"This company has gone through a lot of transformations in its history, and I think that's why we've been able to survive," Ackerman said in a telephone interview. "Plus, the company has always been technology oriented, so that wasn't a big change, either."

Perhaps, but Ackerman's latest moves carry plenty of risks.

Because Corning is now the world's top producer of fiber-optic lines, with about 40% of the global market, it runs the risk that a downturn in any major overseas economy could slow its growth.

"There's no way the world can catch a cold now without Corning sneezing," Slocum said.

It's a growth rate many would envy. In 1999, Corning's earnings from continuing operations surged 45% from the prior year, to $477 million, on a 22% gain in revenue to $4.4 billion.

Ackerman said the potential growth is still enormous. There's an "insatiable demand" for the equipment that will help widen the amount of voice and data signals that can be transmitted worldwide, and to accelerate its delivery, he said.

Even so, Ackerman has been making deals at a breakneck pace, and now he's under pressure to smoothly integrate all of Corning's acquisitions--both their assets and people. Indeed, Corning's work force has mushroomed to 32,000 employees from 17,000 only a few months ago.

Besides the NetOptix and other deals announced last week, Corning last month paid $1.8 billion in stock for Oak Industries Inc., a maker of photonics devices, and early this month it paid $1.2 billion to buy the optical-cable and hardware lines of German electronics giant Siemens, as well as the remaining 50% of two joint ventures between the companies.

The NetOptix and Oak Industries deals, in particular, are aimed at boosting Corning's position in the photonics market and making it a stronger player to such rivals as JDS Uniphase Corp.

"I don't see a risk in the strategy" Corning is pursuing, "but the question is whether it will be able to execute that strategy well," said Nikos Theodosopoulos, an analyst at Warburg Dillon Read in New York.

That's not all. Corning this month also unveiled plans to expand its optical-fiber production by more than 50% over several years, a plan costing $750 million. It also plans to spend $200 million to expand its LCD glass-making plants, because of rising demand from computer makers.

Corning also has more divestitures likely. Chief among them: Its 50% stake in Dow Corning Corp., which went into bankruptcy reorganization in 1995 amid a wave of medical claims over its silicone breast implants.

That same year, Corning wrote off its $365-million investment in Dow Corning--Dow Chemical Co. owns the other half--and the ultimate reorganization shouldn't involve further liabilities against Corning. In fact, Corning could benefit by selling its stake in Dow Corning, which makes other silicone-based products, after Dow Corning emerges from bankruptcy.

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