Corning Triples Efforts in Optical Networking
By Cindy Christ

Corning Inc. (GLW) announced three deals Monday to strengthen its position in the optical networking market, led by its acquisition of NetOptix Corp. (OPTX) in an all-paper deal valued at $2 billion.

Based in Sturbridge, Mass., NetOptix produces thin film filters for dense wavelength multiplexing (DWDM) components used in high-speed, data-intensive telecommunications networks.

"Market demand for optical networking products is expanding at an incredible rate," said Corning chairman and CEO Roger Ackerman in a news release.

"The market for DWDM components, in particular, will double this year. The acquisition of NetOptix will help Corning capitalize on this growing market opportunity," he added.

DWDM technology helps increase the amount of traffic that a fiber optic network can carry.

Analysts estimate that the worldwide market for DWDM components will double from $300 million last year to $600 million in 2000, and to $1 billion in 2001.

Under terms of the deal, Corning will exchange 0.90 shares of its common stock for each share of NetOptix common stock, an exchange valuing NetOptix at a 10 percent premium based on Friday's $136 closing price.

The acquisition, which boards of directors for both firms have approved, is expected to close in second quarter 2000, following regulatory and shareholder approval.

Corning will account for the acquisition as a purchase transaction, which the company said will be "mildly" dilutive to earnings per share in 2000 and accretive beginning in 2001, excluding goodwill.

On Monday, Corning and Samsung Electronics also announced the formation of Samsung Corning Micro-Optics, a new company that will mass-produce packaged DWDM components used to expand the capacity of the Internet.

Terms of the agreement weren't disclosed.

The companies said the venture would use robotics and other automation to mass-produce components, and to improve manufacturing capacity and reduce production time and costs.

Volume manufacturing is expected to begin by mid-2000 at an existing Samsung plant outside Seoul, Korea.

"Together, Samsung's expertise in dynamic automated manufacturing systems and Corning's leadership in state-of- the-art photonic products will allow the market to benefit from a high-quality, low-cost supply of optical components and modules," said Ki Ryong Song, Samsung Corning Micro-Optics CEO.

Samsung Corning Micro-Optics is the third major joint venture between the Samsung Group and Corning.

In a third announcement, Corning said it has acquired British Telecommunication's (BT) Photonics Technology Research Center for $66 million and that the two will work together as research partners in developing photonics technology.

Found in next-generation telecommunications systems, photonics are electronic devices that control pulses of light and allow fiber optic cable to carry digital information.

Part of the purchase price related to in-process research and development will be expensed in first quarter 2000, resulting in an after-tax charge of about $20 to $30 million, the company said.

The United Kingdom-based center is viewed as one of the world's leading photonic research facilities, according to Corning.

Market analysts responded favorably to the news, noting the deals expand Corning's manufacturing prowess, helping it meet surging demand for fiber optic components and bolster its position against younger rival JDS Uniphase Corp. (JDSU).

In early February, Corning said it would spend $750 million to expand its optical fiber capacity by more than 50 percent.

Merrill Lynch, which rates shares of Corning a short-term "accumulate" and long-term "buy," said the recent expansions only add to the long-term outlook for Corning's stock. The nation's No. 1 broker has a 12-month price target of $180 on Corning.

"if current valuation levels on comparable photonic companies remain around recent levels, then Corning's stock could double from here within the next three years," analysts said in a February report.

Based in Corning, N.Y., Corning is one of a few companies worldwide that manufactures fiber optic cable, which it invented 20 years ago.

Cisco Systems recently announced it would acquire the fiber- optic systems business of Corning's main competitor in the optical cable manufacturing space, Italy's Pirelli S.p.A.

Investors first responded negatively to the news, sending Corning shares down as low as $162.56 in early trading. Shares later powered higher, closing up $14.25, or 8.6 percent, at $180.

NetOptix shot up $20, or 14.7 percent, to close at $156 on more than 10 times average volume.