Despite the announcement of a massive $1.2 billion (€1.28 billion) investment in the production of its fibre-optics components, this week media reports said Nortel Networks is in talks with Corning to sell its fibre-optic equipment unit.
Nortel is refusing to comment. The two companies have been working together closely for at least six months preparing joint bids to build large networks.
On Monday a Wall Street Journal report cited unnamed sources referring to a complex $100 billion stock swap. However the price is believed to be a little steep for Corning which has a market capitalisation of around $72 billion. Nortel's market capitalisation is around $240 billion.
Following the Nortel optical investment announcement, Chase, Hambrecht & Quist analyst, Mr Michael Neiberg was quoted as saying: "Maybe they just want to say `Hey this isn't slipping - this is not a fire sale'. I am sure that over the past several months every potential structure that you could imagine of a deal has been discussed."
Competitor, SDL, which is about one-third of the size of Nortel's optical component group, was recently sold for $41 billion, making the $100 billion price tag appear reasonable, according to a research report from Merrill Lynch, also published this week.
The Wall Street Journal also speculated that such a deal could result in Nortel owning more than 50 per cent of Corning, while Corning would retain the optical parts unit and maintain its independence.
Analysts are now saying the timing of talks between the two companies makes sense following JDS Uniphase's $41 billion stock bid announced two weeks ago to take over rival SDL.
The deal will pose enormous competition to Corning, which sells fibre-optic cable and some optical components.
"It shouldn't stretch investor imaginations to see Corning and Nortel get together," said Mr Kevin Slocum, an optical industry analyst at Wit SoundView. "Nortel and Corning were in serious discussions last summer, but talks were shelved due to Nortel's concerns over the tight components supply market."
Analysts are now saying Corning must grow quickly if it wants to remain competitive with JDS Uniphase.
