ADVA Q3 caught between ‘solid demand’ and supply chain squeeze

ADVA, an optical networking supplier based in Germany – and soon to be merged with Adtran – posted a reasonable set of Q3 financials, although there were some margin squeezes due to ongoing semiconductor supply constraints.

Q3 revenue was up 3.5% year-on-year, to €151.8 million ($177 million). When compared to the previous quarter, turnover was up 1.6%. Increased demand from communication service providers was the main driver here.

On the negative side of the Q3 ledger, pro forma gross profit slipped 8.9% quarter-on-quarter, to €52.2 million/$60.7 million (34.4% of revenues). At €57.3 million ($66.7 million), pro forma gross revenue accounted for 38.3% of turnover in Q2.

Figure 1: Dim the lights: ADVA says slimmer profit margins are down to the global semiconductor crisis.

A year-on-year comparison on this metric shows a slight 0.4 increase, but pro forma gross revenue as a proportion of revenue was 35.4% for Q3 2020, so beating the Q3 2021 margin performance by one percentage point.

ADVA laid the blame of slimmer profit margins firmly at the door of the "semiconductor crisis," which upped purchasing costs. "Customer demand for our solutions remains strong and we're fighting hard to overcome the current supply chain challenges," asserted ADVA CEO Brian Protiva.

Q3 operating income, at €9.5 million ($1 million), was down a hefty 27.2% from the previous quarter. The slide was mainly down to extraordinary expenses in connection with the announced merger with Adtran (€2.1 million/$2.5 million).

CFO sees positive and negatives

Uli Dopfer, ADVA's CTO, described Q3 as "definitely challenging," but saw positives from the expanding top line and "solid margins" (despite the supply chain squeeze).

"We were able to generate cash, and with more than €100 million cash and a net cash position of around €21 million, we further improved our level of financial flexibility," added Dopfer. He didn't see easing of the supply chain bottleneck anytime soon, however. "The semiconductor crisis will last longer than we originally assumed, and the coming weeks and months will certainly be demanding again," said Dopfer.

"Nevertheless, we are confident that with these strong numbers and order books at a record level, we will be able to overcome these supply challenges and close the year with good results within our outlook."

Outlook

ADVA expects revenues to be in the range of €580 million (675 million) and €610 million ($710 million) for its fiscal 2021, and a pro forma operating income of between 7.0% and 10.0% of revenues.

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Q3 pro forma operating income came in at 13.0 million (8.6% of revenues), a decrease of 9.7% compared to €14.4 million (9.7% of revenues). Compared to Q3 2020, however, pro forma operating income improved by 17.7% from €11.1 million (7.5% of revenues).

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— Ken Wieland, contributing editor, special to Light Reading