x
Gigabit

Adtran & Tellabs: A Tale of Two Access Stories

No one ever said the residential access business was easy. Plagued by low profit margins due to pricing pressures from big carriers, it's one of the least forgiving industries to be in.

So why in this most recent quarter was there such a discrepancy in the broadband access results of Adtran Inc. (Nasdaq: ADTN) and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA)? Adtran did quite well compared with last year, while Tellabs saw its access business shrink. (See Tellabs Issues Profit Warning and Adtran Reports Q1.)

Table 1: Broadband Access Revenues
1Q07 1Q08 y/y Change
Adtran $18,271,000 $28,602,000 57%
Tellabs $121,000,000 $100,000,000 -18%
Source: Company reports




"It's sort of a classic product cycle story. Tellabs has a more mature, older product and footprint, whereas Adtran has a newer product in the TA 5000," says Simon Leopold of Morgan Keegan & Company Inc.

The TA 5000 has helped Adtran get more business with big carriers. Tellabs, meanwhile, hasn't been able to get much further with AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) since gaining their business through the acquisition of AFC. (See Tellabs Buys AFC for $1.9 Billion.)

Adtran's sales at AT&T jumped significantly due to the carrier's interest in the Total Access 5000 for Ethernet over copper applications, while Qwest Communications International Inc. (NYSE: Q)'s $300 million project to upgrade its fiber-to-the-node (FTTN) network increased sales of the Total Access 1100. (See Qwest Moves Quickly With FTTN and Qwest to Spend up to $300M on FTTN.)

The jump could be temporary, though. Adtran hasn't said much about its sales forecasts, and the overall access market remains weak.

Leopold cites Calix Inc. (NYSE: CALX) as an example. "We've gotten the impression that Calix as well is suffering," he says. "At a minimum, their growth has slowed."

On Tellabs's side, AT&T abandoned the fiber-to-the-curb (FTTC) project in the BellSouth region, gutting some expected business. Verizon's shift to GPON from BPON has also hurt, since Tellabs is the main BPON supplier to the FiOS project. (See Tellabs's Access Biz Under Fire.)

In fact, Tellabs gave up altogether on the idea of landing Verizon's GPON business. (See Tellabs Kills Its Verizon GPON Efforts.)

With access sales at Tellabs slipping and the company issuing weak predictions for this quarter, the company's shares have fallen nearly 14 percent since reporting earnings Tuesday. Adtran, meanwhile, enjoyed an 8 percent pop in its stock following its release last week.

But some analysts find those numbers a bit misleading.

"We believe part of the stock's eight percent rise was short covering, as sector investor sentiment remains negative," writes Lehman Brothers analyst Inder Singh in a research note last week. Investors short a stock -- selling shares they'll have to buy back later -- when they think it's going to go down. If a lot of those short positions end around the same time, the stock rises.

Adtran might also have benefited from low expectations. "Adtran typically experiences a seasonally weak first quarter, and it was expected that pattern would repeat in 1Q08," writes Brean Murray & Co. Inc. analyst Eric Buck in a research note. Instead revenues rose and beat the consensus street estimates.

— Raymond McConville, Reporter, Light Reading

Page 1 / 2   >   >>
derac 12/5/2012 | 4:08:37 PM
re: Adtran & Tellabs: A Tale of Two Access Stories Are-áyou are referring to AFC beating Alcatel in the original VZ BPON business?-á-á They bought the business.-á-á The ONT costs-áwere clearly underwater.-á-á-á It worked for them as Tellabs acquired AFC and got those guys off the hook.-á-á Tellabs then had to redesign the ONT.
net-hed 12/5/2012 | 3:42:32 PM
re: Adtran & Tellabs: A Tale of Two Access Stories
I don't get this story at all.

"The TA 5000 has helped Adtran get more business with big carriers. Tellabs, meanwhile, hasn't been able to get much further with AT&T."

That's why Adtran is succeeding and Tellabs isn't? The TA5K isn't contributing materially to Adtran's overall revenue yet, but more importantly, Tellabs problems didn't stem from an inability to get tier-one customers. In fact, the opposite is true.
OSXman 12/5/2012 | 3:42:32 PM
re: Adtran & Tellabs: A Tale of Two Access Stories How come no mention of Occam?

The Fairpoint deal was a big win for them and should bring in a very meaningful amount of business.
paolo.franzoi 12/5/2012 | 3:42:31 PM
re: Adtran & Tellabs: A Tale of Two Access Stories
Depends on how you look at it. Tellabs business with Verizon and AT&T in Access was bigger than all of Adtran (all of it including non-Access businesses and all non-Carrier Businesses).

Adtran has always gone after the spots avoided by the big players (see Alcatel). AFC went head to head with Alcatel and effectively kicked Alcatel in the groin - twice. Tellabs then promptly mucked it up.

As to Occam, nice little business. Fairpoint will be a mess and should be fun to watch. This has nothing to do with Occam - but the company is about to grow 5x without the corporate structure to support it. They pick up every piece of junk in the 3 states and even some FiOS lines. I will the best of luck to Fairpoint, but they are going to struggle with how to restructure their OPEX and CAPEX.

seven
bollocks187 12/5/2012 | 3:42:30 PM
re: Adtran & Tellabs: A Tale of Two Access Stories The Fairpoint deal was with "little" margin to speak of - so even tho they have the account it will be interesting to see the margin when they start to publish results.
Raymond McConville 12/5/2012 | 3:42:30 PM
re: Adtran & Tellabs: A Tale of Two Access Stories The TA5000 by itself isn't the sole reason for its success, the 1100 is responsible as well as we've pointed out. As for your remark about Tellabs, I agree. But we never said they had an inability to get Tier 1 customers and that that was the reason for their demise. The point is that their business within the Tier 1s as far as broadband access is concerned is slipping, i.e. AT&T ditched FTTC, and Verizon is phasing out BPON.
paolo.franzoi 12/5/2012 | 3:42:30 PM
re: Adtran & Tellabs: A Tale of Two Access Stories
I hate the inability to make tables on this set of forums.

I am a sad panda.

seven
paolo.franzoi 12/5/2012 | 3:42:30 PM
re: Adtran & Tellabs: A Tale of Two Access Stories
See Raymond here is the problem....

Adtran's Access Business at Tier 1s with all this growth may still be smaller than Tellabs Access Business at those same Tier 1s after all that slippage.

Most people overestimate Adtran's growth. Take a look since 2000 and evaluate Adtran's top line growth.

07 06 05 04 03 02 01 00
---------------------------------------------
476 472 513 454 396 345 387 462

Okay, so there we are. A company completely flat over 8 years. Not a terrible business but not a big growth story. I like the guys at Adtran and think they run a good business. But let us not crown them the kings of the world.

seven
opticalwatcher 12/5/2012 | 3:42:29 PM
re: Adtran & Tellabs: A Tale of Two Access Stories I always read how poorly Calix is doing. Then I read reports like this:
http://www.broadbandproperties...

This shows Calix winning over 200 independent telco's fiber to the home projects. Since Calix's market is these kinds of Tier 2 and Tier 3 companies and Calix is winning almost all the business there, then how can they be doing poorly? And if this is doing poorly, what else can they do? Going after Tier 1 didn't help Tellabs.

bollocks187 12/5/2012 | 3:42:29 PM
re: Adtran & Tellabs: A Tale of Two Access Stories Tera,

Calix has really really low margins - if you look at hte product it is overdesigned for a NGDLC.

If they where doing so well why have they raised more CASH from VC's ! They must be at $400M. Shit AFC built a product on $5M.
Page 1 / 2   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE