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Adtran Hints at Slowdown

Adtran Inc. (Nasdaq: ADTN) hit sales and earnings records in the second quarter of 2008, but the company's stock fell anyway on signs that sluggish carrier spending could end the party. (See Adtran Reports Q2.)

Adtran cited Tier 2 carriers, in particular, as being likely to curb their spending in the coming months. "Tier 2 carriers have kind of lowered their spending levels, and they are being very careful on how they spend," said CEO Thomas Stanton on Adtran's earnings call today, "and we kind of expect that same mentality going forward."

One carrier in particular that could be troublesome for Adtran is Embarq Corp. (NYSE: EQ), which historically accounted for 10 percent of Adtran's revenues but dropped off from that mark this quarter. "I would say we saw slowness in Embarq in general," said Stanton. "I wouldn't attribute it to one particular segment."

As far as Tier 1 carriers are concerned, Stanton remarked that there hadn't been any signs of spending slowdowns just yet. The Adtran 1100 is selling well to Qwest Communications International Inc. (NYSE: Q) and AT&T Inc. (NYSE: T); and Verizon Communications Inc. (NYSE: VZ)'s wireless backhaul upgrades have benefited Adtran as well.

For the second quarter of 2008, Adtran earned $22.4 million, or 34 cents per share, on revenues of $131 million. Analysts had been expecting earnings of 30 cents per share on revenues of $127.9 million, according to Thomson Reuters .

Adtran's revenues included a 55 percent jump in sales from broadband access, compared with the previous year.

Adtran shares fell 79 cents (3.2%) to $23.98 today.

Adtran has defied the recent trends in residential access. (See Adtran & Tellabs: A Tale of Two Access Stories.) While there has been so much promise of growth as carriers consider GPON upgrades, vendors as a whole have yet to reap the benefits financially, and some have begun to shed parts of their residential access offerings, particularly in PON. (See 'Run Away!' Nokia Siemens Retreats From GPON and Tellabs Kills Its Verizon GPON Efforts.)

But Adtran has enjoyed several quarters of strong sales and profitability even as its peers struggle.

Stanton acknowledged that a slowdown in carrier spending could affect his company, but he downplayed the potential severity. "I would say the environment hasn’t gotten worse. I would say it is just the same in how they are being cautious in spending money and even to the approval cycles about how they spend on things. I don’t know if I would attribute it specifically to the economic environment more so than just the methodology in which they run their companies today."

Adtran has also been trying to diversify its customer base lately to include more international carriers. Along those lines, Stanton said he thinks Adtran has a shot at the $3 billion fiber rollout that BT Group plc (NYSE: BT; London: BTA) announced today. (See Adtran Looks Overseas and BT Unveils $3B FTTx Plan.)

— Raymond McConville, Reporter, Light Reading

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