Adtran Issues Profit Warning

Adtran Inc. (Nasdaq: ADTN) issued a profit warning late Thursday, saying that revenues for the third quarter, which ends today, are expected to be US$162 million, while earnings per share after one-time costs (also known as non-GAAP earnings) are expected to be in the range of $0.18 to $0.19.

The access equipment vendor had been expecting the quarter's sales to equal or even exceed the $184 million generated in the second quarter. (See Adtran Expects Flat Carrier Spending.)

Analysts polled by Thomson Reuters had been expecting revenues of $187.2 million and non-GAAP earnings per share of $0.30. The significant shortfall is likely to hit Adtran's share price hard once the financial markets open Friday.

In an official statement issued hours after the markets closed Thursday, the company's CEO Tom Stanton stated: "Our performance this quarter continued to be affected by a challenging spending environment stemming largely from macro-economic and regulatory concerns. The largest impact continues to be in the U.S. carrier market where we saw continuing delays in project rollouts exacerbated by a decrease in legacy product sales. Although timing the resolution to these macro concerns remains challenging, recent bidding activity in Tier 1 and Tier 2 carrier accounts both domestically and abroad leave us very confident about our positioning as these markets rebound."

But just how strong might that "rebound" be? While Adtran is undoubtedly suffering, along with others, from weak general capex trends in North America and Europe, where it now has a firmer foothold following the acquisition of the fixed broadband business from Nokia Networks , it's also coming under heavy competitive pressure in key accounts, notes MKM Partners analyst Mike Genovese in a research note issued early Friday.

Genovese believes Adtran is under threat from Calix Inc. (NYSE: CALX) at existing customers such as CenturyLink Inc. (NYSE: CTL) and Frontier Communications Corp. (NYSE: FTR), while prospects at smaller North American operators are not as healthy as in the past. In addition, the analyst notes that the fourth quarter, historically the strongest of the year for operator spending, is not shaping up to be that great. Adtran is also focused on fixed broadband at a time when many carriers are shifting their infrastructure spending more towards mobile broadband access.

Why this matters
This isn't just bad news for Adtran -- it suggests that other vendors with a reliance on North American carrier customers are likely to be suffering too. So it's likely Adtran will be the first of a number of companies announcing, or pre-announcing, worse than expected financials for the third quarter.

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— Ray Le Maistre, International Managing Editor, Light Reading

digits 12/5/2012 | 5:20:13 PM
re: Adtran Issues Profit Warning

Great point.

HDSL revenues were down nearly 43% year-on-year in the second quarter to $19.5 million (as stated on the Q2 conference call) -- no reason to imagine that's a trend that going to reverse.

digits 12/5/2012 | 5:20:13 PM
re: Adtran Issues Profit Warning

Adtran's share price is down by 8.7 percent to $17.49, which isn't quite as drastic as I had expected.

Let's hope Q4 does provide some green shoots for the vendor community in general.

paolo.franzoi 12/5/2012 | 5:20:13 PM
re: Adtran Issues Profit Warning

One thing that might be impacting that is not here is the possible final death knell of the HDSL business.  Adtran made a lot of money on that business and with 4G really rolling my guess is that little to no spending is being used to improve T-1 connectivity to cell sites.  Newer technologies are better for higher rates.  The way to cross reference this is to see what the Tellabs 5500 revenue is.  Both product lines (TA3000 for Adtran and 5500 for Tellabs) have been wonderful ATM machines as 3G networks expanded.



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