ADC Reports Mixed Bag in Q2

ADC Telecommunications Inc. (Nasdaq: ADCT) posted revenues of $298 million for the quarter ended April 30, 2002, up a bit from $294 million last quarter (see ADC Closes Q1).

Executives said they think the company is "bouncing along the bottom" of the telecom recession, but it's not counting on carriers loosening their purse strings anytime soon. ADC is taking measures to reduce its costs even further, in order to hit a breakeven point of $300 million to $350 million per quarter (with roughly 38 percent gross margin) by the end of the year.

Despite a slight move up in revenues, gross margins are down to 30 percent (including operating reserves) from 32.3 percent last quarter. And despite strong sales in broadband access products, the company reported a pro forma net loss of $0.06 per share, two cents lower than analyst consensus as reported on First Call. Execs say next quarter will see a similar loss per share of $0.05 to $0.06, with $0.02 to $0.04 the quarter after.

Execs blamed a witches' brew of charges, including some related to inventory and accounts receivable, for the EPS loss. As predicted in the April edition of the Optical Oracle, Light Reading's paid subscription research service, charges for non-cash stock compensation, restructuring charges, and goodwill amortization weren't recorded in ADC's first quarter and were likely to emerge to the company's detriment this quarter. It looks like those chickens indeed came home to roost.

Among the cost-cutting measures will be plant closings and work reductions through attrition and layoffs.

On the upside, broadband infrastructure and access (BIA) sales were $205 million, compared to $197 million last quarter, with ADC's CUDA CMTS system up 43 percent sequentially and 221 percent year-over-year. CEO Richard R. Roscitt repeatedly referred to increasing access, particularly in the cable modem termination system (CMTS) area, as the key to the company's future.

"We're the only company that's kicked Cisco's butt in CMTS over the last quarter," asserted Roscitt. But he was reserved about growth in the short term. ADC won't turn around, he says, until 2003. "I believe the worst is over. The road ahead will be mixed, or I might say bittersweet. The companies that survive are those that will master the dynamics of short-term realities while positioning themselves for long-term growth."

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

Editor's Note: Light Reading is not affiliated with Oracle Corporation.