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FTTP Gives ADC a Boost

ADC Telecommunications Inc. (Nasdaq: ADCT) beat analyst expectations this week with solid fourth-quarter numbers made brighter by fiber access equipment sales to Verizon Communications Inc. (NYSE: VZ). (See ADC Posts Q4 Profit.)

The company, which has revamped this year with job cuts and a series of business sales and acquisitions, recorded revenues of $266.3 million and an EPS of 2 cents, higher than Wall Street projections of $249 million and 1 cent (see ADC Streamlines Exec Structure, ADC Jumps on Krone, Intec Buys ADC Billing Unit, and ADC Sells Metrica to OSS Rival).

ADC's workforce stood at 7,500 on October 31, down from 8,150 on July 31. That number has since fallen again following the completed sale of the Metrica unit, which employs 250 (see ADC Completes Metrica Sale).

The results sent ADC's share price up more than 10 percent Wednesday to $2.73. The stock is trading at $2.71 today, which values ADC at $2.2 billion.

Merrill Lynch & Co. Inc. analyst Tal Liani says ADC beat estimates largely thanks to better than expected FTTH sales to Verizon, and he sees further potential from RBOC sales in 2005 (see Verizon Expands FTTP Plan).

"ADC remains well positioned to benefit from fiber to the home deployment by U.S. carriers. We estimate FTTH sales to increase to about $50 million in financial year 2005, with potential deployments at SBC Communications Inc. (NYSE: SBC) and BellSouth Corp. (NYSE: BLS) as an upside to estimates," writes Liani in a research note (see SBC Sheds Light on 'Lightspeed' and BellSouth: Access Will Rise Again).

Merrill Lynch is maintaining its Buy rating on ADC with a target price of $3.20.

ADC estimates sales in its fiscal first quarter (ending January 31, 2005) of $235 million to $240 million, and an EPS of 1 cent, in line with average analyst predictions. However, Liani at Merrill Lynch is adopting "a more optimistic view," predicting revenues of $245 million and an EPS of 2 cents.

— Ray Le Maistre, International News Editor, Light Reading

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