AFC Not Banking on Reg Relief

The Federal Communications Commission (FCC) may change the rules governing carriers' Unbundled Network Element Platform (UNE-P), but Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) CEO John Schofield says it won't be enough to revive carrier capital spending this year.

"I think reality is [UNE-P rule changes] will not have a short-term impact for a whole variety of reasons... not the least being [carrier] organizations in many cases are being shrunk so much, it would take time to rebuild the organization to even implement significant rollouts," Schofield said on AFC's earnings conference call Tuesday. "Yes, it's a positive. Over time it will have a positive impact... [but] there are not a lot of detailed plans being put in place for an immediate action plan."

Schofield's comments run contrary to opinions that if the government reverses its rules requiring RBOCs to lease access lines and other network elements to competitors at fixed, wholesale prices, it will open a floodgate of spending on telecom equipment.

Still, AFC doesn't seem to need regulatory relief to get bullish on its future. The company reported a fourth-quarter and full-year 2002 profit on Tuesday, saying it expects to keep gaining market share in a shrinking space.

Revenues for AFC's fourth quarter of 2002 were $85.7 million, compared with $82.1 million for the fourth quarter of 2001. For the year 2002, revenues totaled $344 million, compared with $327.5 million for the prior year.

Analysts expected AFC to earn a pro forma profit of 5 cents a share on revenues of $82 million, according to analysts surveyed by First Call.

The company's actual profit for the fourth quarter was $17.5 million, or 21 cents a share on a diluted basis, compared to a net loss of $7.8 million, or 10 cents a share, during the year-ago quarter.

AFC's pro forma profit for the quarter, excluding several one-time items, was $8.03 million, or 9 cents a share, compared to a pro forma profit of $4.5 million, or 5 cents a share, a year ago.

For the year 2002, AFC managed an actual profit of $31.8 million, or 37 cents a share, versus a profit of $165.5 million, or $1.98 a share, during 2001. AFC's pro forma profit for 2002 was $24.4 million, or 29 cents a share, versus a pro forma profit of $16 million, or 19 cents a share, in 2001.

AFC's hoping to keep up the pace. "Just because the industry is tough right now, we're not pulling in our horns," says Schofield.

The company added 90 customers in 2002 and says that Sprint Corp. (NYSE: FON) and Verizon Communications Inc. (NYSE: VZ) made up at least 10 percent of sales, each, during the fourth quarter.

AFC also hinted at a potential upside in its business with Verizon and SBC Communications Inc. (NYSE: SBC). Execs said some 2,000 Tier 2 and Tier 3 central offices are presently equipped with virtually empty AFC chassis. Schofield expects that at some point those chassis will be filled with line cards, as the phone companies add on DSL subscribers and other customers.

In other matters, the company had a fair mix of good and bad news. On the one hand, it says it may finish 2003 with 30 percent market share in digital loop carrier (DLC) equipment. (Its current market share is in the mid 20 percent range.) On the other hand, AFC expects the overall DLC market to shrink by 10 percent in 2003.

In 2003, AFC's hedging contract on the 10.6 million Cisco Systems Inc. (Nasdaq: CSCO) shares it owns matures, and it expects to get cash proceeds of about $690 million from the contract. AFC estimates it will have to pay about $265 million in federal and state taxes on the full amount of that gain.

AFC also said its revenues for the first quarter of 2003 will likely be on a par with the first quarter of 2002, in the neighborhood of $80 million.

The company has about $1.09 billion in cash and investments.

— Phil Harvey, Senior Editor, Light Reading
gran_poohbah 12/5/2012 | 12:45:42 AM
re: AFC Not Banking on Reg Relief who proof reads the editors copy?

AFC does not equal ADC
Mary Jander 12/5/2012 | 12:45:15 AM
re: AFC Not Banking on Reg Relief Fixed. Point taken.
optical 12/5/2012 | 12:45:02 AM
re: AFC Not Banking on Reg Relief boy, we have a testy readership out there these days. btw, AFC (not ADC) is really one of the few bright spots in a rather gloom telecom vendor world. I wonder if their hiring?
telcovllysldier 12/5/2012 | 12:44:50 AM
re: AFC Not Banking on Reg Relief Hiring???? HA! When trying to gain marketshare with less CAPX activity going on, the last thing AFC is doing is hiring!!!!!

Smart man that Johnny Scho!

gran_poohbah 12/5/2012 | 12:44:50 AM
re: AFC Not Banking on Reg Relief selectively

It's been fun watching AFC from its low of about 4 during the bubble to its ultra steady 12 - 20 range during the last 2 post bubble years.

They have indeed became a great company once they grew out of their cowboy stage and hired a serious managament team starting with Schofield.

didn't mean too sound so testy but when I see a byline by Phil with such blatant error I had to point it out. Phil you usually do way better...
Sign In