Adtran Reaps Rewards of Vectoring Ramp-Up at Deutsche Telekom

Broadband equipment maker Adtran is poised for impressive growth in sales this year, according to a leading analyst, thanks partly to renewed investments in vectoring technology by Germany's Deutsche Telekom, one of its largest customers.

The company this week reported a healthy set of financial results for the last three months of 2016, with revenues up 17%, to $163 million, compared with the year-earlier period, and net income rising 32%, to $7.6 million. (See Adtran Reports Q4.)

"The solid fourth quarter and full-year performance was a result of strong growth in our domestic business, driven by our leading market positions in … ultra-broadband solutions, continued growth in our services business, and the rebound of our international business," said Tom Stanton, Adtran's CEO, in a company statement.

The figures are fueling optimism about the 2017 outlook for companies developing fixed-line, ultra-broadband technologies amid concern regarding the slowdown in other parts of the telecom equipment market.

Michael Genovese, an analyst at MKM Partners who has been tracking Adtran Inc. (Nasdaq: ADTN) for years, has reiterated a "buy" rating on the company and says he now expects Adtran to generate $706 million in revenues in 2017, up from a previous forecast of $668 million.

Revenues during the whole of 2016 came in at $637 million.

"We see wireline ultra-broadband access as one of the best secular stories in telecom equipment in 2017 and 2018," said Genovese in a research note. "The company is in the sweet spot of the vectoring cycle, and has the very promising G.fast and NG-PON2 cycles ahead." (See NG-PON 2 Almost Ready for Primetime, ADTRAN Exec Says and Verizon Proves NG-PON2 Interoperability.)

Vectoring technology aims to boost broadband speeds on short copper loops by cutting out the noise interference between lines, and it has drawn a major commitment from Deutsche Telekom AG (NYSE: DT). Having overcome a series of regulatory hurdles, the German incumbent plans to extend vectoring-based networks to about 80% of German premises by the end of next year. (See DT's $1.1B Vectoring Plans Thrown Into Doubt After New Ruling.)

The rollout of gigabit broadband access networks is spreading. Find out what's happening where in our dedicated Gigabit Cities content channel here on Light Reading.

While Adtran has not publicly named Deutsche Telekom as a customer, it has revealed it is providing vectoring technology to a major German operator, effectively identifying the incumbent as the company in question.

Genovese blames the aggressive pace of Deutsche Telekom's vectoring rollout for weak gross margins at Adtran in the fourth quarter. But he expects margins to recover "to the mid-to-high 40s from the current low 40s" in future quarters as the product mix during the vectoring deployment shifts away from "chassis" equipment and toward more profitable "line cards."

Beyond vectoring, Adtran also appears to be playing a major role in Deutsche Telekom's "supervectoring" scheme. Unlike vectoring, this technology works by extending the frequency range over which signals travel, to an upper limit of 35MHz (VDSL networks operate in the 2-17MHz range), and could theoretically deliver as much as 300 Mbit/s on the download -- compared with the 100 Mbit/s that vectoring promises. (See Adtran Squares Up to Huawei on Supervectoring.)

As Genovese points out, other technologies in Adtran's crosshairs include G.fast and NG-PON2. Like supervectoring, the former delivers improvements on short copper loops by further extending the frequency range, while NG-PON2 is a next-generation fiber standard that could support multi-gigabit-speed services. (See Service Provider Split Emerges Over NG-PON2 Upgrade.)

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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