Adtran is out of the running to win a chunk of a major AT&T fixed broadband network upgrade project, with rival Alcatel-Lucent expected to be the sole supplier.
AT&T Inc. (NYSE: T) is upgrading its fixed access network in the former "BellSouth" region in a project that was expected to generate revenues of more than $200 million over a number of years for Adtran Inc. (Nasdaq: ADTN), which was in the running to be a supplier.
But Adtran announced as part of its first quarter earnings report that "revenue for the quarter came in lower than expected, driven by currency fluctuations in our European business, and the cancellation of a planned domestic Tier 1 program that was expected to commence late in the quarter."
Revenues totaled $142.8 million, down from $147 million a year ago and less than the $146 million expected, on average, by financial analysts. (See Adtran Reports Q1 Dip.)
The share price responded accordingly, diving by 10% to $16.68.
On the company's earnings call, CEO Tom Stanton noted: "Although we had completely satisfied the lab requirements, and were scheduled to enter the first field application and had received initial purchase orders, our program was halted as budget issues forced a re-evaluation and a redefinition of that program. Needless to say, this is a substantial disappointment to our company... We will continue to work with this carrier as we move forward with other projects of smaller scope that are due to be delivered later this year."
Stanton added that Adtran was still confident about the project coming into the first quarter, having received initial orders, but that the deal was being handled through a partner, believed to be Ericsson, and it became clear during the quarter that "this project had come under pressure and scrutiny." And in answer to questions from financial analysts on the earnings conference call, Stanton stated that there were no "technical reasons" for Adtran's exclusion.
AT&T had not responded to Light Reading's questions about the reasons for Adtran's exclusion, but Jefferies' Managing Director George Notter stated in a research note that Alcatel-Lucent (NYSE: ALU) is believed to have snagged the whole deal due to its improved financials and its "excellent execution" at the AT&T account.
For his part, Stanton noted that he believed the "incumbent" vendor (Alcatel-Lucent) had been very aggressive in its efforts to secure the business.
This doesn't mean Adtran isn't working with AT&T at all: The vendor has other ongoing business with the operator, with access and Ethernet equipment deals, albeit much smaller, in the works and due to become commercial engagements later in 2015.
Elsewhere in the US, Adtran is seeing growing demand for its products from Tier 2 carriers, while the vendor has also been doing well in Europe, where Deutsche Telekom is a growing account. During the first quarter, international business accounted for $59.4 million, 42% of total revenues. However, that figure was hit by exchange rate movements which have negatively impacted the dollar value of that business.
— Ray Le Maistre, , Editor-in-Chief, Light Reading