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Adtran Loses Out at AT&T

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.


For the latest on fixed broadband developments, visit Light Reading's dedicated Gigabit Cities content channel. And be sure to register to attend Light Reading's Gigabit Cities Live event on May 13-14 in Atlanta.


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, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

Duh! 4/23/2015 | 2:20:27 PM
Re: FYI Losing AT&T had to be a big disappointment, but not a disaster.  There are lots of Tier 2 and Tier 3 projects getting started up, while Gigapower is still in first gear.  These are easier customers to deal with, a better cultural fit, and they can retain decent margins. 

As for Verizon, it's clear that they won't be significantly expanding FiOS footprint at least until McAdam retires, or Wireline separates from Wireless.

 
brooks7 4/22/2015 | 7:37:31 PM
FYI So, yes that is the old Marconi FTTC business inside of BellSouth.  The understanding of the partnership and technical workings seems right.  But you can imagine (from my seat back when), that Alcatel-Lucent has done a remarkable job in recovering its footing NA Access.  Things were pretty bleak when we won the FiOS business and took Marconi from them.  Now they are back with pretty close to 100% share of the Verizon and AT&T Access Business.  They have shut Ericsson very nicely out of that business in NA.

The bigger issue for Calix and Adtran now is:  What is the next time that an RFP is going to be issued for something that they might make and be delivered into an RBOC.  Until then, I would say they are going to grind at each other in Frontier and Century.  Minor shifts in business here and there.  Adtran has significant other business, so they lose a project that they have been working on (literally) for years.  In the long term, they will be happy not to have built and support a custom product.  They will be unhappy they lost the deal and they did not get a bigger foothold in AT&T.

seven
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