Monday, August 28, 2006

ADC Posts Sales of $344 Million, Up 12% from 3Q05

ADC reported revenue for its third fiscal quarter ended July 28, 2006 of $343.6 million, compared with $358.1 million in the preceding quarter and $307.0 million a year earlier. Gross margin was 39.2%, compared with 38.7% in Q2 and 41.2% last year.

Broadband Infrastructure and Access sales of $293 million decreased by 4% from the second quarter of 2006. The sequential decline is primarily due to short-term impacts of both customer consolidation activity affecting current spending rates and customers' current inventory levels, which are higher than current deployment rates. Sales of global copper connectivity solutions fell by 11% and global fiber connectivity sales declined by 6%. These declines were partially offset by the 16% growth in sales of global enterprise connectivity solutions.

Compared with last year, there was a 77% increase in global fiber connectivity sales and 5% sales increases in both global copper connectivity and global enterprise connectivity products. This growth was partially offset by lower sales in wireless access systems and, to a lesser extent, wireline access systems. Global fiber connectivity sales were strong in central-office infrastructure and FTTX deployments. Third quarter 2006 sales of global fiber connectivity solutions were boosted by $35 million in sales of FTTX products from FONS, which ADC acquired on August 26, 2005. Sales of global copper connectivity solutions grew as a result of demand for ADC's products that support the copper infrastructure in wireless, digital subscriber line, fiber-to-the-node and -curb networks partially offset by lower sales of copper products to support central-office infrastructure.

On a year-over-year basis, third quarter 2006 sales for Professional Services increased by 6% to $50 million, primarily as a result of higher sales in the United States to a customer resuming and expanding its network build programs. Sales in Europe were lower due to contract timing with various customers. On a quarterly sequential basis from the second quarter of 2006, Professional Services sales in the third quarter of 2006 decreased by 3%, primarily due to lower sales in both the United States due to merger activity among customers and in Europe due to contract timing with various customers.

ADC said it believes its expansion in recent periods into markets for FTTX, wireless and enterprise products, as well as changes in the seasonality of customer spending due to FTTX and other broadband initiatives, has changed the historical seasonality of its business.

In the past, ADC's sales of these products have fluctuated from quarter to quarter, something the company believes that may continue. It expects future sales in its first fiscal quarter will be lower than in other quarters.

"We are pleased that we were able to achieve third-quarter results better than the preliminary outlook provided on July 19. While we expect our results to fluctuate from quarter to quarter, we believe carrier consolidation, wireline/wireless convergence, subscriber retention/growth and network evolution to Internet Protocol communications services create strong long-term potential for ADC's solutions to connect our customers' next-generation wireless, broadband, video, data and voice services," said Robert E. Switz, president and CEO of ADC.

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