ADC falls on revenue concern, AT&T uncertainty

Jan. 2, 2002 4:43 p.m. PT

2 min read

Telecommunications equipment maker ADC Telecommunications Inc. (Nasdaq: ADCT) dipped more than 8 percent Thursday despite topping analysts' estimates in its third quarter Wednesday. Revenue concerns hampered shares.

Its shares were down 3 1/4 to 40 5/8 at midday Thursday.

First Call consensus pegged it for a profit of 34 cents a share in the quarter. The company's earnings of $52 million, or 37 cents a share, on sales of $444 million, put them handily above that estimate. But the source of earnings surprise, and a miss on revenue drove shares down.

Chandan Sarkar, an analyst with SoundView Financial Group, attributes ADC Telecom's decline to three factors. They are: lower research and development expenses ($35.8 million vs. $38.5 million a year ago) boosted earnings; revenue was below the Street's expectations; and ADC's contract with AT&T (NYSE: T) hasn't progressed as planned.

ADC Telecom's Homeworx product was designed for AT&T, who has been working on certification of the equipment. Many analysts expected the AT&T contract to be booked this quarter. With the AT&T rollout of ADC's Homeworx in limbo, ADC has a product with no benchmark customers. Sarkar maintains a "hold" rating on the company, as he waits for more visibility in the AT&T issue.

Analysts said the Homeworx rollout was delayed because, AT&T had problems with the software configuration.

Eric Buck of Donaldson, Lufkin & Jenrette doesn't think the company's financials merit the market decline. ADC Telecom was only about $7 million short of Wall Street's mean revenue estimated at $451 million, insignificant compared to a 23 percent increase over the previous quarter, he said. Without lower R&D expenses, earnings, ADC Telecom would still have passed the Street's estimates, he added. And became obvious in June or July that AT&T was more concerned with "back-office issues than relations with vendors," Buck said. He maintains a 'buy" rating on ADC.

In July 1999, ADC Telecom received a contract from Seren Innovations for the deployment of the Homeworx cable telephony system, according to their earnings release. Seren plans to deliver advanced telephony services to residential and business customers in more than 15 cities in California and Minnesota.

Seren is no AT&T, but it's a start.