powering today’s networks
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Powering Today’s Networks. Jim Matthews Senior Vice President, Finance Chief Financial Officer. Emerging Opportunities. Next-generation architectures now a necessity Must counter competitive threat from cable Capex on the rise: Projected to increase 5% to $61 billion in 2005 - PowerPoint PPT PresentationTRANSCRIPT
Powering Today’s Networks
Jim MatthewsSenior Vice President, Finance Chief Financial Officer
2
Emerging Opportunities
Next-generation architectures now a necessity
Must counter competitive threat from cableCapex on the rise: Projected to increase 5% to $61 billion in 2005
Favorable regulatory environment easing investment concernsTechnologies now mature enough to deploy
Softswitch, VDSL2, ADSL2+, GPON
VoIP driving investment in enterprise sector
3
Next-Generation Architectures
Build out of access network to deliver premium services (VoIP, IPTV)Migration to IP-based applications and servicesEvolution to higher-speed business servicesExpansion of wireless communications
4
Favorable Regulatory EnvironmentFCC policies encouraging investment in broadband access technologies Removing barriers to investment
Relaxing unbundling requirementsSunsetting UNE-P
Encouraging real competition in residential broadband access
Encouraging VoIP and related facilities investmentEncouraging alternative facilities
• Cable, Broadband Wireless Access, and Broadband over Power Lines
ILECs investing to meet competition
5
The Carrier Response
Verizon FiOS TV Will Offer a New Customer ExperienceApril 18, 2005
Verizon Offers Most Dynamic Communications Tools for Fastest-Growing Business Segment April 27, 2005
BellSouth is First Provider to Deliver End-to-End Quality of Service for Enterprise Virtual Private Networks March 31, 2005
BellSouth Initiates Technical Trial of Microsoft TV IPTV Edition January 6, 2005
SBC Communications to Detail Plans for New IP-Based Advanced Television, Data and Voice NetworkNovember 11, 2004
SBC Communications to Rapidly Accelerate Fiber Network Deployment in Wake of Positive FCC Broadband RulingsOctober 14, 2004
Qwest Launches Expanded Nationwide VoIP Service for Businesses December 8, 2004
6
ADTN: Uniquely Positioned
Strategic product positionDeeply entrenched in carrier infrastructureEntrepreneurial engineering philosophyWorld-class supply chain operationsDemonstrated financial competence
ADTRAN is number two in certain key markets, second only to Cisco and Alcatel.
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Strategic Product Position
The right place at the right timeEssential technologies for increasing access network bandwidth
DSL, SONET/SDH
Essential technologies for migrating access networks to IP/Ethernet Essential technologies for migrating enterprise networks to VoIPHeavily invested in development of highly competitive, lowest cost solutions
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Strategic Product PositionAggressive competition for high-speed business- and consumer-class DSL subscribersCritical revenue source for carriers
Customer retention, customer growth
Ethernet in the first mileWidely deployed, established LAN technology migrating into access network Data-centric business networks demanding 50-80 Mbps Ethernet pipes
Extremely versatile broadband deployment platformsADTN DSLAM equipped with SHDSL or ADSL ADTN Metro Ethernet extension (Ethernet Over Copper)ADTN Integrated Access Devices (IADs)
Broadband Access
9
Strategic Product Position
Deep fiber strategy to increase residential bandwidth to 15-40 MbpsNetwork model
Fiber from the Central Office to the node or neighborhoodCopper from the node to the customer premises
• ADSL2+, VDSL2
ADTN DSLAM solutionBrings access node closer to subscriberFacilitates multiple channels of video,voice, and dataCurrently ADSL2+ capable (up to 24 Mbps)Currently IP-enabled and fiber-fed
Fiber to the Node
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Strategic Product PositionFiber-rich access environment
More than 8 DS1s or 10 Mbps Ethernet delivered on fiberNew market: SONET/SDH-based Customer Located Equipment
Upgrading networks to handle data-centric traffic loads
Next-generation requires combined TDM and Ethernet functionality
Cost-efficient ADTN solutions designed specifically for the access portion of the networkExtremely versatile platform
Wireless connectivity, Ethernet to large business, DS1/DS3 to small and medium business, metro and access transport applications, Digital Cross Connect (DCS)
Now OC-12 and Ethernet over SONET enabled
Optical Access
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Strategic Product PositionTraffic explosion
Voice usage now averaging 711 minutes per monthData revenue now represents 8% of ARPU12,170 new cell sites added in 2004
Increasing fiber and copper lines to towerOpportunity for ADTN SONET multiplexers and HDSL platforms
Upgrading network for data services (3G/EVDO/HSDPA)Requires OC-3 (new) to DS1 (legacy) connectivityOpportunity for ADTN SONET and M13 multiplexers
Increasing microwave bandwidth per siteNew demand for combined TDM/Ethernet transportOpportunity for ADTN broadband radios
Improving bandwidth efficiencyOpportunity for newly introduced ADTN wireless backhaul solutions
Wireless Access
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Strategic Product Position
Unified VoIP networks present compelling business case for most companiesRequires changes in network architecture
IP phones and PBXs, IP servers, voice-enabled switches and routers, IP-enabled DSLAMs and IADs, PoE-enabled switchesChallenge: Maintain quality of voice as it passes over data networks (QoS)Challenge: Power IP phones and Wireless Access Points (WAPs)Opportunity for ADTN integrated switch/routers, PoE switches, IP IADs, IP DSLAMs, T3/T1 routers, and VPN appliances
IP Access
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Strategic Product Position
Extensive portfolio of IP-based, enterprise-class networking equipmentEssential component of enterprise networks
Multi-tier reseller channel (5,000+ VARs)
Essential component of bundled service offeringsAOS investment
Improves margin on productsImproves time to market
IP technologies transferable to global markets
IP Access
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Strategic Product PositionBroadband Access Platforms PoE/non-PoE Ethernet Switches
CO/Remote/OSP DSLAMs Integrated Switch/Routers
OC-12/OC-3 Fiber Multiplexers T1/Multi-T1 Access Routers
M13/STS-1 Multiplexers T3 Access Routers
Integrated Access Devices VPN/Firewall Devices
HDSL, HDSL2, HDSL4 Fixed Wireless Connectivity
SHDSL, ADSL Fiber Optic Connectivity
Narrowband Access Platforms Frame Relay Bandwidth Management
Packet & Next-Generation DLCs T1/E1 Multiplexers & DSU/CSUs
DLC Retrofit Kits T3 DSU/CSUs
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Deeply Entrenched in Carrier Infrastructure
ADTRAN solutions widely deployed in carrier networks
DSLAMs in top eight domestic carriersSONET mux in five of top eight domestic carriersHDSL in top eight domestic carriers
Extensive knowledge of carrier operationsStrategically aligned with current and future services roadmapsService level improvement tools and initiatives
Long-standing relationships in key accountsEstablished contractual relationshipsAble to navigate approval cycles and processesRecipient of numerous quality and cost management awards
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Carrier Wireless Global Enterprise Distribution
ADTN Customer View
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Entrepreneurial Engineering
Nimble, adaptive design and engineering operationsVertically integrated design process Internally developed intellectual property
Control over design and manufacturing issuesGreater control over product costs
Enter market with improved technology at price point below established marketContinually re-engineer successive generations to improve marginDrive for market share leadership
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World-Class Supply Chain
Two largest international contract manufacturersDiversified sourcingSupplemental in-house production
Enables quick response to customer issues
Certified to ISO 9001:2000, TL 9000 Release 3.0, and ISO 14001 international standards for quality and environmental management across design, manufacturing, and service operations
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Demonstrated Financial Competence
Only company this size (<$500 million) in position to excel in these marketsConsistently strong results over past four years despite unprecedented industry downturn
17 years of uninterrupted profitability
Long-term growth strategyConsistent investment in R&DProven performance in key markets
Transitioning into larger markets
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20012002
20032004
$454.5
$396.7
$345.7$387.1
($ millions)
In 2004, revenue increased 14.6% to $454.5 million.
Revenue
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20012002
20032004
$0.93
$0.76
$0.42
$0.22
*Excludes investment impairment charges
*
Earnings per share increased 22% from $0.76 in 2003 to $0.93 in 2004.
Earnings Per Share
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Gross margin reached a record 57.4% in 2004, up from 56.0% in 2003 and up from 50.6% in 2002.
20012002
20032004
57%
56%
51%
45%
Gross Margin
23
Net of Debt($ millions)
Cash position remains strong after $25 million in dividend payouts and $81 million in stock repurchases in 2004.
Unrestricted Cash & Marketable Securities
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Q3 2005 Results
Revenue: $149.2 millionEarnings per share: $0.42Gross margin: 59.9%Unrestricted cash & marketable securities: $345 million, net of $24.1 million in stock repurchases and $18.9 million in dividend payments year-to-date
Q1Q2
Q3
$149
$119$104
2005 Revenue($ millions)
Q1Q2
Q3
$0.42
$0.27
$0.20
2005 Earnings Per Share
25
ADTN: Uniquely Positioned
Strategic product positionDeeply entrenched in carrier infrastructureEntrepreneurial engineering philosophyWorld-class supply chain operationsDemonstrated financial competence
ADTRAN is number two in certain key markets, second only to Cisco and Alcatel.
