Adtran blames flat third quarter on two customers

Adtran blamed sequentially flat third-quarter revenue on two major carrier customers that significantly cut spending in the quarter. Though the vendor didn’t name them, those customers appear to be AT&T and either Embarq or Windstream.

Consistent with the company’s warning last month, Adtran reported nearly $124 million in third-quarter revenue today, sequentially flat and down 7% from a year earlier. Broadband access revenue was down 23% from a year earlier to $18 million, a decline the company attributed to spending decreases at two large carriers in particular—a Tier 1 and a Tier 2—that offset spending increases from a third carrier. “The rest of our customer base was flat or slightly up,” in terms of spending, Adtran CEO Tom Stanton said. “The other two took a step backward.”

Adtran’s biggest revenue decline in the quarter came from the Tier 2 customer, which could be either Embarq or Windstream. Since Embarq contributed 12% of Adtran’s revenue in the third quarter and 11% in both the first and second quarters, that could make Windstream the most likely culprit.

“That one Tier 2 carrier really put the brakes on their spending,” Stanton said. “The rationale behind that you’d really have to get from that customer.”

“They have project-oriented builds, and I think they’ve basically curtailed those builds,” Stanton said. That customer also distributes equipment to other Tier 2 carriers, he added. “I’m not sure if that didn’t affect things also.”

Embarq and Windstream both have equipment distribution arms, but the majority of Adtran’s sales to both customers are for network deployment within their networks rather than distribution to other carriers, Stanton said.

Embarq may be making significant changes to its distribution business, Embarq Logistics. This month the company sought volunteers as it moved to cut 171 jobs from Logistics by January. The company plans to close call centers in Texas and North Carolina.

The Tier 1 carrier that curbed spending in the quarter, which Adtran referred to as its “largest,” was probably AT&T, which accounted for 22% of Adtran’s third-quarter revenue (down from 24% in the second quarter). Verizon contributed 14% (up from 13%), and Qwest Communications made up 14% (up from 11%--an increase Adtran attributed mainly to broadband).

Uncertainty in AT&T’s spending habits has plagued Adtran following the carrier’s merger with BellSouth, despite a spending boost in the first quarter of this year.

The third-quarter spending declines overshadowed growth in other areas of Adtran’s business. For example, revenue from the company’s optical business was up 42% sequentially and up 38% from a year earlier to nearly $14 million. It began shipping its Total Access 5000 platform to two Tier 2 North American carriers in the quarter, with expectations that Tier 1s will follow next year.

Stanton called future wireless access spending “the biggest wild card” in the company’s near future. “I don’t have a good feel as to when wireless access spending will tic up or even if it will tic up,” he said. “We’ve heard about what’s supposed to materialize in terms of wireless network buildouts. We did not see that in the third quarter.”

The company predicted fourth-quarter revenue to be down sequentially, following seasonal trends, but allowed for the possibility that new products would yield year-over-year revenue growth.