Adtran’s latest gear gains momentum

Adtran is enjoying an increase in momentum for its new products, which helped the equipment vendor beat expectations in the first quarter, reporting a 1% sequential revenue growth in defiance of historical seasonal trends.

Overall revenue was up 9% from a year earlier to nearly $120 million, though the vendor’s enterprise business softened a bit due to general economic trends. And revenue from new products in particular was up 44% from a year earlier.

Revenue from both broadband and optical access products were up significantly from a year earlier and up slightly sequentially despite a history of seasonal first-quarter declines. Broadband access revenue was up 56% from a year earlier to nearly $29 million, and optical access revenue was up 30% from a year earlier to more than $11 million.

Adtran is now shipping its Total Access 5000 product to its first tier-one carrier, in addition to all the US tier-twos and several tier-threes. But the vendor is expecting to ship the 5000 to all three tier-one carriers by the end of the year. Of those three, the carrier that is furthest along in integrating Adtran’s gear with its operations and billing systems will likely start deploying it in Ethernet-over-copper applications this summer. A second tier-one is expected to start deployment in the second half of the year, focusing on ATM-to-Ethernet aggregation. And a third—probably the largest of the three contracts, Adtran said--is expected to start deploying the 5000 in multiple applications near the end of the year.

Meanwhile, spending on Adtran’s optical access gear reached new highs among each of its tier-one customers in the quarter, again defying seasonal trends.

AT&T contributed 26% of Adtran’s revenue in the quarter, followed by Verizon (at 11%), Embarq (at 12%) and Qwest Communications, which set a new record by contributing 19% of Adtran’s total revenue in the quarter.

One of the key questions facing Adtran is whether it can grow its next-gen businesses—particularly the 5000 and the 1100 fiber-to-the-node DSLAMs—faster than its legacy business—particularly HDSL gear--declines. And the company could theoretically accelerate that decline by cannibalizing the HDSL business with the Ethernet-over-copper technology in its newer gear.

Adtran won’t predict exactly when that legacy decline might occur, but it said its HDSL revenue was “strong” in the first quarter--down slightly from a year ago to $42 million--after a weak fourth quarter. And it expects that business to grow sequentially in the second quarter, following historical seasonal trends, but not to grow for the full year. One potential driver behind the HDSL business this year is wireless backhaul, though Adtran stopped short of citing that application as a key driver in the first quarter.

AT&T, a customer of that HDSL gear, spent much more on Adtran gear in the first quarter than it did in last year’s fourth (26% versus 18%). During the vendor’s conference call today, CEO Tom Stanton said there may have been some “bounce-back” in AT&T’s HDSL spending in the first quarter.

“Over time that [HDSL] business will decline,” Stanton said. “Whether it’s next year, this year, three years from now--we don’t have a crystal ball that’s that granular. We’re trying to add new products as quickly as we can.”