Adtran lowers 2006 expectations a third time

Adtran lowered revenue expectations for the third time this year late Thursday.

Adtran now expects to report fourth-quarter revenue between $108 million and $112 million, roughly 14% less than its previous expectation of $125 million to $130 million.

In a statement released by the company, Adtran chief executive officer Tom Stanton blamed the revenue drop on “unanticipated softness in order flow, beyond normal seasonality, from some of our larger customers.” However, he added, “Our market share and strategic positioning within these customers has never been stronger, and we expect the softness we are encountering to be temporary. Overall, we believe our growth drivers remain in place, and our outlook for 2007 is strong."

“The reduction does not come as a surprise; the degree does,” Morgan Keegan analyst Simon Leopold wrote in a note this morning.

Last week, Leopold suggested that a delay in regulatory approval of the proposed AT&T/BellSouth merger may have led to pauses in spending from AT&T (one of Adtran’s top customers), including some related to a deployment of Adtran optical gear. With that in mind, he lowered his expectations for Adtran’s fourth quarter revenue to between $121 million and $126 million. The actual numbers should be lower than that, Adtran now says. In addition to AT&T, Leopold believes Embarq helped contribute to Adtran’s fourth-quarter woes.

Although he lowered his expectations for Adtran’s 2007 revenue by 5%, he added, “We still see 2007 as promising.”

Adtran first lowered its 2006 revenue expectations in March, when a single customer (likely Verizon Communications) realigned its equipment distribution centers, causing a delay in sales of HDSL and T-1 equipment. Those sales rebounded in the second quarter. But in July, Adtran lowered its annual revenue expectations again, citing uncertainty in sales of its optical gear, namely its 6100 line of OC-3/OC-12 Sonet multiplexers. According to Leopold, Adtran won a bid to supply AT&T with the 6100s for wireless backhaul applications that could be worth $40 million to $50 million.

“All the major deals are intact, but we’re not planning on all those deals coming online this year,” Stanton said in July of the company’s optical sales.