More cuts to come at ADC

Vendor says reductions won't end with assets sale, 2500 layoffs

ADC sliced off another limb last week by selling two product lines and laying off 2500 additional employees, and the vendor promises more cuts in the future.

ADC's ranks have shrunk by 9500 since voluntary and involuntary reductions and divestitures began in November 2000. The bloodletting won't stop until the end of October when the company reaches its target work force reduction of 40% (see figure). Thus, about 1200 additional jobs could be lost throughout all functional areas and grade levels throughout the company, said an ADC spokesman.

Simple subtraction
22,400	Number of employees at start of fiscal year Nov. 1st
-9,500	Announced reductions
+1,800	Added through acquisitions
14,700	34.4% reduction, but 40% is targeted by Oct. 31, which means that
1,254	5.6% is left to cut

There are additional product lines that we have already decided to divest or are assessing,” he said. “There will be more closings or sales in the coming months.”

ADC would not say which facilities or product lines will be next to go but reiterated its commitment to its core businesses.

“We have been clear about what our focus areas are. They are IP, cable, DSL, optics, software and system integration,” an ADC spokesman said. “So we are looking at products that are set outside of that scope [for further cuts].”

ADC's scope will not include its access-products division and broadband access group, which is being bought by holding company Platinum Equity in a deal announced last week. With the sale, ADC sheds its business for ATM access concentrators and multiplexers, CSU/DSUs, service delivery units, broadband wireless access systems and broadcast television transmission systems.

“For them to sell these assets is really a positive because they can get cash in to pay down debt,” said Andrea Green, research analyst for Lehman Brothers.

The vendor also stopped construction and development of manufacturing facilities in Shakopee, Minn., Juarez, Mexico, and Glenrothes, Scotland. ADC will close or cut back operations in Copenhagen, Denmark, and El Paso, Texas.

ADC's aggressive changes are an effort to reduce annual operating expenses by up to $450 million, according to new guidance provided last week. As deep as the cuts have been to date, they account for only about $200 million of the target. But analysts said the cuts should let ADC return to profitability.

“The plan is to get the company in shape for when the economy improves,” Green said. “They will be a lean organization so revenue growth can fall to the bottom line.”

Green speculated ADC's next cuts will be in the broadband connectivity area but added, “They have so many different product lines… that they are not getting rid of things that will impact the company's growth rate.”

ADC CEO Rick Roscitt recently said this product-line diversity would help his company survive tough economic times, but analysts say it's a double-edged sword.

“They have a diverse customer base, but the product breadth was a little bit out of whack,” said Jim Jungjohann, telecom analyst for CIBC World Markets. “Wall Street never really appreciated the diversity they had. They loved the customer diversity but hated the product diversity; they could never figure out what this company did.”

Becoming leaner in a market in which analysts have predicted aggressive merger and acquisition activity could make ADC a target for acquisition, but the timing may not be right, Jungjohann said.

“It is safe to say that in this market downturn there is a lot of M&A activity going on,” he said, “but it is usually easier to do deals when the market is already in the basement, and… a lot of people are just getting there.