ADC revises forecast downward

(Telephony) The telco sector is not spending, thus, network vendor ADC Telecommunications concedes that it should report results below its previous guidance for the first fiscal quarter that ends Jan. 31.

Chairman/CEO William Cadogan said the company is revising growth assumptions for sales and earnings per share to about 15% from previous expectations of 25% to 30%. The company already has begun cost-cutting, taking out more than $100 million in operating and factory-based expenses, he said.

"We're slightly more than halfway done with what we need to do. We expect another $50 million to as much as $80 million to $100 million in additional (cuts) to be required for us to get revenue and expenses back in balance," Cadogan said.

Economic slowdown generally occurs in January as telecom companies prepare capital spending budgets for end-of-month approval. Even so, this year's slowdown was more pronounced than anticipated.

"Through November and December, ADC was fighting to stay even in terms of our forecast. As we entered January, we still felt we had a fighting chance to make or exceed the quarter," Cadogan said. "It's really been the first two weeks of January, which have been very, very slow, which have caused us to come to our conclusion today."

In past years this slowdown was reversed by a "pretty solid boost in incoming orders,” he said. “Those orders continue to be slow at this point."

The slower orders are "across the board," added Lynn Davis, senior vice president of the Broadband Connectivity Group.

"Chances for the rest of the year are probably greater than our advice right now, but we don't know that," he said. "We're not going to get that kind of feedback until probably early in February, when all those budgets are rolled out."

Cadogan refused to lay the blame at the doorstep of AT&T, which has been very public about its cutbacks and has impacted many telecommunications vendors.

"They, like many of our customers, have hit slowdowns, but I would not single them out as causing any specific problems for ADC in this quarter," Cadogan said. "I think the best way to view the current slowdown is that it appears to be coming from a broad range of customers, from CLECs to ILECs to cable."

Another factor is OEMs, who are "experiencing inventory build-up on their side are starting to rationalize some of that in rescheduling orders," Davis said

Specifically, ADC said it expects first-quarter sales to be about $800 million, compared to $594 million in the first quarter of 2000 and pro forma diluted earnings per share to be 5 cents to 7 cents, compared to 7 cents in first quarter 2000, the company said.

Conversely, Cadogan said, international growth is expected to remain strong.

"But absent that, I think you can deduce from that that virtually all sectors of telecom spending have slowed down in their purchases of ADC products," he concluded.