Transcript Intro—Breakout coming

Powering Today’s Networks
Jim Matthews
Senior Vice President, Finance
Chief Financial Officer
Emerging Opportunities
Next-generation architectures now a
necessity
Must counter competitive threat from cable
Capex on the rise: Projected to increase 5% to $61 billion
in 2005
Favorable regulatory environment easing
investment concerns
Technologies now mature enough to deploy
Softswitch, VDSL2, ADSL2+, GPON
VoIP driving investment in enterprise sector
2
Next-Generation Architectures
Build out of access network to deliver
premium services (VoIP, IPTV)
Migration to IP-based applications
and services
Evolution to higher-speed business services
Expansion of wireless communications
3
Favorable Regulatory Environment
FCC policies encouraging investment in broadband
access technologies
Removing barriers to investment
Relaxing unbundling requirements
Sunsetting UNE-P
Encouraging real competition in residential
broadband access
Encouraging VoIP and related facilities investment
Encouraging alternative facilities
• Cable, Broadband Wireless Access, and Broadband over
Power Lines
ILECs investing to meet competition
4
The Carrier Response
SBC Communications to Rapidly Accelerate Fiber Network
Deployment in Wake of Positive FCC Broadband Rulings
October 14, 2004
Verizon FiOS TV Will Offer a New
Experience
April 18, 2005
Customer
BellSouth Initiates Technical Trial of
Microsoft TV IPTV Edition
January 6, 2005
Verizon Offers Most Dynamic Communications
Tools for Fastest-Growing Business Segment
April 27, 2005
Qwest Launches Expanded Nationwide
VoIP Service for Businesses
December 8, 2004
BellSouth is First Provider to Deliver
End-to-End Quality of Service for Enterprise
Virtual Private Networks
March 31, 2005
SBC Communications to Detail Plans for New
IP-Based Advanced Television, Data and
Voice Network
November 11, 2004
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ADTN: Uniquely Positioned
Strategic product position
Deeply entrenched in carrier infrastructure
Entrepreneurial engineering philosophy
World-class supply chain operations
Demonstrated financial competence
ADTRAN is number two in certain key markets, second
only to Cisco and Alcatel.
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Strategic Product Position
The right place at the right time
Essential technologies for increasing access
network bandwidth
DSL, SONET/SDH
Essential technologies for migrating access networks
to IP/Ethernet
Essential technologies for migrating enterprise
networks to VoIP
Heavily invested in development of highly
competitive, lowest cost solutions
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Broadband Access
Strategic Product Position
Aggressive competition for high-speed
business- and consumer-class DSL subscribers
Critical revenue source for carriers
Customer retention, customer growth
Ethernet in the first mile
Widely deployed, established LAN technology migrating into
access network
Data-centric business networks demanding 50-80 Mbps
Ethernet pipes
Extremely versatile broadband deployment platforms
ADTN DSLAM equipped with SHDSL or ADSL
ADTN Metro Ethernet extension (Ethernet Over Copper)
ADTN Integrated Access Devices (IADs)
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Fiber to the Node
Strategic Product Position
Deep fiber strategy to increase residential bandwidth
to 15-40 Mbps
Network model
Fiber from the Central Office to the node or neighborhood
Copper from the node to the customer premises
• ADSL2+, VDSL2
ADTN DSLAM solution
Brings access node closer to subscriber
Facilitates multiple channels of video,voice, and data
Currently ADSL2+ capable (up to 24 Mbps)
Currently IP-enabled and fiber-fed
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Optical Access
Strategic Product Position
Fiber-rich access environment
More than 8 DS1s or 10 Mbps Ethernet delivered on fiber
New market: SONET/SDH-based Customer Located Equipment
Upgrading networks to handle data-centric
loads
traffic
Next-generation requires combined TDM and Ethernet functionality
Cost-efficient ADTN solutions designed specifically for
the access portion of the network
Extremely versatile platform
Wireless connectivity, Ethernet to large business, DS1/DS3 to small
and medium business, metro and access transport applications,
Digital Cross Connect (DCS)
Now OC-12 and Ethernet over SONET enabled
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Wireless Access
Strategic Product Position
Traffic explosion
Voice usage now averaging 711 minutes per month
Data revenue now represents 8% of ARPU
12,170 new cell sites added in 2004
Increasing fiber and copper lines to tower
Opportunity for ADTN SONET multiplexers and HDSL platforms
Upgrading network for data services (3G/EVDO/HSDPA)
Requires OC-3 (new) to DS1 (legacy) connectivity
Opportunity for ADTN SONET and M13 multiplexers
Increasing microwave bandwidth per site
New demand for combined TDM/Ethernet transport
Opportunity for ADTN broadband radios
Improving bandwidth efficiency
Opportunity for newly introduced ADTN wireless backhaul solutions
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IP Access
Strategic Product Position
Unified VoIP networks present
compelling business case for most companies
Requires changes in network architecture
IP phones and PBXs, IP servers, voice-enabled switches and
routers, IP-enabled DSLAMs and IADs, PoE-enabled switches
Challenge: Maintain quality of voice as it passes over
data networks (QoS)
Challenge: Power IP phones and Wireless Access
Points (WAPs)
Opportunity for ADTN integrated switch/routers, PoE switches, IP
IADs, IP DSLAMs, T3/T1 routers, and VPN appliances
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IP Access
Strategic Product Position
Extensive portfolio of IP-based, enterprise-class
networking equipment
Essential component of enterprise networks
Multi-tier reseller channel (5,000+ VARs)
Essential component of bundled service offerings
AOS investment
Improves margin on products
Improves time to market
IP technologies transferable to global markets
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Strategic Product Position
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Broadband Access Platforms
 PoE/non-PoE Ethernet Switches

CO/Remote/OSP DSLAMs
 Integrated Switch/Routers

OC-12/OC-3 Fiber Multiplexers
 T1/Multi-T1 Access Routers

M13/STS-1 Multiplexers
 T3 Access Routers

Integrated Access Devices
 VPN/Firewall Devices

HDSL, HDSL2, HDSL4
 Fixed Wireless Connectivity

SHDSL, ADSL
 Fiber Optic Connectivity

Narrowband Access Platforms
 Frame Relay Bandwidth Management

Packet & Next-Generation DLCs
 T1/E1 Multiplexers & DSU/CSUs

DLC Retrofit Kits
 T3 DSU/CSUs

Deeply Entrenched in Carrier
Infrastructure
ADTRAN solutions widely deployed in
carrier networks
DSLAMs in top eight domestic carriers
SONET mux in five of top eight domestic carriers
HDSL in top eight domestic carriers
Extensive knowledge of carrier operations
Strategically aligned with current and future services roadmaps
Service level improvement tools and initiatives
Long-standing relationships in key accounts
Established contractual relationships
Able to navigate approval cycles and processes
Recipient of numerous quality and cost management awards
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ADTN Customer View
Carrier
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Wireless
Global
Enterprise
Distribution
Entrepreneurial Engineering
Nimble, adaptive design and engineering operations
Vertically integrated design process
Internally developed intellectual property
Control over design and manufacturing issues
Greater control over product costs
Enter market with improved technology at price point
below established market
Continually re-engineer successive generations to
improve margin
Drive for market share leadership
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World-Class Supply Chain
Two largest international contract manufacturers
Diversified sourcing
Supplemental in-house production
Enables quick response to customer issues
Certified to ISO 9001:2000, TL 9000 Release 3.0,
and ISO 14001 international standards for quality and
environmental management across design,
manufacturing, and service operations
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Demonstrated Financial Competence
Only company this size (<$500 million) in
position to excel in these markets
Consistently strong results over past
four years despite unprecedented
industry downturn
17 years of uninterrupted profitability
Long-term growth strategy
Consistent investment in R&D
Proven performance in key markets
Transitioning into larger markets
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Revenue
In 2004, revenue increased 14.6% to $454.5 million.
($ millions)
$454.5
$396.7
$387.1
$345.7
2004
2003
2002
2001
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Earnings Per Share
Earnings per share increased 22% from $0.76 in 2003
to $0.93 in 2004.
$0.93
$0.76
$0.42 *
$0.22
2004
2003
2002
2001
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*Excludes investment impairment charges
Gross Margin
Gross margin reached a record 57.4% in 2004, up from 56.0%
in 2003 and up from 50.6% in 2002.
57%
56%
51%
45%
2004
2003
2002
2001
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Unrestricted Cash & Marketable
Securities
Cash position remains strong after $25 million in dividend payouts and
$81 million in stock repurchases in 2004.
Net of Debt
($ millions)
$298
$326
$270
$210
$81
$89
$4
$0
$25
$0
$0
$25
2004
2003
2002
2001
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Cash & Marketable
Securities
Special & Quarterly
Dividends
Stock Repurchases
Q3 2005 Results
$149
2005 Revenue
($ millions)
$119
$104
2005 Earnings
Per Share
$0.42
Q2
Q3
$0.27
Revenue: $149.2 million
$0.20
Earnings per share: $0.42
Q2
Gross margin: 59.9%
Q1
Unrestricted cash & marketable securities:
$345 million, net of $24.1 million in stock
repurchases and $18.9 million in dividend
payments year-to-date
Q1
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Q3
ADTN: Uniquely Positioned
Strategic product position
Deeply entrenched in carrier infrastructure
Entrepreneurial engineering philosophy
World-class supply chain operations
Demonstrated financial competence
ADTRAN is number two in certain key markets, second
only to Cisco and Alcatel.
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Powering Today’s Networks
Jim Matthews
[email protected]