ADTRAN Finds Q4 Rhythm with Tier 3 Telco Distributors

ADTRAN sees strong gains in the fourth-quarter with distributor partners serving the Tier 3 service provider market. 

  • ADTRAN

ADTRAN may be one of the largest suppliers to Tier 1 providers, but the vendor found in the fourth-quarter that it is having a big effect on the Tier 3 market.

Overall, ADTRAN added 35 new service provider customers during the quarter bringing the total to 134 for the year.

Tom Stanton, CEO of ADTRAN, told investors during its fourth-quarter earnings call four 10 percent customers, which was “one of the highest numbers we have ever reported.”

But what stood out about this customer mix was that one was a service provider while the three others were distribution partners that sell to a host of smaller service providers.

“We have four 10 percent customers,” Stanton said. “We typically have two or three, which are typically Tier 1 carriers. Very rarely are they not Tier 1 carriers, sometimes a Tier 2 may come in, but they’re typically direct sales the carriers. Three of our four this quarter, we’re distribution partners that sold to Tier 3. So those customers are actually – those three are actually selling to hundreds of carriers and they’re typically in this Tier 3 segment.”

Tier 1 Momentum Continues

While ADTRAN is gaining momentum in the Tier 3 segment, it is still finding favor in the Tier 1 service provider market.

The company secured deals with two European providers and one U.S.-based customer. “Two of the three have already achieved a significant milestone of first customer connections,” Stanton said. “And we expect lab exit for all three around the middle of the year.”

Openreach, for one, has switched on its first live subscriber with the ADTRAN SDX series fiber access platform and the Mosaic Cloud network automation platform. The UK incumbent has set a goal to make its gigabit-capable Full Fibre broadband network available to 20 million homes by the mid-to-late 2020s.

Stanton said ADTRAN is “actively involved in several other Tier 1 decision processes around the world,” a number of “which we expect to reach decision points around the middle of this year.”

Like other vendors, ADTRAN is not immune to supply chain slowdowns due to the COVID-19 pandemic.

“COVID-19 related logistics issues and global chips continue to impact lead times and inventory levels and our operations teams continues to take proactive steps to mitigate logistics and component availability challenges to meet our customer needs,” Stanton said.

He added that the lead time to order some components have been “extended.”

“As a result of our efforts to address these needs, we have maintained elevated inventory levels and incurred increased freight costs due to decreased capacity associated with higher transportation rates and expedite fees. In the fourth quarter, we had four, 10 percent of revenue customers,” he said.

Fiber Access Gains

As more domestic U.S. and European telcos convert copper to fiber and competitive providers emerge with fiber-centric services, ADTRAN’s fiber access portfolio continues to be major factor of growth for the company.

ADTRAN is seeing increasing demand for its fiber access, connected home and cloud service offerings. The fiber access and aggregation business grew 98 percent year-over-year.

“ADTRAN’s fiber business had eclipsed our copper business for the first time in our history,” Stanton said. “In the fourth-quarter, fiber related solutions represented over 70 percent of our business.”

Likewise, in-home service delivery platforms are up 68 percent year-over-year and cloud services increased 46 percent year-over-year.

“The shift to gigabit enabled fiber access networks will also drive further demand for gigabit capable cloud managed wireless mesh connectivity in the home or business providing material additional growth opportunities for ADTRAN as end-to-end broadband solution provider,” Stanton said.

Not surprisingly, ADTRAN is also keen to help new and existing customers participating in the FCC’s Rural Digital Opportunity Fund (RDOF) reverse auction.

Besides large incumbent cable and telco players like Charter, Frontier and Windstream, emerging players like electric cooperatives who are looking to fund new FTTH networks. In December, the FCC announced 180 winning bids in the Phase 1 auction.

“The consumer demand and government support for fiber-based broadband services are at an all-time high,” Stanton said. “One notable program of course is the FCC’s Rural Digital Opportunity Fund. These winning bidders are expected to receive a total of $9.2 billion of funding over 10-year period to build out broadband service to over 5 million homes. Over 85 percent of these homes will be served with gigabit broadband speeds.”

ADTRAN’s bullish outlook on fiber access reflects a growing movement by Tier 1 telcos are migrating from copper to fiber throughout 2020, a trend that is expected to  continue this year.

“The switch from copper to fiber among the world’s largest telcos really became clear in 2020,” wrote Jeff Heynen, VP of Broadband Access and Home Networking for Dell’Oro in a blog post. “That trend will accelerate in 2021, in particular, because of the investments made this year in new optical line terminal (OLT) ports. Operators throughout North America, EMEA, and CALA switched more of their capex towards expanding their fiber networks than sustaining their DSL networks. This was clear at Telmex, BT OpenReach, and others.”

He added large incumbent providers will not only move forward with more FTTH, but also adopt more 10 Gbps to accommodate new residential and business opportunities. “Major projects at Deutsche Telekom, Orange, Proximus, and elsewhere will drive not only more fiber expansion but 10 Gbps deployments using XGS-PON,” Heynen said.  

Breaking out Financials, Segments  

Here’s a breakdown of ADTRANS’s key financial and segment metrics:

Network, Services & Support: In the Network Solutions and Services & Support segment, ADTRAN reported $16 million in revenue, down from $17.9 million for the third quarter of 2020 and $19.6 million for the fourth quarter of 2019.

Access, Devices, Legacy: Access & Aggregation and Customer Devices total revenue was $79 million, compared to $85.4 million in the prior quarter.

Subscriber Solutions & Experience: Revenue for the Subscriber Solutions & Experience segment was $45.4 million, up from $43.1 million in the third quarter.

Traditional & Other Products: Revenue for the quarter was $5.8 million, up from $4.6 million in Q3 of 2020.

Regional revenues: Adtran’s domestic U.S. revenue for the quarter was $95.8 million up sequentially from $92.8 million in the third quarter. The vendor’s international revenue for the quarter was $34.3 million, compared to $40.3 million for quarter three of 2020.

Financials: ADTRAN reported fourth quarter of 2020. For the quarter, revenue was $130.1 million. The company has forecast first quarter 2021 revenue will be in the range of $122 million to $130 million. 

(To keep up with the Q4 broadband earnings, make sure to check out our new report From AT&T to Verizon: Sizing up Q4 Broadband 2020 Earnings)

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