DJ ADC Telecom CEO Says Spending Slowdown 'Unprecedented'
28 Mar 12:07
By Johnathan Burns
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--After 29 years in the business, ADC Telecommunications
Inc. (ADCT) Chief Executive Rick Roscitt has never seen such a big drop-off in
telecommunications equipment spending.
Having been on both sides of the fence, Roscitt should know. He's the former
head of AT&T Corp.'s (T) business services unit, once the big dog in the North
American telecommunications market.
On Wednesday, ADC warned it will lose 10 cents to l5 cents a share on sales
between $650 million and $700 million in its fiscal second quarter ending next
month. The company was expected to earn 9 cents a share on revenue of $852.2
million. ADC's announcement came a day after Nortel Networks Corp. (NT) issued
a profit warning.
"I've seen these slowdowns two or three times," Roscitt told Dow Jones
Newswires. "But I've never seen it as severe or as sudden. It is a bit
unprecedented to the extent that everything (within the industry) was green."
After two years of staggering sales growth, telecommunications companies have
put their capital spending in a lockbox. The slowdown in the U.S. economy has
been the main culprit, with little investment going to startup phone companies
that were building new networks and adding customers. So dominant carriers
like AT&T, WorldCom Inc. (WCOM) and the Baby Bells have not had to spend as
much to protect their customer base.
"I think the big carriers are all taking a chance to get a breather and
improve their balance sheets," Roscitt said.
ADC had expected robust spending in 2001. The whole market geared up to meet
that demand, flooding companies with products that now are collecting dust on
the shelves. Roscitt expects it will take the rest of this quarter and part of
next to reduce the inventory.
He also believes it will take a return of funding to startup phone companies
to kick-start spending.
But Roscitt also believes AT&T's decision this month to buy bankrupt
Northpoint Communications Inc.'s equipment to provide digital subscriber line
services to businesses and consumers may be the kind of new competition to the
Bells that the market needs.
"That's a well-heeled big national player in DSL that could spur some
spending," he said.
ADC expects to report positive earnings in the second half of the year, but
the Wednesday announcement that the company will cut 3,000 to 4,000 jobs
indicates that a quick uptick in spending is not expected. The job cuts are in
addition to 3,000 jobs the company already planned to trim. ADC also plans to
increase operating reserves to get it through the spending slowdown.
Roscitt tried to put a positive spin on the profit warning.
"(The slowdown) provides us some air cover to reposition ourselves," Roscitt
said. "I think that this is an opportunity to aggressively move in the
direction we wanted."
Roscitt said ADC will increase its focus on making products for the optical
DSL, Internet Protocol, cable and software markets.
Industry insiders believe that demand for high-speed telecommunications
services will double every year for at least the next decade, which would
create demand for the kinds of connectivity and access products that ADC makes.
(MORE) DOW JONES NEWS 03-28-01
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