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Technology Stocks : ADC Telecommunications

ADCT 4.380

+8.8%

Nov 24 3:59 PM EST

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To: John Puffer who wrote (399)	3/29/1998 9:29:00 PM
From: Johnny Canuck	Read Replies (1) of 1944

Hi John, Sorry for the late response. I have only had a chance to take a quick look at the 10-Q. I will have to follow up at some later time. Things to be aware of: 1) Inventories are up 7 percent over last quarter or 13 million. This indicates anticpated sales did not emerge. 2) Long term debt remains modest at 2.5 million and is actual down 557,000 from last quarter. 3) Accounts payable are down about proportional with decreased sales, so they are being fiscal responsible. 4) Gross margins remained stable and was up 0.8 percent to 46.6 percent in the quarter. It appears they are not seeing any pricing pressure on their products overall or if there is any in specific areas it is being offset by gains in other areas. 5) SG&A are up 2.5 percent to 21.7 percent of sales. There has been a trend of increasing SG&A the last three quarter. This could reflect competitive pressure in some of their product lines or a conscious effort to expand their sales force.The report states that it is due to new product introductions and an increase in the sales force. If this is accurate, sales should be better going forward. 6) The transmission group sales were strong. They were up 28.9 percent year over year. This group made up 47.4 percent of all sales. 7) Broadband networking products only increased a modest 6.1 percent mainly due to the cancelled filter sales to companies selling products into Asia. ADCT is expecting this product segment to possible decline further as a percent of total sales in coming quarters. This segment is a large 41.4 percent. I am a little surprised as HDSL is included under this category and there is a lot of hype about the deployment of xDSL this year. I will have to look closer at this product segment as I don't know the other components of this product category off hand. 8) There was a 19.2 percent decrease in the enterprise networking group, specifically ATM access concentrators. I can't remember what space they sell their access concentrator to. This is the result of strong competition (NN, ASND, FORE ?). This corresponds to what I know about the networker in general. The competition is intense as companies invade other companies traditional areas of expertise. Basically, to continue to grow at the high rates of the past, the networker need to steal market share in non-traditional markets. Harry

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