On Aug 8, 2014, we issued an updated research report on ADTRAN Inc. ( ADTN).
ADTRAN has delivered positive earnings surprises in all four quarters last year, with an average beat of 28.58%. In second-quarter 2014, the company’s bottom line beat the Zacks Consensus Estimate while the top line was on par with the same.
The broadband access and IP networking equipment market is highly competitive. The company competes with large and well-established networking OEMs, both in the enterprise and carrier market segments. As a result, sales in both tier 2 and tier 3 markets in the U.S. have deteriorated in the reported quarter. Competition would further increase if new companies enter the market or the existing competitors expand their product lines. Intensifying competition will compel ADTRAN to slash product prices along with market share.
ADTRAN continues to perform creditably despite a challenging business environment. The company is currently facing considerable volatility in its business owing to irregular capital spending by telecom carriers. Moreover, the company’s international business is largely exposed to currency fluctuations and exchange rate risks. Ongoing mergers and acquisitions in the telecom and cable sector may further result in customer churn for ADTRAN.
ADTRAN’s dependency on a small group of suppliers may jeopardize the company’s inventory management as it may fail to deliver equipment on a timely basis, thereby losing customer confidence. Moreover, ADTRAN deals with a limited number of customers which might impact top-line growth going forward.
ADTRAN currently carries a Zacks Rank #4 (Sell).
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