ADC Telecommunications, Inc. (NASDAQ: ADCT) manufactures fiber optic and coaxial cables, network connectors, and other physical components used in broadband communications networks. ADC's products are designed to help clients, such as landline and wireless telephone companies, cable providers, and Internet service providers, upgrade to higher bandwidth capacity. The company recorded 2007 revenues of $1.3 billion, 39% of which came from outside the U.S.
Rapid growth in the amount of internet bandwidth demanded in the U.S. (which the Fiber to the Home Council expects to reach 1 trillion gigabytes by 2015) increases the demand for ADC's products. Partially as a result of the increase in bandwidth usage, ADC's total revenue increased 15% since YouTube went online in 2005. Likewise, telecommunications growth in developing countries (especially China, where internet usage rates increased 53% between 2006 and 2007) has increased the demand for ADC's products abroad. This trend led to a 32% increase in ADC's sales in Asia between 2005 and 2007. At the same time, the weak dollar boosts the value of ADC's international sales.
The Connectivity segment's products provide the physical connections between the components in communications networks; these include connectors and cables. ADC also supplies patch cables used in digital broadcast patching at live events such the Olympics. The company's Connectivity products compete with products from other companies like Corning (GLW) and Cisco Systems (CSCO).
Wireless products include devices that route, amplify, and increase the capacity of wireless networks. ADC's wireless products are used by cell phone service providers, as well as other companies, to set up wireless communications networks.
Wireline makes products designed to provide high-capacity voice and data services over the "last mile" of copper or optical communications networks. ADC's Wireline products compete with similar products from companies like ADTRAN (ADTN).
The Professional Services segment helps customers plan, deploy, and maintain communications networks that use ADC products. This segment provides cross-selling opportunities for other ADC divisions.
By mid-2007, streaming video from YouTube made up 7% of all internet traffic in the U.S.. In fact, analysts at Seattle’s Discovery Institute expect total internet traffic to reach 1 zetabyte (or 1 trillion gigabytes) by 2015; in order to meet this rising traffic, internet service providers will need to spend about $100 billion to increase the bandwidth capacity of their networks. Already, ADC's revenue has increased 15% in the two years since YouTube went online in 2005, reflecting the need for updated equipment to accommodate the increased flow of online data.
In February 2008, China surpassed the United States as the country with the largest number of Internet users, with 220 million as compared to the U.S.'s 216 million. This reflects the rapid growth of Internet use in China, which increased 53% between 2006 and 2007. Additionally, the number of mobile phone subscriptions in China increased from 150 to 450 million between 2001 and 2006; over the same time period, this number grew from almost none to over 150 million in both India and Russia. Increased demand from developing countries in Asia led to a 32% increase in ADC's revenue from the region between 2005 and 2007. During the same period of time, sales to the rest of the world grew only 16%, half as fast as the Asian region.
Between June 18, 2007 and June 18, 2008, the U.S. dollar depreciated in relation to the euro, the Canadian dollar, and the Chinese yuan. The decrease in the value of the dollar resulted in an increased in ADC's international revenues by $5.9 million in 2007. When foreign currencies depreciate relative to the U.S. dollar, the value of ADC's international sales decreases. On the other hand, exchange rates resulting in a weak U.S. dollar boost the value of ADC's international sales.
ADC and Key Competitors 2007
|Company||Total Revenues||Net Income||Net Profit Margin|
|ADC Telecommunications, Inc.||1,322||106||8.02%|
|Cisco Systems (CSCO)||34,922||7,333||21.00%|