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This excerpt taken from the ADCT 10-K filed Dec 18, 2007. Industry
Background and Marketplace Conditions
Evolution
to Next Generation Networks
Our products and services are deployed primarily by
communications service providers and owners and operators of
private enterprise networks. We believe the communications
industry is in the midst of a multi-year migration to
next-generation networks that can deliver reliable broadband
services at low, often flat-rate, prices over virtually any
medium anytime and anywhere. We believe this evolution
particularly will impact the last mile/kilometer
portion of networks where our products and services primarily
are used and where bottlenecks in the high-speed delivery of
communications services are most likely to occur.
We believe there are two key elements driving the migration to
next-generation networks:
Business
Impact of Next Generation Networks and Competitive
Environment
The evolution to next generation networks is impacting our
industry significantly. The evolution is providing increased
opportunities to sell infrastructure products that allow
networks to provide more robust services at increasing speeds.
For instance, overall spending on central office fiber
equipment, wireless coverage and capacity equipment and
equipment to aid the deployment of fiber based networks closer
to the ultimate consumer (i.e., fiber to the node, curb,
residence or business, which we refer to as our FTTX
products) has increased significantly in recent years. We expect
these spending trends for FTTX and wireless coverage and
capacity solutions to continue. Sales of these next generation
products also tend to be project-based, causing our sales to
fluctuate from period to period and making the timing of our
sales harder to predict.
Spending trends on these next generation initiatives in which we
participate has not resulted in significant overall spending
increases on all categories of infrastructure equipment. In
fact, overall spending on all categories of equipment has
increased only modestly in recent years, and projections suggest
that in the next two to three years overall spending globally
will be relatively flat. Our continued ability to compete with
other manufacturers of communications equipment depends in part
on whether we can continue to develop and effectively market
next-generation network infrastructure products.
Competitive pressures to win and retain customers have caused
many of our service provider customers to consolidate with one
another. We expect this trend to continue. Our customers engage
in consolidation in order to gain greater scale and increase
their ability to offer a wider range of wireline and wireless
services. Consolidation results in larger customers who have
fewer competitors and increased buying power. This places
pressure on the prices at which we and other vendors can sell
products and services. Additionally, consolidation among our
customers has caused short-term spending deferrals while the
combined companies focus on integration activities. As customers
complete integration activities, we generally expect increased
sales demand from these customers due to their prior spending
deferrals. Ultimately, the rate at which our customers respond
to each others competitive threats, the buying power they
may gain from consolidation and the products they elect to
purchase will impact our sales growth and profit margins and
those of other equipment vendors.
Recently, a number of our competitors have engaged in business
combination transactions, and we expect to see continued
consolidation among communication equipment vendors. These
business combinations may result in our competitors becoming
financially stronger and obtaining broader product portfolios
than us. As a result, consolidation could increase the resources
of our competitors and negatively impact our product sales.
We believe we need to do three things to compete in this market
environment. First, we need to make market share gains in areas
where spending is increasing. The acceptance of such products as
our fiber connectivity for central offices and FTTX, our
TrueNet®
CopperTen®
structured cabling solutions, our
Digivance®
and
FlexWavetm
wireless coverage solutions and our recently acquired
Fusiontm
and
Unisontm
in-building wireless coverage and capacity solutions will
determine our ability to gain market share. Second, we need to
continue to expand our product portfolio and the geographic
footprint where we sell. Expanding our product portfolio and
geographic reach provides us with more opportunities to complete
sales and grow revenues. Third, we need to continue to transform
our business model so that we operate more efficiently while
continuing to provide superior service to our customers. Finding
ways to contain costs, while efficiently servicing the needs of
our customers, contributes to our profitability.
This excerpt taken from the ADCT 10-K filed Mar 13, 2007. Industry
Background and Marketplace Conditions
Our products and services are deployed primarily by
communications service providers and the owners/operators of
private enterprise networks. We believe the communications
industry is in the midst of a multi-year migration to
next-generation networks that can deliver broadband services at
low, often flat-rate, prices over any medium anytime and
anywhere. We believe this transformation especially will impact
the last mile/kilometer portion of networks where
our products and services primarily are used. It is in this
section of networks where bottlenecks in the high-speed delivery
of communications services are most likely to occur.
While factors such as regulatory changes will impact the
communications industry significantly, we believe there are two
key elements to the migration towards next-generation networks:
The evolution to next generation networks that offer services at
ever lower prices is affecting our industry significantly. For
one, we believe there are increased opportunities to provide
market infrastructure elements that are designed to allow
networks to provide more robust services and operate more
efficiently. In recent years our industry has experienced modest
overall spending increases and we presently expect this trend to
continue. The mix of products on which our customers spend,
however, is shifting towards new initiatives such as the
deployment of fiber-optic networks beyond the central office of
service providers and closer to the ultimate end-user, as well
as to the development of more powerful private enterprise
networks. The products that serve these new initiatives often
have lower margins than many of our legacy products such as our
copper connectivity products for central office infrastructure,
which has had an impact on our gross margins. Sales of these
products also are often project-based, causing our sales to
fluctuate from period to period and making the timing of our
sales harder to predict.
In addition, competitive pressures to win and retain customers
are causing many of our service provider customers to
consolidate with one another in order to gain greater scale as
well as the ability to offer a wider range of wireline and
wireless services. Consolidation results in larger customers who
have increased buying power and fewer competitors. In turn, we
expect this will place pressure on the prices at which vendors
like us can sell products and services. We also believe that
consolidation among our customers is likely to cause short-term
spending deferrals while the combined companies focus on
integration activities. Ultimately, the rate at which our
customers respond to each others competitive threats, the
buying power they likely are to
Table of Contents
gain from consolidation and the products they elect to purchase
will impact the sales growth and profit margins of equipment
vendors.
In both fiscal 2005 and fiscal 2006, the impact of the changes
in our industry resulted in increased revenues and lower profit
margins for our business. We believe that to succeed in this
type of business environment it is imperative that we not only
find ways to increase revenues but also to become more cost
efficient.
In fiscal 2005, the growth of our sales outpaced that of our
industry. In fiscal 2006, however, our sales increased at a
slower rate that was within the range of sales growth
experienced by our peers. We believe there are several reasons
for this slowed rate of growth. For instance, our
fiber-to-the-X
(i.e., the deployment of fiber-based networks closer to the
ultimate consumer, which is sometimes referred to as
FTTX) customers generally became more efficient in
their use of FTTX products in fiscal 2006 such that they
required less of our products to pass the same number of
subscribers versus what was needed in fiscal 2005. We also
believe customer consolidations resulted in the deferral of
certain spending decisions while the combining companies focused
on integration activities. Further, spending increases on FTTX
and related fiber initiatives in recent years appear to have
impacted spending adversely on other wireline initiatives.
Finally, as many of our products are utilized in emerging
next-generation networks, deployment rates can vary
significantly from customer to customer. Among other things,
these deployment rates can depend upon how quickly the customer
constructs these networks, the degree to which a customers
network architecture requires the use of a product and
regulatory decisions regarding competitive access to the
networks.
Despite slower sales growth in fiscal 2006, we continue to
expect our sales to grow over time, primarily as a result of
broadband initiatives as well as enterprise projects. Our
ability to take advantage of any spending increases will depend
on the acceptance of such products as our fiber connectivity for
central offices and FTTX, our
TrueNet®
and
CopperTentm
structured cabling solutions, our Digivance wireless coverage
and our WiFi and WiMax solutions.
In addition to the need for revenue growth, we believe we must
become more cost efficient in order to increase profitability on
a more consistent basis. We therefore are focusing aggressively
on ways to conduct our operations more efficiently. For
instance, we continue to move more of our manufacturing
capabilities to lower-cost locations. We also are taking steps
to redesign our products so that we have more common parts
across different types of products. Other steps we are taking to
rationalize costs are described below in the strategy discussion.
As has been the case for many years, our business remains
dependent largely on sales to communications service providers
and for the year ended October 31, 2006, our top five
customers in that industry accounted for 35.7% of our revenue.
Our entry into enterprise markets in recent years, however, has
mitigated this dependence to some degree.
This excerpt taken from the ADCT 10-K filed Jan 9, 2007. Industry
Background and Marketplace Conditions
Our products and services are deployed primarily by
communications service providers and the owners/operators of
private enterprise networks. We believe the communications
industry is in the midst of a multi-year migration to
next-generation networks that can deliver broadband services at
low, often flat-rate, prices over any medium anytime and
anywhere. We believe this transformation especially will impact
the last mile/kilometer portion of networks where
our products and services primarily are used. It is in this
section of networks where bottlenecks in the high-speed delivery
of communications services are most likely to occur.
While factors such as regulatory changes will impact the
communications industry significantly, we believe there are two
key elements to the migration towards next-generation networks:
The evolution to next generation networks that offer services at
ever lower prices is affecting our industry significantly. For
one, we believe there are increased opportunities to provide
market infrastructure elements that are designed to allow
networks to provide more robust services and operate more
efficiently. In recent years our industry has experienced modest
overall spending increases and we presently expect this trend to
continue. The mix of products on which our customers spend,
however, is shifting towards new initiatives such as the
deployment of fiber-optic networks beyond the central office of
service providers and closer to the ultimate end-user, as well
as to the development of more powerful private enterprise
networks. The products that serve these new initiatives often
have lower margins than many of our legacy products such as our
copper connectivity products for central office infrastructure,
which has had an impact on our gross margins. Sales of these
products also are often project-based, causing our sales to
fluctuate from period to period and making the timing of our
sales harder to predict.
In addition, competitive pressures to win and retain customers
are causing many of our service provider customers to
consolidate with one another in order to gain greater scale as
well as the ability to offer a wider range of wireline and
wireless services. Consolidation results in larger customers who
have increased buying power and fewer competitors. In turn, we
expect this will place pressure on the prices at which vendors
like us can sell products and services. We also believe that
consolidation among our customers is likely to cause short-term
spending deferrals while the combined companies focus on
integration activities. Ultimately, the rate at which our
customers respond to each others competitive threats, the
buying power they likely are to
Table of Contents
gain from consolidation and the products they elect to purchase
will impact the sales growth and profit margins of equipment
vendors.
In both fiscal 2005 and fiscal 2006, the impact of the changes
in our industry resulted in increased revenues and lower profit
margins for our business. We believe that to succeed in this
type of business environment it is imperative that we not only
find ways to increase revenues but also to become more cost
efficient.
In fiscal 2005, the growth of our sales outpaced that of our
industry. In fiscal 2006, however, our sales increased at a
slower rate that was within the range of sales growth
experienced by our peers. We believe there are several reasons
for this slowed rate of growth. For instance, our
fiber-to-the-X
(i.e., the deployment of fiber-based networks closer to the
ultimate consumer, which is sometimes referred to as
FTTX) customers generally became more efficient in
their use of FTTX products in fiscal 2006 such that they
required less of our products to pass the same number of
subscribers versus what was needed in fiscal 2005. We also
believe customer consolidations resulted in the deferral of
certain spending decisions while the combining companies focused
on integration activities. Further, spending increases on FTTX
and related fiber initiatives in recent years appear to have
impacted spending adversely on other wireline initiatives.
Finally, as many of our products are utilized in emerging
next-generation networks, deployment rates can vary
significantly from customer to customer. Among other things,
these deployment rates can depend upon how quickly the customer
constructs these networks, the degree to which a customers
network architecture requires the use of a product and
regulatory decisions regarding competitive access to the
networks.
Despite slower sales growth in fiscal 2006, we continue to
expect our sales to grow over time, primarily as a result of
broadband initiatives as well as enterprise projects. Our
ability to take advantage of any spending increases will depend
on the acceptance of such products as our fiber connectivity for
central offices and FTTX, our
TrueNet®
and
CopperTentm
structured cabling solutions, our Digivance wireless coverage
and our WiFi and WiMax solutions.
In addition to the need for revenue growth, we believe we must
become more cost efficient in order to increase profitability on
a more consistent basis. We therefore are focusing aggressively
on ways to conduct our operations more efficiently. For
instance, we continue to move more of our manufacturing
capabilities to lower-cost locations. We also are taking steps
to redesign our products so that we have more common parts
across different types of products. Other steps we are taking to
rationalize costs are described below in the strategy discussion.
As has been the case for many years, our business remains
dependent largely on sales to communications service providers
and for the year ended October 31, 2006, our top five
customers in that industry accounted for 35.7% of our revenue.
Our entry into enterprise markets in recent years, however, has
mitigated this dependence to some degree.
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