netrashetty
Netra Shetty
ADC Telecommunications (NASDAQ: ADCT) is a communications company located in Eden Prairie, Minnesota, a southwest suburb of Minneapolis.
In 1935, Ralph Allison founded the Audio Development Company in the basement of his south Minneapolis home, inventing ADC's very first product, the audiometer, an electronic device designed to test hearing. It was later renamed to ADC Telecommunications, Inc.
Two years later, fellow engineer Walt Lehnert joined Allison, and together they diversified the company's product line to include amplifiers and transformers for the broadcast industry. By 1942, the company had designed a sophisticated audio system for the University of Minnesota, and the resulting jacks, plugs, patch cords and jackfields became the cornerstones for ADC's later entry into telecommunications.
LEADING AS AN “EARLY FOLLOWER” IN ATMS
ADC’s and its competitors’ marketing strategies were dramatically affected in 1992 by workforce reductions and early retirement programs implemented by large local exchange carriers. With sales at $316 million and shares priced at $56.75, ADC had become a leader in a growth field in 1993. The advent of ATM technology and the scrambling of television, computer, and telephone industries to board the information superhighway had wireless telecommunications booming with a growth rate of 25 percent. Seeking to build a stronger relationship with its customers to secure longevity, ADC adopted strategies including simplifying product lines; providing more detailed support materials; and improving ordering, customer service, quality of products, and maintenance support.
The company’s products included fiber-optic video, data, and voice transmission systems, and its clients included phone companies, TV broadcasters, and all major cable TV operators. Its new cellular radio switch was undergoing testing by seven large cellular phone operators. ADC continued to market new products, including an Ethernet converter, a coaxial cable delivery option for its Homeworx broadband access system, and a Sonoplex flexible access platform. ADC’s Homeworx system was selected by Rochester Telephone Corp. in May 1993 for a six-month video-on-demand trial.
ADC became an “early follower” in the asynchronous transfer mode (ATM) market, announcing a multiyear agreement with Loral Data Systems for an ATM switch. The ATM switch would create the capability of handling the massive flows of simultaneous high-speed digital information that the industry projected would be generated during the latter half of the 1990s and into the 21st century, arising from the blending of the communications, computing, and entertainment industries. The company also landed a coup in March 1994 when Ameritech chose ADC to supply equipment for its $75 million to $100 million video system, to be developed over the next five years. This $4.4 billion project would bring 70 channels of analog television and 40 channels of digital video to customers, with unlimited program choices and interactive, customer-controllable programming.
A NEW ERA OF LEADERSHIP: 1994 AND BEYOND
In 1994, as the Internet began its early growth phase, Charles Denny announced his retirement as chairman of the board and was replaced by Bill Cadogan. The company’s revenues had grown to $366 million in 1993, with a market value approaching $1 billion. As ADC Telecommunications, Inc., moved into a new era of leadership, its strategies included a new focus on cable TV and cellular communications, increased international presence, and increased fiber-optic and electronic product offerings in the multimedia market. In 1995 it bought Australian Fiber Optics Research, making inroads into the Australian market. It also increased its presence in China when it sold its digital cable television transmission system to China’s Hunan Post & Telecommunications Administration in a two-year deal worth potentially $14 million. That year, the company’s total revenue exceeded $500 million for the first time.
The following year was one of unprecedented deal making for ADC; it acquired seven companies, including Solitra Oy, Da Tel Fibernet, Information Transmission Systems, and the wireless infrastructure equipment group of Pacific Communications Sciences Inc. By 1997, with two more acquisitions under its belt, the company’s revenue had exceeded $1 billion, and it was competing with such industry giants as Lucent Technologies, Motorola, and Northern Telecom. Its three-pronged strategy was to sell to phone companies riding the waves of deregulation and Internet growth; to cable TV companies preparing to offer new telephone and data services; and to wireless phone companies. A relatively new market for ADC, wireless operations were in the vicinity of $65 million.
Even though ADC’s sales kept growing, its stock price took a sudden plunge in early 1998 as the company reported a net loss of $13.2 million for the first quarter ended in January. Analysts attributed the drop to a faltering performance in the company’s normally thriving broadband connectivity group. Throughout the year, however, ADC continued to reach record year-over-year levels for each quarter’s sales and earnings; annual sales growth was 18 percent for a grand total of $1.5 billion by year’s end, and earnings per share grew 17 percent. ADC purchased Israeli Teledata Communications Ltd. for $200 million in cash, broadening its international exposure and expanding its product range, and also acquired Princeton Optics, a maker of optical components critical to maximizing available bandwidth within the fiber-optic network.
In planning its course for the next millennium, ADC was focused on being a total solutions provider for the last mile, or local loop, providing the fiber-optic technologies, Internet connectivity and transmission systems, and network software to make high-speed, multiservice communications possible. ADC’s strategy was to capitalize on the evolving global communications market and to address key areas of the communications network infrastructure by designing products that enabled its customers to connect physical networks, access network services, transport network traffic, and manage networks.
CALIBRATING EXPECTATIONS
Hopes for continued growth appeared to be justified in light of ADC’s experiences in 2000. Through acquisitions and partnerships, the company became involved in new areas of technology and expanded its presence in the global marketplace. Its acquisition of Broadband Access Systems for $2.25 billion opened the door to the cable-modem termination system and Internet-protocol arenas. ADC also positioned itself to enter the tiny world of micro electro-mechanical systems, or MEMS, through its partnership with MEMSCAP. It also acquired two Scandinavian firms, Altitun and Ibsen, both of which complemented a number of the optics-related acquisitions it had made in the previous five years. Finally, the company formed partnerships with Austar United Communications to create a new Australian wireless system and with Companhia Riogradense de Telecommunicaseos in order to enhance broadband service in Brazil.
By 2001, however, ADC’s fortunes had turned. When AT&T veteran Richard Roscitt replaced Bill Cadogan as CEO in February, the telecommunications industry was beginning to experience a steep, and largely unexpected, downturn. “Everybody was either fat, dumb and happy, or it happened more quickly than anyone anticipated,” reflected Roscitt for Telephony in June 2001. He assumed his new position “with a message to the board that we should calibrate expectations.” Although ADC did not have a substantial debt like some of its rivals, over the next two years, it sold many of the companies it had formerly acquired, suspended expansion of or closed facilities around the world, and laid off 16,400 of its 22,400 employees, including its COO. Sales declined 76 percent between 2001 and 2003. As of August 2003, the company had suffered through eight consecutive unprofitable quarters.
Among ADC’s other losses was Richard Roscitt. He left that August to accept a job at MCI. His replacement was Robert Switz, previously ADC’s chief financial officer. By that point, ADC’s situation had begun to stabilize. Switz did not anticipate losing any of the firm’s remaining 6,000 employees. In fact, ADC hired roughly 100 new workers in the first quarter of 2004. During the same year, it also acquired Krone Group, which designed and installed copper and fiber-optic cabling systems, for $350 million. This acquisition was particularly important because 80 percent of Krone’s sales were outside of North America. At the beginning of 2005, there were a number of even more positive signs, including second quarter earnings above expectations and a one-for-seven reverse stock split intended to raise share prices and attract investors.
By the summer of 2005, ADC, and the telecommunications industry more generally, appeared to be in recovery. The number of employees rose to 8,600, while, largely because of new acquisitions, 45 percent of company revenue came from international sales. Amidst growing confidence, Switz commented in a June 2, 2005, article in the Minneapolis Star Tribune that “we are now well on the way to the company’s next phase.” During 2006 and 2007, the company made additional acquisitions, formed a number of joint ventures, including one with Sun Microsystems to promote Ethernet awareness and advancement, and opened a new manufacturing facility in Lexington, South Carolina. Though not all of its attempts to grow were successful (its bid for wireless equipment maker Andrews Corp. ultimately foundered), such developments did seem to suggest that ADC’s next phase was underway.
In 1935, Ralph Allison founded the Audio Development Company in the basement of his south Minneapolis home, inventing ADC's very first product, the audiometer, an electronic device designed to test hearing. It was later renamed to ADC Telecommunications, Inc.
Two years later, fellow engineer Walt Lehnert joined Allison, and together they diversified the company's product line to include amplifiers and transformers for the broadcast industry. By 1942, the company had designed a sophisticated audio system for the University of Minnesota, and the resulting jacks, plugs, patch cords and jackfields became the cornerstones for ADC's later entry into telecommunications.
LEADING AS AN “EARLY FOLLOWER” IN ATMS
ADC’s and its competitors’ marketing strategies were dramatically affected in 1992 by workforce reductions and early retirement programs implemented by large local exchange carriers. With sales at $316 million and shares priced at $56.75, ADC had become a leader in a growth field in 1993. The advent of ATM technology and the scrambling of television, computer, and telephone industries to board the information superhighway had wireless telecommunications booming with a growth rate of 25 percent. Seeking to build a stronger relationship with its customers to secure longevity, ADC adopted strategies including simplifying product lines; providing more detailed support materials; and improving ordering, customer service, quality of products, and maintenance support.
The company’s products included fiber-optic video, data, and voice transmission systems, and its clients included phone companies, TV broadcasters, and all major cable TV operators. Its new cellular radio switch was undergoing testing by seven large cellular phone operators. ADC continued to market new products, including an Ethernet converter, a coaxial cable delivery option for its Homeworx broadband access system, and a Sonoplex flexible access platform. ADC’s Homeworx system was selected by Rochester Telephone Corp. in May 1993 for a six-month video-on-demand trial.
ADC became an “early follower” in the asynchronous transfer mode (ATM) market, announcing a multiyear agreement with Loral Data Systems for an ATM switch. The ATM switch would create the capability of handling the massive flows of simultaneous high-speed digital information that the industry projected would be generated during the latter half of the 1990s and into the 21st century, arising from the blending of the communications, computing, and entertainment industries. The company also landed a coup in March 1994 when Ameritech chose ADC to supply equipment for its $75 million to $100 million video system, to be developed over the next five years. This $4.4 billion project would bring 70 channels of analog television and 40 channels of digital video to customers, with unlimited program choices and interactive, customer-controllable programming.
A NEW ERA OF LEADERSHIP: 1994 AND BEYOND
In 1994, as the Internet began its early growth phase, Charles Denny announced his retirement as chairman of the board and was replaced by Bill Cadogan. The company’s revenues had grown to $366 million in 1993, with a market value approaching $1 billion. As ADC Telecommunications, Inc., moved into a new era of leadership, its strategies included a new focus on cable TV and cellular communications, increased international presence, and increased fiber-optic and electronic product offerings in the multimedia market. In 1995 it bought Australian Fiber Optics Research, making inroads into the Australian market. It also increased its presence in China when it sold its digital cable television transmission system to China’s Hunan Post & Telecommunications Administration in a two-year deal worth potentially $14 million. That year, the company’s total revenue exceeded $500 million for the first time.
The following year was one of unprecedented deal making for ADC; it acquired seven companies, including Solitra Oy, Da Tel Fibernet, Information Transmission Systems, and the wireless infrastructure equipment group of Pacific Communications Sciences Inc. By 1997, with two more acquisitions under its belt, the company’s revenue had exceeded $1 billion, and it was competing with such industry giants as Lucent Technologies, Motorola, and Northern Telecom. Its three-pronged strategy was to sell to phone companies riding the waves of deregulation and Internet growth; to cable TV companies preparing to offer new telephone and data services; and to wireless phone companies. A relatively new market for ADC, wireless operations were in the vicinity of $65 million.
Even though ADC’s sales kept growing, its stock price took a sudden plunge in early 1998 as the company reported a net loss of $13.2 million for the first quarter ended in January. Analysts attributed the drop to a faltering performance in the company’s normally thriving broadband connectivity group. Throughout the year, however, ADC continued to reach record year-over-year levels for each quarter’s sales and earnings; annual sales growth was 18 percent for a grand total of $1.5 billion by year’s end, and earnings per share grew 17 percent. ADC purchased Israeli Teledata Communications Ltd. for $200 million in cash, broadening its international exposure and expanding its product range, and also acquired Princeton Optics, a maker of optical components critical to maximizing available bandwidth within the fiber-optic network.
In planning its course for the next millennium, ADC was focused on being a total solutions provider for the last mile, or local loop, providing the fiber-optic technologies, Internet connectivity and transmission systems, and network software to make high-speed, multiservice communications possible. ADC’s strategy was to capitalize on the evolving global communications market and to address key areas of the communications network infrastructure by designing products that enabled its customers to connect physical networks, access network services, transport network traffic, and manage networks.
CALIBRATING EXPECTATIONS
Hopes for continued growth appeared to be justified in light of ADC’s experiences in 2000. Through acquisitions and partnerships, the company became involved in new areas of technology and expanded its presence in the global marketplace. Its acquisition of Broadband Access Systems for $2.25 billion opened the door to the cable-modem termination system and Internet-protocol arenas. ADC also positioned itself to enter the tiny world of micro electro-mechanical systems, or MEMS, through its partnership with MEMSCAP. It also acquired two Scandinavian firms, Altitun and Ibsen, both of which complemented a number of the optics-related acquisitions it had made in the previous five years. Finally, the company formed partnerships with Austar United Communications to create a new Australian wireless system and with Companhia Riogradense de Telecommunicaseos in order to enhance broadband service in Brazil.
By 2001, however, ADC’s fortunes had turned. When AT&T veteran Richard Roscitt replaced Bill Cadogan as CEO in February, the telecommunications industry was beginning to experience a steep, and largely unexpected, downturn. “Everybody was either fat, dumb and happy, or it happened more quickly than anyone anticipated,” reflected Roscitt for Telephony in June 2001. He assumed his new position “with a message to the board that we should calibrate expectations.” Although ADC did not have a substantial debt like some of its rivals, over the next two years, it sold many of the companies it had formerly acquired, suspended expansion of or closed facilities around the world, and laid off 16,400 of its 22,400 employees, including its COO. Sales declined 76 percent between 2001 and 2003. As of August 2003, the company had suffered through eight consecutive unprofitable quarters.
Among ADC’s other losses was Richard Roscitt. He left that August to accept a job at MCI. His replacement was Robert Switz, previously ADC’s chief financial officer. By that point, ADC’s situation had begun to stabilize. Switz did not anticipate losing any of the firm’s remaining 6,000 employees. In fact, ADC hired roughly 100 new workers in the first quarter of 2004. During the same year, it also acquired Krone Group, which designed and installed copper and fiber-optic cabling systems, for $350 million. This acquisition was particularly important because 80 percent of Krone’s sales were outside of North America. At the beginning of 2005, there were a number of even more positive signs, including second quarter earnings above expectations and a one-for-seven reverse stock split intended to raise share prices and attract investors.
By the summer of 2005, ADC, and the telecommunications industry more generally, appeared to be in recovery. The number of employees rose to 8,600, while, largely because of new acquisitions, 45 percent of company revenue came from international sales. Amidst growing confidence, Switz commented in a June 2, 2005, article in the Minneapolis Star Tribune that “we are now well on the way to the company’s next phase.” During 2006 and 2007, the company made additional acquisitions, formed a number of joint ventures, including one with Sun Microsystems to promote Ethernet awareness and advancement, and opened a new manufacturing facility in Lexington, South Carolina. Though not all of its attempts to grow were successful (its bid for wireless equipment maker Andrews Corp. ultimately foundered), such developments did seem to suggest that ADC’s next phase was underway.