Last week was Adtran Connect, an opportunity for the folks at Adtran to share their perspective, successes, and vision with analysts and media. It turns out, and this surprised me, they actually do have a fairly compelling story to tell. I was expecting to hear about DSLAMs and IADs and other network commodities, not about innovation, UC, and fanatical end-users.
Prior to the meetings, Adtran provided me a copy of the book The Breakthrough Company, which examines how companies become extraordinary, and it happens to feature Adtran (as a textbook example). This was far more compelling than a press release or brochure. The book concludes that it is Adtran's innovative engineering combined with continuous improvement and efficient manufacturing that gives it a sustainable competitive advantage.
That was certainly consistent with what the executives shared during Adtran Connect. The company takes great pride in their team and capabilities. There were a lot of topics covered, so let me just share a few of the items that really struck or surprised me.
Adtran is doing well. The stock has more than doubled in the past two years at a fairly consistent clip; both revenue and profits are up. Adtran's third-quarter sales increased 27 percent to more than $162.9 million--an all-time quarterly high. Most stories of improved financials that I am seeing are due to contraction of product lines and/or layoffs. Not here. Adtran expanded its portfolio and increased its headcount (currently at about 1,700). The growth is diversified across multiple products and divisions.
The outlook is impressive as well. The company expects to see ongoing growth, particularly internationally. Adtran sees a perfect storm forming for it, by sitting in the intersection of three big trends, or what they call "Inflection Points": global connectivity, mobility, and cloud services.
Global Connectivity is about our insatiable desire for more bandwidth (certainly was the case at Adtran Connect). The not so obvious part of this trend is federal incentives and programs to improve the nation's broadband. This includes the Universal Service Fund transitioning from telephone to broadband subsidies, the FCC's national broadband plan, and network infrastructure programs stemming from the Stimulus Act that will soon begin. Increased bandwidth generally equates to increased demand for Adtran’s core carrier products.
Mobility was not as obvious since the company does not directly manufacture cellular technologies, but as Adtran pointed out, wireless networks require wireline network infrastructure. Mobile carriers are building-out and ugprading their networks faster than anyone. Every major carrier is racing to upgrade wireless capacity, which directly requires more wired infrastructure. Mobile isn't just phones either; it is a slew of products from virtualized desktops to tablets. Nor is it just cellular; ubiquitous wi-fi is also driving broadband demand.
Cloud computing is the third inflection point, and although Adtran isn't a direct cloud play, it also benefits from increasing network demands. Instead of the applications, servers, and users all residing in one location, they are all at different locations--each requiring critical, reliable, and manageable bandwidth.
Dave Michels, principal of Verge1, is a regular contributor to No Jitter, as well as maintaining his own blog, Pin Drop Soup.
What is important about these trends is they are naturally occurring. They are not subject to an advertising campaign, adoption of new technology (e.g., video) or next generation product, or an abstract prediction. Adtran won't be the only vendor to benefit from them, but they do hold a nice position, being an American company that is focused on carrier and small to mid-market businesses. Adtran has built-up a strong portfolio of network devices including integrated access devices, routers, switches, and wi-fi solutions.
These three "inflection points" suggest Adtran to be a company focused on the carrier space only, but its enterprise division is what really caught my interest. The enterprise division builds products such as routers and switches, and even a UC solution. I was particularly impressed with the "half-rack" switches, a very small form factor Ethernet switch with the new 802.3at POE capability. Two switches combine into a single 1U 48 port managed switch. The 1700 series of routers includes switch ports and integrated options for IPSEC, VQM, and wireless controllers.
The NetVanta IP telephony solution is far more compelling than I had realized. It's a Windows-based phone system available with two configurations for less than 100 users in a single 1U, all-in-one package including POE ports, router, firewall, and call control. The NetVanta 7100 series uses SIP based endpoints from either Adtran or third parties. For richer UC capabilities, Adtran offers integrated UC as an option--a software suite that runs on a Windows Server providing richer messaging and CEBP capabilities.
Adtran's telephony products are not particularly well known--both the executives and the product staff referred to them as the best kept secret in the industry. To help reverse that, Adtran turned to a customer for a testimonial. Bradley Hampson, Assistant Superintendent/Technology for the Frontier School Division, which serves Canada's Manitoba province. He explained his district has 50 facilities spread over an area one and a half times larger than California. With only nine support staff, they put a heavy emphasis on manageability and support. Bradley claimed the division considered all the major brands, but Adtran, at only one third the cost, got their attention. He spoke about the easy configuration, inexpensive endpoints, and rich features. One unusual important feature he cited was the ability to advance schedule pages.
It was also interesting to learn more about Adtran's manufacturing capabilities and philosophies. Adtran does have impressive manufacturing capabilities, but uses it primarily to manage offshore suppliers. Instead of getting bids that compete with each other, Adtran requires bids to compete with Adtran itself--an approach they feel gives them a leg-up. Creating a manufacturing capability is not a trivial matter, so they leverage it for cost and design benefits.
Adtran Connect was a great opportunity to learn more about Adtran. The company has a storied past and seems well positioned for the future in both its carrier and enterprise businesses.
