Adtran looks to 2017 for revenue upturn, gears up for G.fast, SDN

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Broadband equipment vendor Adtran saw its income leap year-over-year in the second quarter, but according to CEO Tom Stanton, 2017 could prove even bigger as carriers in the U.S. and Europe increase equipment and service orders, and technologies like G.fast and software-defined networking (SDN) begin to roll out commercially.

Adtran is currently trialing G.fast with multiple U.S. carriers, and it expects the technology to be centered on its SDN architecture. G.fast will begin rolling out in the first half of 2017, Stanton reiterated.

The company is also trialing its SDN platform with two Tier 1 carriers, Stanton said in a call with analysts. "In Q1, we continue to advance our SDN platform trial. We believe we're the only access vendor with SDN controls, software modularity and application virtualization," he said.

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In the U.S., orders from carriers rolling out broadband access products and services under the CAF II program will continue to be a factor in Adtran's earnings through the rest of 2016 and into 2017. The second phase of the FCC's Connect America Fund has been a boon to Adtran so far, thanks to changes in speed thresholds and multiyear funding. "They did some things that I thought were very positive, they allowed you to do upgrades from 10/1 to 25/3 [Mbps]. They did things that I think a lot of the smaller carriers were looking for," Stanton said. That resulted in more orders from Tier 3 carriers in 2016, he noted, with more orders expected from Tier 1 carriers as well in the coming months.

In Europe, where one carrier customer represents the bulk of Adtran's revenue, earnings were flat in Q2 and the company expects it to remain so through 2016. However, 2017 is a different story, as G.fast rolls out and Adtran expects revenue in the region to pick up, boosting its margins.

Likewise, Latin America is expected to turn up the revenue heat next year as the company's copper- and fiber-based products finish trials and begin to roll out in the region.

For the remainder of the year, Adtran continues to work to pick up additional business. Stanton said that multiple $100 million deals are in the works -- saying that an analyst's guess of five to six potential deals is "in the ballpark" -- and winning just one of those will significantly affect its gross margin, currently around 47 percent.

Staying out in front in the nascent SDN market is important, Stanton said, particularly with commercial deployments on the horizon. "…without a doubt the customers that care the most about a software-defined controlled architecture in all of the application suites that we're bringing to bear are the larger carriers."

For more:
- see this Seeking Alpha transcript

Earnings Summary: Tracking wireline telecom earnings in Q2 2016

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