ADC Telecommunications, Inc.

views updated May 14 2018

ADC Telecommunications, Inc.

13625 Technology Drive
Eden Prairie, Minnesota 55344
U.S.A.
Telephone: (925) 938-8080
Toll Free: (800) 366-3889
Fax: (925) 917-1717
Web site: http://www.adc.com

Public Company
Incorporated: 1935 as Audio Development Company;
1953 as Magnetic Controls Company
Employees: 8,600
Sales: $1.28 billion (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: ADCT
NAIC: 334210 Telephone Apparatus Manufacturing; 334290 Other Communications Equipment Manufacturing; 334419 Other Electronic Component Manufacturing; 334417 Electronic Connector Manufacturing; 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing

INNOVATORS IN TELECOMMUNICATIONS AND DATA PROCESSING

A NEW FOCUS ON FIBER OPTICS

EXPANSION INTO THE VIDEO SERVICES INDUSTRY

LEADING AS AN “EARLY FOLLOWER” IN ATMS

A NEW ERA OF LEADERSHIP: 1994 AND BEYOND

CALIBRATING EXPECTATIONS

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

INNOVATORS IN TELECOMMUNICATIONS AND DATA PROCESSING

Audio Development Company (later renamed ADC Incorporated) was founded by two Bell Laboratory engineers in 1935 as a telecommunications company that created custom transformers and amplifiers for the radio broadcast industry and also audiometers to test children’s hearing. In 1941, while participating in a project to develop a sophisticated audio system for Coffman Union at the University of Minnesota, ADC also began to produce jacks, plugs, patch cords, and jack-fields, foreshadowing its future involvement in the telephone industry.

Magnetic Controls Company was founded and incorporated in Minnesota in 1953, part of the wave of technological development during the postwar era. The company produced high-quality custom power supplies and magnetic amplifiers and was involved in military and space exploration programs. In 1961, Magnetic Controls merged with ADC Incorporated, and the new company, which used the umbrella name Magnetic Controls Company (ADC’s trade name was retained in telecommunications), advanced its most significant innovation, the Bantam jack. This product was an amalgam of miniaturized components and became standard for telephone circuit access and patching. Magnetic Controls launched an ongoing involvement with major space missions in 1962, eventually designing and manufacturing sensors for the Columbia space shuttle.

The 1960s and 1970s ushered in technological advancement in all areas of telecommunications and data processing. Public and private computer use increased, and telecommunications evolved into the computer age, with telephonic digital transmission and the expansion of data communications. As an innovator in these fields, Magnetic Controls grew dramatically. In 1970, when Charles Denny was encouraged by shareholders to quit his marketing executive job at Honeywell and to take over leadership of the company, the company’s earnings stood at $6 million. These compounded at 20 percent a year for the next 20 years.

Magnetic Controls Company pioneered another industry standard during the 1970s: the digital signal cross-connect product line to access and cross-connect digital telephony circuits. The company also developed specialized test boards for long-distance telephone companies, and designed and manufactured power conversion equipment for major data processing manufacturers. In addition to proliferating new products that addressed the digitalization of the industry, Magnetic Controls continued to introduce telecommunications hardware, including prewired connectorized jackfields and wired assemblies.

A NEW FOCUS ON FIBER OPTICS

By 1981, Magnetic Controls Company had sales of $61.5 million; by 1983 sales rose to $76.3 million. Nonetheless, the company was struggling. Although its telecommunications products were profitable, its magnetics division, which manufactured transformers and power supplies for mainframe peripherals, lost $1.2 million in fiscal 1983. The company made the decision to sell its magnetics assets in 1984, writing off the magnetics division as a $3.95 million onetime loss, and moved forward as solely a telecommunications company.

The company next repositioned itself in the growth industry of telecommunications, investing in acquisitions, trimming expenses, and purchasing shares of its own stock. In 1984, Magnetic Controls Company acquired TMS Systems, Inc., a private Massachusetts-based company that manufactured telephone call management equipment and software. With TMS functioning as a separate subsidiary, Magnetic Controls sold the TMS product line as well as telecommunications components and local and remote-access test systems. It began subcontracting assembly work in Mexico and implemented a computer-based manufacturing resource planning system to streamline domestic manufacturing operations.

By 1985 the company’s focus was decidedly on telecommunications. It purchased Aetna Life & Casualty Company’s Fiber Optic Component division in Westborough, Massachusetts, and changed its corporate name to ADC Telecommunications, renaming its new subsidiary ADC Advanced Fiber Optics Corp. The newly named company focused its efforts on manufacturing, selling, and servicing two groups of telecommunications products: communications connectors and electronics. Rather than trying to compete with the industry giants in its fields, ADC’s product strategy was to manufacture and sell products in diversified industries, finding and occupying niches not already filled. New orders, backlogs, revenues, and operating income soared to new highs, the increased demand for ADC’s products the result of technological change and deregulation in the $40 billion long-distance telephone service.

COMPANY PERSPECTIVES

We help the world communicate, supplying network equipment, software solutions, and integration services for broadband, multiservice networks that deliver data, video, and voice communications over telephone, cable television, Internet, broadcast, wireless, and enterprise networks. Our mission is to enable communications service providers worldwide to serve their residential and business customers more efficiently. We achieve this with talented and dedicated employees who are complemented with a diverse resource of suppliers.

ADC’s customer base in the early 1980s was a diverse pool of public telecommunications networks, telephone operating companies and other common carriers, and private telecommunications networks used by large businesses and government agencies. IBM, AT&T, the Bell Operating Companies, MCI, GTE, ITT, Allnet, and Northern Telecom were among the more well-known companies it served, with no single one representing more than 10 percent of net sales. Foreign buyers accounted for 8 percent of revenues; by 1988, they were at 15 percent, with marketing efforts in Europe, the Pacific Rim, Canada, Latin America, and the Middle East.

KEY DATES

1935:: Two Bell Laboratory engineers found Audio Development Company (ADC).
1941:: ADC begins to produce jacks, plugs, patch cords, and jackfields.
1953:: Magnetic Controls Company is founded in Minnesota.
1961:: Magnetic Controls merges with ADC under the umbrella name Magnetic Controls Company.
1962:: Magnetic Controls becomes involved with space missions.
1970:: Charles Denny takes over leadership of Magnetic Controls.
1984:: Magnetic Controls sells its magnetics division and becomes solely a telecommunications company; company acquires TMS Systems, Inc., a manufacturer of telephone call management equipment and software.
1985:: The company changes its name to ADC Telecommunications; purchases Aetna Life & Casualty’s Fiber Optics division.
1988:: Foreign revenues account for 15 percent of earnings; slightly over half of ADC’s business is in public networks.
1989:: ADC narrowly avoids a buyout by the Lodestar Group.
1990:: Denny’s chosen successor and former AT&T CEO Bill Cadogan becomes the new president of ADC; the company acquires American Lightwave Systems, Inc., a fiber-optic equipment manufacturer, and Telinq, Inc.
1991:: ADC acquires Fibermux, a maker of high-speed, fiber-optic equipment; company forms a partnership with South Central Bell, Mississippi Educational Television, Northern Telecom, IBM, and Apple Computer to create Fibernet, a network linking students at four high schools.
1992:: ADC creates Networx, a new transmission platform that integrates cable management and private networking products, with Fulcrum Communications.
1993:: Revenues reach $366 million; ADC’s Home-worx system is selected by Rochester Telephone Corp. for a six-month video-on-demand trial.
1994:: Ameritech chooses ADC to supply equipment for its video system, to be developed over the next five years; Charles Denny is replaced by Bill Cadogan as chairman of the board.
1995:: ADC buys Australian Fiber Optics Research and sells its digital cable television transmission system to China’s Hunan Post and Telecommunications Administration; total revenues exceed $500 million for the first time.
1997:: Revenues exceed $1 billion.
1998:: ADC’s stock price plunges as the company reports a net loss of $13.2 million for the first quarter ending in January.
2000:: ADC increases its domestic presence in new technological areas through acquisitions; the company also increases its international profile through key partnerships.
2001:: AT&T veteran Richard Roscitt replaces Bill Cadogan as CEO; ADC faces a major downturn in the telecommunications industry.
2003:: After eight consecutive unprofitable quarters, ADC retains only 6,000 of its former 22,400 employees; sales have declined 76 percent since 2001; Richard Roscitt leaves ADC and is replaced by Robert Switz.
2004:: The recovering ADC acquires Krone Group.
2005:: ADC’s second quarter earnings are above expectations; company decides to offer a one-for-seven reverse stock split.
2006:: ADC cofounds the Ethernet Alliance with Sun Microsystems.
2007:: The company opens a new manufacturing facility in Lexington, South Carolina.

In 1988 slightly over half of ADC’s business was in public networks. ADC products were divided into five categories: network management and control products, termination products, test products, transmission products, and access products, the last the most significant at approximately 60 percent of sales. Responding to a demonstrated growth area in new technology, ADC took steps to become more involved in the fiberization process of local loops and local area networks (LANs).

ADC narrowly avoided a buyout when the Lodestar Group, a New York investment fund specializing in mergers and acquisitions, acquired a 6.4 percent stake in the company in 1989. Shares of ADC were at $16.75, making the market value of the company $221 million. Instead, ADC acquired Kentrox Industries, maker of products for high-speed private telecommunications networks, for $31 million and restructured its operations into three areas: telecom, diversified markets, and operations.

EXPANSION INTO THE VIDEO SERVICES INDUSTRY

Beginning the 1990s with a new president—Denny’s chosen successor and former AT&T executive William “Bill” Cadogan—ADC entered the video services delivery market, acquiring American Lightwave Systems, Inc., a leading supplier of fiber-optic video transmission equipment for cable operators for $10.7 million, with an agreement to make payments totaling at least $4 million over the next three and a half years. ADC also acquired Telinq Inc. in 1990 and used its newly acquired fiber-optics expertise to develop a local loop system with the goal of providing economical fiber directly to private homes. Fiber products contributed approximately $18 million to ADC’s total sales in 1990, having doubled every year since 1987. Cadogan directed the company to pursue the course of an early follower, rather than a leader, in the developing industry, while expanding its fiber division toward a goal of $250 million in sales by 1995.

In 1991 ADC acquired Fibermux, a maker of high-speed, fiber-optic equipment for LANs, for $50 million, $40 million of which was loan money. Fibermux proved so successful an investment that ADC paid off this loan in 1993. In 1992 ADC formed a collaborative development venture with Fulcrum Communications in Birmingham, England, devising a system to carry voice and video signals over fiber-optic cable to businesses and residences in North America in a more cost-effective way. ADC also created Networx, a new transmission platform that integrated cable management and private networking products, using synchronous optical network and the asynchronous transfer mode (ATM). The cornerstone of Networx was Sonoplex, a multirate, multimedia system that brought fiber to the customer’s work or residence site, while making use of existing copper lines. In 1991 ADC had formed a similar partnership with South Central Bell, Mississippi Educational Television, Northern Telecom, IBM, and Apple Computer to create Fibernet, a network linking students at four high schools in Clarksville, Corinth, West Point, and Philadelphia, Mississippi, with teachers at Mississippi State University, Mississippi University for Women, and Mississippi School for Mathematics and Science to create “electronic classrooms.”

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.

Heidi Feldman
Updated, Daniel Thurs

PRINCIPAL SUBSIDIARIES

ADC; ADC Connectivity Solutions, LLC; ADC DSL Systems, Inc.; ADC NewNet, Inc.; ADC Puerto Rico; ADC Systems Integration Group; Big Band Network; Commtech Corporation; ADC Broadband (Hong Kong) Limited (China); ADC Broadband Italy SRL (Italy); ADC de Delicias, S. de R.L. de C.V. (Mexico); ADC de Juarez, S. de R.L. de C.V. (Mexico); ADC de Mexico, S.A. de C.V.; ADC Europe, NV (Belgium); ADC (India) Communications & Infotech Private Limited (India); ADC Meta Telecomunicacoes, SA (Brazil); ADC Software Systems UK; ADC Systems Integration France SAS; ADC Telecom Canada, Inc.; ADC Telecommunications do Brasil Ltda. (Brazil); ADC Telecommunications (Nanjing) Co., Ltd. (China); ADC Telecommunications (Scotland) Limited (UK); ADC Telecommunications (Shanghai) Distribution Co., Ltd. (China); ADC Telecommunications Singapore Pte. Ltd.; ADC Telecomunicaciones Venezuela, SA; Ballent (UK); G-Connect, Ltd. (Israel); Ibsen (Denmark); Intec Billing (Australia); Intec Billing Canada, Ltd.; Nanjing ADC Broadband Communications Co., Ltd. (China); Nihon ADC KK (Japan).

PRINCIPAL COMPETITORS

ADTRAN, Inc.; NEC Corporation; CommScope, Inc.; Tyco International, Ltd.

ADC Telecommunications, Inc.

views updated May 21 2018

ADC Telecommunications, Inc.

4900 West 78th Street
Minneapolis, Minnesota 55435
U.S.A.
(612) 938-8080
Fax: (612) 946-3292

Public Company
Incorporated: 1953
Employees: 2,300
Sales: $366.1 million
Stock Exchanges: NASDAQ
SICs: 3661 Telephone & Telegraph Apparatus; 3669 Communications Equipment Nee; 3679 Electronic Components Nee

ADC Telecommunications, Inc. is a Minneapolis-based supplier of networking products and systems for telecommunications, cable television, broadcast, cellular, and enterprise networks. The company is a diversified niche marketer with a unique amalgam of products that enable it to work closely with industry giants as a collaborator, rather than competitor. A major aspect of the company’s operations is sales, with direct sales offices located in the United States, Canada, Europe, the Pacific Basin, Australia, and Central and South America. The company was formed as a result of the merging of Audio Development Company (ADC Incorporated) and Magnetic Controls Company.

Audio Development Company was founded by two Bell Laboratory engineers in 1935 as a telecommunications company, creating custom transformers and amplifiers for the radio broadcast industry. ADC also manufactured audiometers (machines that test children’s hearing). In 1941, ADC participated in a pivotal project—the development of a sophisticated audio system for Coffman Union at the University of Minnesota. As part of this enterprise, the company produced jacks, plugs, patch cords, and jackfields, foreshadowing its future involvement in the telephone industry.

As a result of the technological development during the postwar era, Magnetic Controls Company was founded and incorporated in Minnesota in 1953. The company produced high quality custom power supplies and magnetic amplifiers and was involved in military and space exploration programs. Magnetic Controls Company merged with ADC Incorporated in 1961, bringing magnetics and telecommunications together. While the firm used the umbrella name Magnetic Controls Company, ADC’s trade name was retained in telecommunications. In 1961, the company advanced its most significant product innovation, the Bantam jack, an amalgam of miniaturized components which became standard for telephone circuit access and patching. The company launched an ongoing involvement with major space missions in 1962, eventually designing and manufacturing sensors for the Columbia space shuttle.

The 1960s and 1970s ushered in technological advancement in all areas of telecommunications and data processing. Public and private computer use increased as products became more affordable, and telecommunications evolved into the computer age, with telephonic digital transmission and the expansion of data communications. As an innovator in these fields, the Magnetic Controls Company grew dramatically. In 1970, Charles Denny was encouraged by shareholders to quit his marketing executive job at Honeywell and take over leadership of the company. Under Denny’s leadership, the company’s earnings, which stood at $6 million in 1970, compounded at 20 percent a year for the next 20 years.

Magnetic Controls Company pioneered yet another industry standard during the 1970s—the digital signal cross-connect (DSX) product line. DSX products access and cross connect digital telephony circuits. The company also developed specialized test boards for long distance telephone companies, and designed and manufactured power conversion equipment for major data processing manufacturers. In addition to the proliferation of new products that addressed the digitalization of the industry, the company continued to introduce telecommunications hardware, including prewired connectorized jackfields and wired assemblies.

By 1981, Magnetic Controls Company had sales of $61.5 million, and by 1983 sales rose to $76.3 million. Nonetheless, the company was struggling. Although its telecommunications products were profitable, the magnetics division, which manufactured transformers and power supplies for mainframe peripherals, lost $1.2 million in fiscal year 1983. The company cut its losses in 1984, selling its magnetics assets and moving forward as solely a telecommunications company. Writing off the magnetics division as a $3.95 million one-time loss, the company incurred a $2.7 million corporate-wide loss for the final quarter of fiscal year 1984.

Having rid itself of its failing magnetics division and having purchased shares of its own stock, the company repositioned itself in the growth industry of telecommunications by investing in acquisitions and trimming expenses. In 1984, Magnetic Controls Company acquired TMS Systems, Inc., a private Massachusetts company that manufactured telephone call management equipment and software. With TMS functioning as a separate subsidiary, Magnetic Controls now sold the TMS product line, in addition to manufacturing telecommunications components and local and remote-access test systems. Also in 1984, the company began subcontracting assembly work in Mexico, where production costs could be lessened. In addition, a computer-based manufacturing resource planning system was implemented to streamline domestic manufacturing operations, and manufacturing personnel grew by approximately 20 percent.

In 1985, the company purchased Aetna Life & Casualty Company’s Fiber Optic Component division in Westborough, Massachusetts. The company’s focus was now decidedly on telecommunications, and the corporate name was no longer appropriate. Recalling its heritage, in March 1985, Magnetic Controls Company changed its name to ADC Telecommunications and renamed its new subsidiary ADC Advanced Fiber Optics Corp. Four Magnetic Controls employees who were already working on fiber optics development were relocated to join the new Massachusetts staff.

After the disastrous dip in its sales in 1984, the newly named company emerged victorious in 1985. The company focused its efforts on manufacturing, selling, and servicing two groups of telecommunications products: communications connectors and electronics. Rather than trying to compete with the industry giants in its fields, ADC’s product strategy was to manufacture and sell products in diversified industries, finding and occupying niches that were not already filled by larger companies. New orders, backlogs, revenues, and operating income soared to new highs in the first quarter. The increased demand for ADC’s products was attributed to an energized telecommunications industry, resulting from technological change and the deregulation in long distance telephone service. GTE, Sprint, MCI, and Allnet entered the $40 billion long distance market as major players and potential new customers for ADC Telecommunications.

ADC’s customer base in the early 1980s was a diverse pool of public and private networks, with no single customer representing more than 10 percent of 1984 net sales. Foreign buyers accounted for 8 percent of sales that year. ADC’s clientele consisted of public telecommunications networks, telephone operating companies and other common carriers, and private telecommunications networks used by large businesses and government agencies. ADC’s customer list included IBM, AT&T, the Bell Operating Companies, MCI, GTE, ITT, Allnet, and Northern Telecom.

In 1988, slightly over half of ADC’s business was in public networks. ADC products were divided into five categories: network management and control products, termination products, test products, transmission products, and access products. Access products were the most significant category, accounting for approximately 61 percent of sales. Responding to a demonstrated growth area in new technology, ADC took steps to become more involved in the fiberization process of local loops and local area networks (LANs). The company began working on fiber distribution, fiber termination, and broadwidth limiter technology, as well as a fiber loop converter. New products introduced by ADC in 1988 included EDSX (an electronic digital signal cross-connect product) and Series 3000 tester software. The company’s international sales had grown from 8 percent in 1980 to 15 percent in 1988, and ADC sought further foreign growth, with marketing efforts in Europe, the Pacific Rim, Canada, Latin America, and the Middle East.

ADC narrowly avoided a buyout when the Lodestar Group, a New York investment fund specializing in mergers and acquisitions, acquired a 6.4 percent stake in the company in 1989. Shares of ADC were $16.75, making the market value of the company $221 million. Lodestar told ADC President Charles Denny that it intended to implement a takeover unless ADC borrowed $200 million and declared a one-time dividend. Denny was furious, feeling that a debt of that magnitude would preclude any investment in future growth for the company. He refused to comply.

Meanwhile, Denny had been pursuing negotiations regarding a potential acquisition, a much better use of ADC resources, in Denny’s opinion. In 1989, ADC acquired Kentrox Industries (a maker of products for high-speed private telecommunications networks) for $31 million and restructured its operations into three areas: telecom, diversified markets, and operations. Lodestar did not make good on its threat, but instead sold its shares at a small profit. Over the next four years, those shares would triple in value.

Beginning the 1990s with a new president—Denny’s chosen successor and former AT&T executive Bill Cadogan—, ADC entered the video services delivery market, acquiring American Lightwave Systems, Inc., a leading supplier of fiber-optic video transmission equipment for cable operators. ADC purchased the company for $10.7 million, with an agreement to make payments totaling at least $4 million over the next three and a half years. ADC also acquired Telinq Inc. in 1990 and utilized its newly acquired fiber-optics expertise to develop a local loop system with the goal of providing economical fiber directly to private homes. Fiber products contributed approximately $18 million to ADC’s total sales in 1990, having doubled every year since 1987. Cadogan directed the company to expand its fiber division toward a goal of $250 million in sales in 1995. Simultaneously, Cadogan mandated that costs be kept low, and that ADC act as an early follower—rather than a leader—in the developing industry.

In 1991, ADC acquired Fibermux, a maker of high-speed, fiberoptic equipment for local area networks (LANs). The company was purchased for $50 million, with a $40 million loan. Fibermux proved so successful an investment for ADC that the loan was paid off by 1993.

In an effort to increase productivity, ADC joined a number of employers implementing plans using company stock to match employee contributions, whereby a portion of the match was tied to company performance. ADC’s Retirement Savings Plus Plan, combining a 401(k) and a non-leveraged ESOP, was implemented in 1991 in an effort to provide an employee incentive to improve company performance, while raising long-term stock value and controlling benefits costs. In June of 1990, 84 percent of ADC’s 1,395 employees had elected to participate in the voluntary plan.

In 1992, ADC formed a collaborative development venture with Fulcrum Communications in Birmingham, England, devising a system to carry voice and video signals over fiber-optic cable to businesses and residences in North America in a more cost-effective way than that of existing systems. ADC also created Networx, a new transmission platform that integrates cable management and private networking products, using synchronous optical network and the asynchronous transfer mode (ATM). The cornerstone of Networx was Sonoplex, a multirate, multimedia system that brings fiber to the customer’s work or residence site, while making use of existing copper plant. In 1991, ADC had formed a similar partnership with South Central Bell, Mississippi Educational Television, Northern Telecom, IBM Corp., and Apple Computer to create Fibernet, a network linking students at four high schools in Clarksville, Corinth, West Point, and Philadelphia, Mississippi, with teachers at Mississippi State University, Mississippi University for Women, and Mississippi School for Mathematics and Science to create “electronic classrooms.”

ADC’s—and its competitors’—marketing strategies were dramatically impacted in 1992 by work force reductions and early retirement programs implemented by large local exchange carriers. 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. Sales in 1992 reached $316 million, with shares priced at $56.75.

ADC had become a leader in a growth field in 1993. With the advent of ATM technology and the scrambling of television, computer, and telephone industries to board the information superhighway, telecommunications was booming and wireless telecommunications had a growth rate of 25 percent. 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 of 1993 for a six-month video-on-demand trial.

ADC became an ’ ’early follower’’ into 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 the twenty-first century, arising from the blending of the communications, computing, and entertainment industries. The company also landed a coup in March of 1994, when Ameritech chose ADC to supply equipment for its $75-$ 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.

In 1994, Charles Denny announced his retirement as chairman of the board, making way for a new generation of executives to lead the company into a rapidly changing telecommunications industry. Bill Cadogan replaced Denny. During Denny’s tenure, the company’s revenues had grown from $6 million in 1970 to $366 million in 1993, with a market value approaching a billion dollars. Records set in 1993 included ADC’s highest annual order, revenues, gross profits, operating income, net income, and earnings per share.

As ADC Telecommunications, Inc. moves into a new era of leadership, its strategies include a new focus on cable TV and cellular communications, increased international presence, and increased fiber optics and electronic product offerings in the multimedia market. As always, ADC will be an “early follower” in this emerging market, preparing itself to take advantage of expanded opportunities as the multimedia telecommunications market experiences a sweeping convergence of customers, technologies, and products.

Principal Subsidiaries:

ADC Telecom Canada Inc.; ADC Europe NV; ADC Telecommunications U.K. Limited; ADC Telecommunications Australia, Pty. Ltd.; ADC Telecomunicaciones Venezuela, S.A.; ADC de Mexico, S.A. de C.V.; ADC Telecommunications Singapore PTE Limited; American Lightwave Systems, Inc.; Fibermux Corporation; Kentrox Industries, Inc.

ADC Telecommunications, Inc.

views updated May 29 2018

ADC Telecommunications, Inc.

4900 West 78th Street
Minneapolis, Minnesota 55435
U.S.A.
(612) 938-8080
Fax: (612) 946-3292
Web site: http://www.adc.com

Public Company
Incorporated: 1935 as Audio Development Company; 1953 as Magnetic Controls Company
Employees: 8,000
Sales: $1.37 billion (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: ADCT
NAIC: 33421 Telephone Apparatus Manufacturing; 33429 Other Communications Equipment Manufacturing; 334419 Other Electronic Component Manufacturing; 334417 Electronic Connector Manufacturing

ADC Telecommunications, Inc. is a Minneapolis-based supplier of networking products and systems for telephone, cable television, Internet, broadcast, wireless, and private communications networks. ADC’s systems and solutions enable local access and high-speed transmission of communications services from service providers to consumers and businesses over fiberoptic, copper, and wireless media. The company is a diversified niche marketer that has chosen to work closely with industry giants as a collaborator, rather than a competitor. Its systems and integration solutions are divided into four groups: broadband connectivity; business broadband; residential broadband; and integrated solutions. It has direct sales offices located in the United States, Canada, Europe, the Pacific Basin, Australia, and Central and South America.

Innovators in Telecommunications and Data Processing: 1930s-70s

Audio Development Company (later renamed ADC Incorporated) was founded by two Bell Laboratory engineers in 1935 as a telecommunications company that created custom transformers and amplifiers for the radio broadcast industry and also audiometers to test children’s hearing. In 1941, while participating in a project to develop a sophisticated audio system for Coffman Union at the University of Minnesota, ADC also began to produce jacks, plugs, patch cords, and jack fields, foreshadowing its future involvement in the telephone industry.

Magnetic Controls Company was founded and incorporated in Minnesota in 1953, part of the wave of technological development during the postwar era. The company produced high-quality custom power supplies and magnetic amplifiers and was involved in military and space exploration programs. In 1961, Magnetic Controls merged with ADC Incorporated, and the new company, which used the umbrella name Magnetic Controls Company (ADC’s trade name was retained in telecommunications), advanced its most significant innovation, the Bantam jack. This product was an amalgam of miniaturized components and became standard for telephone circuit access and patching. Magnetic Controls launched an ongoing involvement with major space missions in 1962, eventually designing and manufacturing sensors for the Columbia space shuttle.

The 1960s and 1970s ushered in technological advancement in all areas of telecommunications and data processing. Public and private computer use increased, and telecommunications evolved into the computer age, with telephonic digital transmission and the expansion of data communications. As an innovator in these fields, Magnetic Controls grew dramatically. In 1970, when Charles Denny was encouraged by shareholders to quit his marketing executive job at Honeywell and to take over leadership of the company, the company’s earnings stood at $6 million. These compounded at 20 percent a year for the next 20 years.

Magnetic Controls Company pioneered yet another industry standard during the 1970s—the digital signal cross-connect product line to access and cross-connect digital telephony circuits. The company also developed specialized test boards for long-distance telephone companies, and designed and manufactured power conversion equipment for major data processing manufacturers. In addition to proliferating new products that addressed the digitalization of the industry, Magnetic Controls continued to introduce telecommunications hardware, including prewired connectorized jack fields and wired assemblies.

A New Focus on Fiber Optics: 1980s

By 1981, Magnetic Controls Company had sales of $61.5 million; by 1983 sales rose to $76.3 million. Nonetheless, the company was struggling. Although its telecommunications products were profitable, its magnetics division, which manufactured transformers and power supplies for mainframe peripherals, lost $1.2 million in fiscal 1983. The company made the decision to sell its magnetics assets in 1984, writing off the magnetics division as a $3.95 million one-time loss, and moved forward as solely a telecommunications company.

The company next repositioned itself in the growth industry of telecommunications—investing in acquisitions, trimming expenses, and purchasing shares of its own stock. In 1984, Magnetic Controls Company acquired TMS Systems, Inc., a private Massachusetts-based company that manufactured telephone call management equipment and software. With TMS functioning as a separate subsidiary, Magnetic Controls now sold the TMS product line as well as telecommunications components and local and remote-access test systems. It began subcontracting assembly work in Mexico and implemented a computer-based manufacturing resource planning system to streamline domestic manufacturing operations.

By 1985 the company’s focus was decidedly on telecommunications. It purchased Aetna Life & Casualty Company’s Fiber Optic Component division in Westborough, Massachusetts, and changed its corporate name to ADC Telecommunications, renaming its new subsidiary ADC Advanced Fiber Optics Corp. The newly named company focused its efforts on manufacturing, selling, and servicing two groups of telecommunications products: communications connectors and electronics. Rather than trying to compete with the industry giants in its fields, ADC’s product strategy was to manufacture and sell products in diversified industries, finding and occupying niches not already filled. New orders, backlogs, revenues, and operating income soared to new highs, the increased demand for ADC’s products the result of technological change and deregulation in the $40 billion long-distance telephone service.

ADC’s customer base in the early 1980s was a diverse pool of public telecommunications networks, telephone operating companies and other common carriers, and private telecommunications networks used by large businesses and government agencies. IBM, AT&T, the Bell Operating Companies, MCI, GTE, ITT, Allnet, and Northern Telecom were among the more well-known companies it served, with no single one representing more than ten percent of net sales. Foreign buyers accounted for eight percent of revenues; by 1988, they were at 15 percent, with marketing efforts in Europe, the Pacific Rim, Canada, Latin America, and the Middle East.

In 1988 slightly over half of ADC’s business was in public networks. ADC products were divided into five categories: network management and control products, termination products, test products, transmission products, and access products—the last the most significant at approximately 60 percent of sales. Responding to a demonstrated growth area in new technology, ADC took steps to become more involved in the fiberization process of local loops and local area networks (LANs).

ADC narrowly avoided a buyout when the Lodestar Group, a New York investment fund specializing in mergers and acquisitions, acquired a 6.4 percent stake in the company in 1989. Shares of ADC were at $16.75, making the market value of the company $221 million. Instead, ADC acquired Kentrox Industries, maker of products for high-speed private telecommunications networks, for $31 million and restructured its operations into three areas: telecom, diversified markets, and operations.

Expansion into the Video Services Industry: 1990s

Beginning the 1990s with a new president—Denny’s chosen successor and former AT&T executive Bill Cadogan—ADC entered the video services delivery market, acquiring American Lightwave Systems, Inc., a leading supplier of fiber optic video transmission equipment for cable operators for $10.7 million, with an agreement to make payments totaling at least $4 million over the next three and a half years. ADC also acquired Telinq Inc. in 1990 and utilized its newly acquired fiber-optics expertise to develop a local loop system with the goal of providing economical fiber directly to private homes. Fiber products contributed approximately $18 million to ADC’s total sales in 1990, having doubled every year since 1987. Cadogan directed the company to pursue the course of an early follower—rather than a leader—in the developing industry, while expanding its fiber division toward a goal of $250 million in sales by 1995.

Company Perspectives:

ADC’s mission is to extend its leadership as a global supplier of systems and solutions that enable communications service providers to serve their customers with high-bandwidth connections offering faster, cost-effective and integrated voice, video and Internet/data services in the last mile of the communications network.

In 1991 ADC acquired Fibermux, a maker of high-speed, fiber-optic equipment for local area networks (LANs), for $50 million, $40 million of which was loan money. Fibermux proved so successful an investment that ADC paid off this loan in 1993. In 1992 ADC formed a collaborative development venture with Fulcrum Communications in Birmingham, England, devising a system to carry voice and video signals over fiber-optic cable to businesses and residences in North America in a more cost-effective way. ADC also created Networx, a new transmission platform that integrated cable management and private networking products, using synchronous optical network and the asynchronous transfer mode (ATM). The cornerstone of Networx was Sonoplex, a multirate, multimedia system that brought fiber to the customer’s work or residence site, while making use of existing copper lines. In 1991 ADC had formed a similar partnership with South Central Bell, Mississippi Educational Television, Northern Telecom, IBM, and Apple Computer to create Fibernet, a network linking students at four high schools in Clarksville, Corinth, West Point, and Philadelphia, Mississippi, with teachers at Mississippi State University, Mississippi University for Women, and Mississippi School for Mathematics and Science to create “electronic classrooms.”

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-$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.

But 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 January. Analysts attributed the drop to a faltering performance in the company’s normally thriving broadband connectivity group. However, throughout the year, 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.

Principal Subsidiaries

Fibermux Corporation; Kentrox Industries, Inc.; Skyline Technology, Inc.; ADC Broadband Communications, Inc.; Pathway, Inc.; Teledata Communications, Inc.; PCS Solutions, LLC; ADC Broadband Wireless Group, Inc.; ITS Service Company, Inc.; TPO Limited; ADC International OUS, Inc.; ADC OUS Holdings, LLC; Telesphere Solutions, Inc.; ADC Telecommunications Sales, Inc.; Princeton Optics, Inc.; Codenol Technology Corp.; AOFR Americas Inc.; ADC Teledata Communications Ltd. (Israel); Tdsoft Ltd. (Israel); G-Connect Ltd. (Israel); T-Link (Israel); TDC Teledata Communication GmbH (Germany); ADC Telecom Canada Inc.; ADC Europe N.V. (Belgium); ADC Telecommunications Netherlands B.V. (Netherlands); ADC Telecommunications GmbH (Germany); ADC Telecommunications U.K. Ltd.; ADC Telecommunications Australia Pty. Limited; ADC Telecommunications Holdings Pty. Limited (Australia); Teledata Communication Australia Pty. Ltd.; Teledata Manufacturing Australia Pty. Ltd.; Teledata Holdings Australia Pty. Ltd.; TDC (UK) Limited; Teledata Communications Hellas LLC (Greece); Teledata Communications Do Brasil Ltd. (Brazil); T.D.C. Holdings B.V. (Netherlands); Teledata Communications (Philippines), Inc.; ADC Wireless Systems, Inc.; ADC Wireless Systems Holding Company, Inc.; ADC Metrica (U.K.); Metrica, Inc.; ADC Telecommunicaciones Venezuela, S.A.; ADC de Mexico, S.A. de C.V.; ADC Telecommunications Singapore Pte. Limited; AOFR Pty. Limited (Australia); ADC Mersum Oy (Finland); ADC Solitra Oy (Finland); ADC Mersum U.S., Inc.; ADC Solitra, Inc.; ADC de Juarez, S. de R.L. de C.V. (Mexico); ADC de Delicias, S. de R.L. de C.V. (Mexico); ADC Telecommunications China Limited (Hong Kong); ADC Telecommunications (Nanjing) Co. Ltd. (China); Nanjing ADC Broadband Communications Co., Ltd. (China); ADC International, Inc. (Barbados); ADC Telecommunicaciones Do Brasil LTDA (Brazil); ADC PHASOR Electronics GmbH (Austria); Nanjing ADC Teleco Equipment, Ltd. (China).

ADC Telecommunications, Inc.

ADC Telecommunications, Inc.

INNOVATORS IN TELECOMMUNICATIONS AND DATA PROCESSING

A NEW FOCUS ON FIBER OPTICS

COMPANY PERSPECTIVES

KEY DATES

EXPANSION INTO THE VIDEO SERVICES INDUSTRY

LEADING AS AN “EARLY FOLLOWER” IN ATMS

A NEW ERA OF LEADERSHIP: 1994 AND BEYOND

CALIBRATING EXPECTATIONS

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

FURTHER READING

ADC Telecommunications, Inc.

ADC Telecommunications, Inc.

Principal Subsidiaries:

Further Reading:

ADC Telecommunications, Inc.

ADC Telecommunications, Inc.

Innovators in Telecommunications and Data Processing: 1930s-70s

A New Focus on Fiber Optics: 1980s

Expansion into the Video Services Industry: 1990s

Company Perspectives:

Leading As an “Early Follower” in ATMs

A New Era of Leadership: 1994 and Beyond

Principal Subsidiaries

Further Reading

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ADC Telecommunications Inc

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