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Rapid growth in the amount of internet bandwidth demanded in the U.S. (which the Fiber to the Home Council expects to reach 1 trillion gigabytes by 2015)^[2] increases the demand for ADC's products. Partially as a result of the increase in bandwidth usage, ADC's total revenue increased 15% since YouTube went online in 2005.^[3] Likewise, telecommunications growth in developing countries (especially China, where internet usage rates increased 53% between 2006 and 2007) has increased the demand for ADC's products abroad.^[4] This trend led to a 32% increase in ADC's sales in Asia between 2005 and 2007. At the same time, the weak dollar boosts the value of ADC's international sales.

[edit] Business Segments

Revenues by Segment^[5]

[edit] Connectivity (78%)

The Connectivity segment's products provide the physical connections between the components in communications networks; these include connectors and cables. ADC also supplies patch cables used in digital broadcast patching at live events such the Olympics.^[6] The company's Connectivity products compete with products from other companies like Corning (GLW) and Cisco Systems (CSCO).

[edit] Wireless (3%)

Wireless products include devices that route, amplify, and increase the capacity of wireless networks. ADC's wireless products are used by cell phone service providers, as well as other companies, to set up wireless communications networks.^[7]

[edit] Wireline (4%)

Wireline makes products designed to provide high-capacity voice and data services over the "last mile" of copper or optical communications networks.^[8] ADC's Wireline products compete with similar products from companies like ADTRAN (ADTN).

[edit] Professional Services (15%)

The Professional Services segment helps customers plan, deploy, and maintain communications networks that use ADC products.^[9] This segment provides cross-selling opportunities for other ADC divisions.

[edit] Business Financials

2007 revenue by geographic area^[10]

ADC Telecommunications 2007 Total Revenue, Operating Income and Net Income^[11] ($ in millions)

[edit] Key Trends and Forces

[edit] The "YouTube effect" increases the demand for higher bandwidth telecommunications networks

By mid-2007, streaming video from YouTube made up 7% of all internet traffic in the U.S..^[12] In fact, analysts at Seattle’s Discovery Institute expect total internet traffic to reach 1 zetabyte (or 1 trillion gigabytes) by 2015; in order to meet this rising traffic, internet service providers will need to spend about $100 billion to increase the bandwidth capacity of their networks.^[13] Already, ADC's revenue has increased 15% in the two years since YouTube went online in 2005, reflecting the need for updated equipment to accommodate the increased flow of online data.^[14]

Mobile Phone Subscriptions^[15]

[edit] Growth in developing countries fueling demand for Internet and wireless services

In February 2008, China surpassed the United States as the country with the largest number of Internet users, with 220 million as compared to the U.S.'s 216 million.^[16] This reflects the rapid growth of Internet use in China, which increased 53% between 2006 and 2007.^[17] Additionally, the number of mobile phone subscriptions in China increased from 150 to 450 million between 2001 and 2006; over the same time period, this number grew from almost none to over 150 million in both India and Russia.^[18] Increased demand from developing countries in Asia led to a 32% increase in ADC's revenue from the region between 2005 and 2007.^[19] During the same period of time, sales to the rest of the world grew only 16%, half as fast as the Asian region.^[20]

EUR to USD Exchange Rates^[21]

[edit] A weak U.S. dollar boosts ADC's international sales

Between June 18, 2007 and June 18, 2008, the U.S. dollar depreciated in relation to the euro, the Canadian dollar, and the Chinese yuan.^[22][23][24] The decrease in the value of the dollar resulted in an increased in ADC's international revenues by $5.9 million in 2007.^[25] When foreign currencies depreciate relative to the U.S. dollar, the value of ADC's international sales decreases. On the other hand, exchange rates resulting in a weak U.S. dollar boost the value of ADC's international sales.

[edit] Key Competitors

• ADTRAN (ADTN)-ADTRAN provides network access products and services for telecommunications providers. Its products compete mostly with ADC's Wireline segment.^[26]
• Corning (GLW)-Corning manufactures products for the LCD screen, telecommunications, automobile, and medical industries. The company's telecommunications products compete with ADC's Connectivity segment.^[27]
• Cisco Systems (CSCO)-Cisco manufactures internet protocol-based networking and other products for the telecommunications industry. Its products compete mostly with ADC's Connectivity segment.^[28]
• Alcatel-Lucent (ALU)-Alcatel-Lucent manufactures products that help customers create wireless networks. Its Services division competes directly with ADC's Professional Services segment.^[29]

ADC and Key Competitors 2007

[edit] References

1. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 81
2. ↑ FTTH 2008: Internet set to reach Zetabyte heights by 2015
3. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 81
4. ↑ USA Today: China vaults past USA in Internet users
5. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 81
6. ↑ ADCT 2007 10-K: Business, pg 6-7
7. ↑ ADCT 2007 10-K: Business, pg 7
8. ↑ ADCT 2007 10-K: Business, pg 8
9. ↑ ADCT 2007 10-K: Business, pg 8
10. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 81
11. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 81
12. ↑ The YouTube effect
13. ↑ FTTH 2008: Internet set to reach Zetabyte heights by 2015
14. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 81
15. ↑ Emerging giants spur telecom boom
16. ↑ USA Today: China vaults past USA in Internet users
17. ↑ USA Today: China vaults past USA in Internet users
18. ↑ Emerging giants spur telecom boom
19. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 81
20. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 81
21. ↑ EUR to USD Exchange Rates
22. ↑ EUR-USD Exchange Rates
23. ↑ USD-CAD Exchange Rates
24. ↑ Historic Exchange Rates: USD-CNY Look up on 6/18/07 and 6/18/08
25. ↑ ADCT 2007 10-K: Notes to Consolidated Financial Statements, pg 33
26. ↑ Google Finance: ADTN
27. ↑ Google Finance: GLW
28. ↑ Google Finance: CSCO
29. ↑ Google Finance: ALU