Apparently size does matter -- at least when it comes to providing telecom services. Over the past several years, Sprint (NYSE:S) has merged with Nextel, Verizon (NYSE:VZ) took a shine to MCI, and AT&T (NYSE:T) has had an especially voracious appetite, gobbling up SBC, Cingular Wireless, and BellSouth. It often seems that during a big merger, the merging companies are too busy shaking hands and rearranging furniture to bother with ordering much new networking equipment, which has added an element of volatility to the businesses of network equipment providers like ADC Telecom (NASDAQ:ADCT).
The volatility during the first fiscal quarter of 2007, which ended Feb. 2, was to ADC's benefit. A few customers placed orders earlier than ADC had expected, which resulted in better-than-expected sales from continuing operations of $297 million for the quarter, good for a 9% increase year over year. You have to wonder, though, if this means disappointment lies down the road -- has ADC benefited from higher sales, or just earlier sales?
Whichever turns out to be the case, there is no question that some parts of ADC's business grew impressively during the quarter. If you have followed this business in the past, it's worth noting that ADC made some organizational changes during Q1. For example, the broadband infrastructure and access segment is no more. It has been split into three chunks -- global connectivity solutions, wireless solutions, and wireline solutions. Global connectivity solutions is the big one, with $228 million out of the $297 million total company revenue. Global connectivity solutions is further subdivided into fiber, copper, and enterprise pieces.
The best grower was the wireless solutions segment, which grew 48% year over year, although it contributed only $7 million in sales. The global enterprise (not fiber or copper) connectivity segment also showed impressive growth, at 34%, and accounted for about $47 million in revenue. The last double-digit grower was the global fiber connectivity segment, which saw its sales increase 17% to about $80 million. The global fiber growth was driven by spending on FTTX (fiber-to-the premises, fiber-to-the-node) initiatives at companies like Verizon.
The top-line improvement drove results all the way down to the bottom of the income statement. Operating income totaled $6.9 million, compared to a $2.4 million loss a year ago, and net income from continuing operations totaled $9.4 million, versus a $1.3 million loss in the same period last year. The improvements carried over to the cash flow statement, as well, with operating cash flow rising to $31.4 million during the quarter -- a huge improvement over last year's consumption of $11.7 million.
With a good quarter on the books, it is natural to wonder what will come next. My answer is, "Who knows?" I expect that results for this company will flap around a bit like a flag in the breeze. Nevertheless, with the increasing demand to stay connected, especially to video -- on the go and at home -- I think the general trend will be a positive one.
For further Foolishness:
AT&T is a former Motley Fool Stock Advisor selection. To see which companies are currently making the cut, you can check out a 30-day free trial of the newsletter.
Fool contributor Dan Bloom owns shares of Sprint Nextel and ADC Telecom. The Fool has a disclosure policy.
