Incorporated: 1935 as Audio Development Company; 1953 as Magnetic Controls Company
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
SIC: 3661 Telephone & Telegraph Apparatus; 3669 Communications Equipment Nec; 3679 Electronic Components Nec; 3678 Electronic Connectors; 3663 Radio & T.V. Communications Equipment
ADC Telecommunications, Inc., is a Minnesota-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 fiber-optic, 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
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 jackfields, 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.
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.
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.
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.
Further Reading
"ADC Acquires an LPL Unit," Wall Street Journal, July 5, 1990, p. A5.
Alexander, Steve, "CEO Roscitt Leaves ADC," Minneapolis Star Tribune, August 12, 2003, p. 1D.
------, "Selling 'Bullets' in the Telecommunications War," Minneapolis Star Tribune, December 8, 1997, p. 1D.
Cruz, Sherri, "ADC's Heir Not Apparent," Minneapolis Star Tribune, October 30, 2000, p. 1D.
"Go for the Middle," Forbes, April 29, 1991, p. 148.
Karpinski, Richard, "ADC Unveils Transparent LAN Gear," Telephony, April 12, 1993, p. 14.
Karr, Albert R., and Christina Duff, "Hiring Levels Remain Low, Belying Late-Spring Optimism for a Rebound," Wall Street Journal, August 26, 1991, p. A2.
Lannon, Larry, "ADC Is Eyeing a Strategic Shift," Telephony, July 18, 1988, p. 24.
"Magnetic Controls Sees Fall in Fiscal a''84 Net on Ongoing Operations," Wall Street Journal, March 28, 1984, p. 24.
Peterson, Susan E., "ADC Says It Will Top Earnings Forecasts, Plans Reverse Split," Minneapolis Star Tribune, April 19, 2005.
Slutsker, Gary, "'I Still Think They're Idiots,'" Forbes, July 19, 1993, p. 85.
"Supercom Vendors Ready New Products," Telephony, April 19, 1993, p. 26.
Titch, Steven, "ADC Unveils Loop Product Strategy," Telephony, February 24, 1992, p. 9.
Van, Jon, "Ameritech Awards Deal in Video Plan," Chicago Tribune, March 31, 1994, sec. 3, p. 1.
Vittore, Vince, "ADC Telecommunications," Telephony, June 4, 2001.
Wieffering, Eric, "Tougher Mission for New ADC Chief," Minneapolis Star Tribune, January 23, 2001, p. 1D.
Wilson, Carol, "ADC Launches Fiber-Coax Platform," Telephony, May 24, 1993, p. 11.
------, "ADC Plots Course in Local Loop," Telephony, September 17, 1990, p. 9.
------, "ADC Unveils Fiber Product," Telephony, June 21, 1993, p. 12.
Yu, Roger, "Bringing It All Together," Minneapolis Star Tribune, July 5, 1999, p. 1D.
— Heidi Feldman; Updated by Daniel Thurs
