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  • Writer's pictureTeresa Mastrangelo

Adtran Acquires NSN’s Broadband Access Biz – A Few Thoughts

Early Monday, December 12, 2011, Adtran announced its acquisition of Nokia Siemens Networks Fixed Broadband Access business.  The purchase price was not disclosed, but Adtran commented that it was “not material” and confirmed on its conference call that it was less then they paid for Blue Socket ($23.8M). 

The deal should close at the end of April 2012 and expected annual revenue from the acquisition is $140M to $180M.  The main product acquired is its IP DSLAM platform, but there are also other access platforms such as MSANs as well as significant Intellectual Property that is part of the deal. Based on our own market share data for NSN, the annual run rate for just its DSL platforms is approximately $120M, while overall revenue for the unit is within range of Adtran’s expected revenues.

Nokia Siemens Networks announced a few weeks ago their plans to focus on mobile broadband and “adapt, exit or maintain” its fixed network business.  (See blog post for additional information).  So far, it has unloaded its WiMax business to NewNet Communications Technologies and now its Fixed Broadband Access to Adtran.

The acquisition helps to accelerates Adtran’s plan to expand globally and provides incumbency into a number of Tier 1 operators, including Deutsche Telekom, BSNL, Bezeq, Saudi Telecom, SK Broadband (Harano) among others.  The bulk of NSN’s access business is derived from the EMEA region, although it does have a presence in other regions.

While global expansion if great, it also comes with significantly lower margins than Adtran currently enjoys with its own product line.  According to the conference call, margins on the NSN products are sub 30%, in constrast to the 57% margin on Adtran products.  Adtran expects to increase the margins on the NSN equipment through supply chain optimization and cost reductions.  This is Adtran’s forte, so I have every confidence that it will be able to make significantly improvements in this area over time.

On a global basis, NSN enjoys a #4 position in DSL market share, behind the likes of Huawei, ZTE and Alcatel-Lucent.  In EMEA it is ranked #3 behind Huawei and ALU.    The combination will certainly propel Adtran into a global top 5 and an EMEA top 3, but will have little to no impact on the players ahead of them many of them ship high volumes into China as well as other Tier 1 operators within EMEA and CALA.

From an intellectual property perspective, NSN has been very active on Next Generation Optical Access (NGOA) as well as Phantom Mode DSL  which offers speeds of 825Mbps over 400 meters of bonded copper and 750Mbps over 500 meters.  The NGOA solutions uses a single optical fiber to bring broadband to up to 1000 homes at symmetrical speeds of  1Gbps per household, at distances of up to 100 km from the central exchange (office).

It is unclear if this technology is part of the acquisition, as it appears to plan a key role it is metro transport solutions and falls under the “Liquid Transport” category.  If Adtran gets this IP – then this is a major upside.  If it does not, then that is unfortunate for Adtran.

Undoubtely, this acquisition will help Adtran rapidly build a global reputation and will certainly increase its name recognition.  It also provides a knowledgeable sales force as well as product management and engineering resources that can help Adtran to develop solutions to meet the global market.  This could be very beneficial to the TA5000 product line, as well as its Ultra Broadband Ethernet solution.

Overall, this is a positive for Adtran.  For relatively little upfront investment, Adtran will  nearly double its Broadband Access revenue.  In addition, with its engineering and manufacturing expertise, they are likely to achieve the necessary cost reduction and margin targets in a very short time frame.


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