ADTRAN, Inc. Revises Q4 Expectations.

Business Editors

HUNTSVILLE, Ala.--(BUSINESS WIRE)--Dec. 8, 2000

ADTRAN, Inc. (Nasdaq:ADTN) today announced revised revenue and earnings expectations for the fourth quarter ending December 31, 2000. Revenue for the quarter now is expected to range from $110,000,000 to $115,000,000. Gross margin, including a provision to reduce the carrying cost of HDSL2 inventory to new generation replacement cost, is expected to range from 40% to 43%. Net income for the quarter is expected to range from $6,500,000 to $8,000,000, resulting in earnings per share including dilution ranging from $0.16 to $0.20.

Commenting on the quarter, ADTRAN President and Chief Operating Officer Howard Thrailkill stated, "We expect that revenues in both our Carrier and Enterprise markets as well as in each of our four product groups will fall short of our original expectations by varying degrees (although revenue from carriers, including both ILECs and CLECs, should equal or exceed revenue in the third quarter). Through the first three quarters of 2000 our order rates were strong and accelerating. However, by the end of November the trend clearly changed, and we became convinced that achieving our original revenue and related margin and income expectations is unlikely. The shortfall in revenue, along with the changes in product mix it brought, and component pricing issues reduced gross margin both in absolute and percentage terms. The decline from the normal gross margin range also was increased by the provision to reduce the carrying cost of First Generation HDSL2 inventory and shipment of a higher mix of HDSL2 to several large customers whose purchases exceeded our expectations."

Regarding the provision relating to HDSL2 inventory, Mr. Thrailkill noted that the Company had previously indicated that margins were not satisfactory on the First Generation of HDSL2. Consistent with its long established practices, ADTRAN is on a path to significantly reduce the cost of the product through development of Second Generation HDSL2, a process the Company expects to complete in the spring of 2001. However, a portion of the cost reduction will be achieved by December 31, 2000. Therefore, the Company will be required to reduce the carrying cost of units in stock at year-end to the lower replacement cost. This amount, along with the cost of component inventory to be made obsolete by the redesign, has been considered in establishing the expectation for the gross margin percentage noted above.

In concluding, Mr. Thrailkill noted, "While we are affected by short-term trends in the Telecommunications market, we remain confident that customer demand for bandwidth will overtake short-term pauses like the one we are currently experiencing. As in the past, we believe market leaders like ADTRAN generally emerge in stronger positions afterward. Therefore, we have accelerated the pace of several new product programs, notably including a new loop transmission technology (G.shdsl), a new DSLAM access platform and a broad family of Integrated Access Devices (IADs). Individual product announcements are scheduled early next year."

ADTRAN, Inc. designs, develops and markets a broad range of high-speed digital transmission products utilized by Telcos, corporate end users and OEMs to implement digital data service over existing telephone networks.

This press release contains forward-looking statements that reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties including the successful development and market acceptance of new products, the degree of competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies, and other risks detailed in our annual report on Form 10-K for the year ended December 31, 1999. Such risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements included in this press release.