ADC shares plunge on lower outlook, plans for layoffs

The stock of ADC Telecommunications of Eden Prairie plummeted 36 percent in regular trading Monday after the company lowered its first-quarter financial guidance and promised further layoffs.

In the wake of ADC's news, shares closed at $3.25, down $1.82. In after-hours trading, shares regained 4 cents.

ADC didn't say how many of its 10,600 worldwide employees would lose their jobs, but one analyst expected about 350, the same as in an October job reduction.

ADC lowered its first-quarter forecast to a net loss of 17 to 23 cents a share, down from the previously predicted loss of 5 to 17 cents a share. The revenue forecast was reduced to $240 million to $255 million, down from an earlier prediction of $255 million to $290 million.

Some analysts said the stock market overreacted. They said the company is positioned to weather the recession because it has $500 million in cash and $40 million in long-term securities.

"I don't view ADC as being in significant trouble," said Lawrence Harris, an analyst at CL King & Associates in New York, who carries a neutral rating on the stock. "But I was taken aback by the percentage decline in their stock today. We are in a challenging financial market that does not take well to earnings surprises."

Christian Schwab of Craig-Hallum Capital Group in Minneapolis agreed. "The stock is currently valued as if the company would not survive, but we don't think that's the case," said Schwab, who carries an accumulate rating on the stock. "They are the dominant provider of all connectivity equipment at AT&T and Verizon, and the need for their equipment is not going away."

ADC got 59 percent of its revenue from U.S. customers in 2008, and 35 percent of total revenue came from AT&T and Verizon. The U.S. telecom market has been hit harder than the international market, Harris said.

Schwab predicted that the first quarter would be the low point for ADC in 2009.

"ADC is a very strong business," said James Mathews, ADC's chief financial officer. "By taking these actions, we can weather the difficult economic environment handily."

ADC also is likely to take a "significant noncash impairment charge" in the first quarter to reconcile the value of intangible assets on its balance sheet with the reduction of its market capitalization during 2008, Mathews said. In June, ADC's stock hit its 2008 high of $17.32 a share.

The company intends to reduce spending by about $5 million a quarter -- the same as a cost reduction it made in November -- through job cuts, a hiring freeze, and reductions in discretionary and capital spending, Mathews said. He didn't specify in which areas of the company the reductions would occur, but he said discretionary spending includes travel, professional services, supplies and training.

The company also is terminating a $200 million line of credit it was not using. It was costing about $800,000 a year in "stability fees," and with growing losses the cost would have increased, Schwab said.

Steve Alexander • 612-673-4553