ADC Telecom Upgraded to Buy

We upgrade our rating to Buy for ADC Telecommunications (ADCT - Analyst Report), a leading telecom network infrastructure and connectivity solutions provider. In addition to reporting second quarter fiscal 2009 financial results (ending May 1) well above our expectations, ADCT is likely to improve operating performance as large telecom carriers in the U.S. increase spending for fiber-based networks.

Massive deployment in China for home-grown 3G networking technology and backhaul provides high-growth revenue-generating opportunities for ADCT. Furthermore, management initiated restructuring activities, including headcount reductions, improving the company's earnings power and adding liquidity to its balance sheet. The current valuation level, at a discount of approximately 50% from the 52-week high range, is considered more favorable from a longer-term investment perspective.

During the first half of fiscal 2009, ADCT secured contracts from approximately 15 new enterprise clients. Cable TV companies are also emerging as major business prospects as they improve broadband networking architectures in order to compete with telecom service providers with triple play and the digital video markets.

As further impetus to carrier spending, governments in the U.S., China, India and elsewhere have earmarked stimulus packages to advance telecommunications infrastructure and capabilities. In the U.S., for instance, rural telecom subsidies may foster improved opportunities for equipment companies, including ADCT, that provide advancement of broadband and wireless solutions.