ADTRAN sees strong momentum into 2026 driven by broad-based optical demand, seasonal access strength in H1 and new wins that began converting in late 2025.
The company expects a continuing Huawei replacement opportunity of about $800 million annually in Europe, roughly split between access and optical, with replacement work and funding discussions (including EU support) unfolding in phases.
Profitability and balance-sheet progress includes gross margins trending toward a 42–43% range, a goal of double-digit operating margins, and a ~$200 million convertible financing used to pay down higher-cost debt and reopen the credit facility.
ADTRAN (NASDAQ:ADTN) executives highlighted improving demand trends, expanding optical momentum, and a growing set of European opportunities during a discussion at Needham’s 20th Annual Growth Conference. Chairperson and CEO Tom Stanton and CFO Tim Santo also addressed profitability progress, balance sheet actions, and how customers are planning networks amid AI-driven traffic growth.
Stanton said the company feels “much better” entering 2026 compared with the period when ADTRAN was working through supply chain readjustments. He attributed some of 2025’s optical performance to a return toward more normal spending as customers worked through inventory that had “hung over for a couple of years,” and to increasing activity that ADTRAN first noticed in the prior year through requests for proposals and planning. Those plans, he said, began translating into results in the third quarter, leaving the company feeling it had “really good momentum” for the rest of the year and beyond.
Looking to 2026, Stanton described the opportunity set as broad-based, citing continued optical momentum and typical seasonal strength in the access business during the first half of the year as European carriers “start coming online.” He added that ADTRAN has new wins expected to contribute in that period.
A major focus of the discussion was the ongoing replacement of Huawei equipment in Europe. Stanton characterized the overall opportunity as “somewhere around $800 million annually” that over time shifts away from Huawei to other vendors, calling it a continuing bright spot. He noted activity remains strong, with increased strategy discussions around what to do about the installed base.
Stanton described the replacement process in phases, emphasizing the near-term importance of “quit deploying” new Huawei gear—both new chassis and, more challengingly, line cards—until competitive processes are complete and awards are made. A later phase involves how to fund removal and replacement of what he described as a “$10 billion-plus worth of installed base,” referencing policy discussions in the EU and Germany about payment mechanisms, including the potential for EU-level support.
Italy was cited as a notable example. Stanton said Italy is “not typically a first mover,” but ADTRAN won an optical piece around the middle of the prior year and is also now under contract on the access portion, which requires the company to begin shipping.
When asked whether the Huawei displacement opportunity is roughly balanced between access and optical, Stanton said that at a high level they are “roughly equal in magnitude,” though they will materialize in different ways.
On the U.S. broadband buildout supported by BEAD, Stanton said added certainty around awards and the program has already helped because customers have started “unlocking” plans that were pent up for roughly a year and a half. However, he expects any revenue contribution to ramp gradually.
Stanton said he does not expect a “big uptick” in the first half of the year, with activity coming on more in the second half as money starts to flow and programs are initiated.
He said early revenue could appear in the first half but would be “immaterial,” with deployment building over the next two to three years.
He noted it can be difficult to separate BEAD dollars from non-BEAD because equipment does not necessarily appear distinct, but ADTRAN can see that award-winning customers are ordering equipment.
On customer inventory conditions more broadly, Stanton said he is not aware of any current inventory overhang, stating that customers are “buying what they need right now.” He acknowledged some European customers purchase upfront as part of their operating plans and that order timing can be lumpy, but he did not characterize that as an inventory problem.
Santo said improvements in profitability metrics have been driven by cost discipline, leveraging scale, and ongoing work to manage purchasing volume and supply chain costs. On gross margin, he reiterated the company’s previously discussed range, saying the 42% to 43% level is “beyond achievable,” and that ADTRAN is already trending within that range and expects to “continue to notch higher.” He added that while there will be tailwinds and headwinds over the next couple of years, ADTRAN expects the overall trend across its product base to be positive.
Addressing supply chain cost concerns such as memory and optical components, Santo said the issue is “not material” for ADTRAN and that the company has largely navigated the environment, offsetting impacts while remaining confident in the guidance it has published.
Both executives reiterated that the company’s goal remains to reach double-digit operating margins.
On balance sheet moves, Santo discussed a convertible financing, describing it as about a $200 million capital raise. He said proceeds were used to pay down approximately 9% debt with a 3.5% (or 375) coupon instrument, calling it a significant reduction in the cost of funds. He added that the transaction also “reopen[ed]” the company’s credit facility, providing flexibility over time to reduce the minority interest share of its German business.
Regarding asset dispositions and real estate, Santo said ADTRAN is separately pursuing the sale of its North South Tower property and is working on multiple potential transactions. He cited increased local activity in Huntsville, Alabama—including U.S. Space Command moving there and Eli Lilly announcing a $6 billion investment—as contributing to interest, while noting that selling a large Class A office asset can take time because it requires the right buyer. He said a sale-leaseback of the current corporate headquarters is still being evaluated, but following the convertible transaction there is “not a solid need for the cash,” and such a move would increase operating expense pressure.
Stanton outlined several ways AI intersects with ADTRAN’s business. He said the company has launched “Clarity,” an agentic AI tool now in beta testing, describing early results as “very, very good.” He said the tool is designed to improve maintenance, troubleshooting, and identifying latent network issues by analyzing trouble logs and leveraging a database across multiple customers to steer carriers toward solutions, potentially before they are aware of a problem.
Stanton also linked AI-driven demand to optical upgrades, stating that ADTRAN has an installed base of optical gear that will need upgrades as hyperscalers upgrade their networks, including hyperscalers currently using ADTRAN equipment. He added that carriers are developing plans to connect into hyperscaler networks and that access networks—what carriers “own”—will be upgraded with an eye toward feeding higher-bandwidth IP-based networks.
In competitive terms, Stanton said he feels good about the current landscape, noting fewer competitors in access and arguing ADTRAN has a next-generation product versus competitors that are “still selling chassis-based products.” In optical, he said ADTRAN benefits from strong name recognition in Europe and suggested competitors’ focus on hyperscalers can create openings when they are less responsive on RFPs, inventory, or shipments. He said ADTRAN previously saw some tailwind from customer disruption tied to the Nokia/Infinera combination, but described that impact as largely having played out.
In closing remarks, Stanton said the company has been doing “what we said we were going to do two years ago,” adding that ADTRAN has been consistent in “hitting or beating” its numbers and that continued execution is the key factor going forward.
ADTRAN, Inc is a global provider of networking and communications equipment, specializing in broadband access solutions for service providers, enterprises and government organizations. Founded in 1985 and headquartered in Huntsville, Alabama, the company develops and delivers hardware and software platforms that enable high-speed Internet access over fiber, copper and wireless networks. Its core offerings include fiber access and aggregation equipment, Ethernet switches, customer premises equipment (CPE) and network management systems designed to support both legacy and next-generation broadband deployments.
The company’s product portfolio encompasses a broad range of optical line terminals (OLTs), optical network terminals (ONTs), multiservice access gateways and virtualized access solutions.
