The new CEO at Andrew Corp. is promising that the manufacturer of wireless communications equipment will double the company’s revenues in four years.
Guy M. Campbell, who succeeded Floyd English in October, announced at the annual meeting last month that he expects Andrew to reach $2 billion in revenues by 2004. The Orland Park-based company posted $1.02 billion in sales last year, up 29 percent from 1999. Andrew is counting on a wave of orders as wireless service providers begin building a network of infrastructure to support third-generation networks. Built on a broader radio-frequency spectrum and all-digital transmissions, 3G will enable wireless users to send and receive data at blazing speeds. Andrew makes the base-station antennas, power amplifiers and filters that will be the backbone of 3G.
Most experts agree that 3G will require massive new infrastructure. Allied Business Intelligence Inc., headquartered in Oyster Bay, N.Y., forecasts that the worldwide total of wireless base stations will rise to 2.85 million in 2004 from 823,000 in 1998. Almost every station carries some combination of Andrew components.
“For Andrew, 3G represents our largest new opportunity, and we intend to capitalize on it,” Campbell, who also is president, told shareholders.
But the timing of this potential bonanza is not easy to predict. NTT DoCoMo, the Tokyo-based wireless spinoff of Nippon Telegraph & Telephone Corp., will blaze the 3G trail with plans to build 500 initial sites in Japan beginning in May. Later this year, 3G is expected to begin rolling out in Europe. The technology might be as much as two years away in the U.S., however.
“It’s really hard to say when 3G construction will start in earnest, and in what time period the construction will take place,” said James McIlree, an analyst with Tucker Anthony Cleary Gull Inc. in New York. “No matter what, this should be a very good cycle for all wireless equipment manufacturers, Andrew included. Over time, 3G could be really large.”
Investors seem ambivalent about the prospects, however.
In the fiscal year ended Sept. 30, Andrew’s earnings more than doubled to $79.6 million, or 98 cents a diluted share. In its first quarter ended Dec. 31, Andrew Corp.’s sales rose 20 percent to $280.5 million, while earnings increased 25 percent to $20.9 million, or 26 cents a share. Orders set a record at $253.6 million, up 32 percent from the year-earlier quarter.
Management blamed unusually cold November and December weather for the disappointing first-quarter results.
“We started off with the coldest winter temperatures in something like 105 years, and that caused some customers to reduce their construction work,” said English, who continues as chairman.
Still, investors worry about a 10 percent decline in average prices at Andrew last year. More than half the company’s sales come in coaxial cable, viewed as a commodity subject to intensely competitive pricing. Meanwhile, some of Andrew’s biggest customers, particularly New Jersey-based Lucent Technologies Inc., have seen orders lag for systems that include Andrew components.
Thyra Zerhusen, a vice-president and portfolio manager at Talon Asset Management Inc. in Chicago, believes Andrew will get past these difficulties.
“It’s true the company makes a lot of coaxial cable, and some people consider that a commodity,” Zerhusen said. “But in Andrew’s case, it isn’t a commodity. The company makes a very advanced product with built-in antennas allowing it to be used in places like the Hong Kong subway system to transport cellular calls.”
Talon, which owns more than 100,000 Andrew shares, has been adding to its position in recent weeks. And insiders like Campbell have been doing the same.
“Andrew has been stuck at the low end of its trading range,” Zerhusen said. “I look for revenues and earnings to be up about 20 percent this year, and the outlook overall is very good.”
H. Lee Murray is a reporter with RCR Wireless News sister publications Crain’s Chicago Business.
