Powering Today’s Networks Jim Matthews Senior Vice President, Finance Chief Financial Officer.

Powering Today’s Networks

Jim MatthewsSenior Vice President, Finance Chief Financial Officer

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Emerging Opportunities

Next-generation architectures now a necessity

Must counter competitive threat from cableCapex on the rise: Projected to increase 5% to $61 billion in 2005

Favorable regulatory environment easing investment concernsTechnologies now mature enough to deploy

Softswitch, VDSL2, ADSL2+, GPON

VoIP driving investment in enterprise sector

3

Next-Generation Architectures

Build out of access network to deliver premium services (VoIP, IPTV)

Migration to IP-based applications and services

Evolution to higher-speed business services

Expansion of wireless communications

4

Favorable Regulatory Environment

FCC policies encouraging investment in broadband access technologies Removing barriers to investment

Relaxing unbundling requirementsSunsetting UNE-P

Encouraging real competition in residential broadband access

Encouraging VoIP and related facilities investmentEncouraging alternative facilities

• Cable, Broadband Wireless Access, and Broadband over Power Lines

ILECs investing to meet competition

5

The Carrier Response

Verizon FiOS TV Will Offer a New Customer ExperienceApril 18, 2005

Verizon Offers Most Dynamic Communications Tools for Fastest-Growing Business Segment April 27, 2005

BellSouth is First Provider to Deliver End-to-End Quality of Service for Enterprise Virtual Private Networks March 31, 2005

BellSouth Initiates Technical Trial of Microsoft TV IPTV Edition January 6, 2005

SBC Communications to Detail Plans for New IP-Based Advanced Television, Data and Voice NetworkNovember 11, 2004

SBC Communications to Rapidly Accelerate Fiber Network Deployment in Wake of Positive FCC Broadband RulingsOctober 14, 2004

Qwest Launches Expanded Nationwide VoIP Service for Businesses December 8, 2004

6

ADTN: Uniquely Positioned

Strategic product position

Deeply entrenched in carrier infrastructure

Entrepreneurial engineering philosophy

World-class supply chain operations

Demonstrated financial competence

ADTRAN is number two in certain key markets, second only to Cisco and Alcatel.

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Strategic Product Position

The right place at the right time

Essential technologies for increasing access network bandwidth

DSL, SONET/SDH

Essential technologies for migrating access networks to IP/Ethernet

Essential technologies for migrating enterprise networks to VoIP

Heavily invested in development of highly competitive, lowest cost solutions

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Aggressive competition for high-speed business- and consumer-class DSL subscribersCritical revenue source for carriers

Customer retention, customer growth

Ethernet in the first mileWidely deployed, established LAN technology migrating into access network Data-centric business networks demanding 50-80 Mbps Ethernet pipes

Extremely versatile broadband deployment platformsADTN DSLAM equipped with SHDSL or ADSL ADTN Metro Ethernet extension (Ethernet Over Copper)ADTN Integrated Access Devices (IADs)

Broadband Access

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Deep fiber strategy to increase residential bandwidth to 15-40 Mbps

Network modelFiber from the Central Office to the node or neighborhood

Copper from the node to the customer premises

• ADSL2+, VDSL2

ADTN DSLAM solutionBrings access node closer to subscriber

Facilitates multiple channels of video,voice, and data

Currently ADSL2+ capable (up to 24 Mbps)

Currently IP-enabled and fiber-fed

Fiber to the Node

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Strategic Product PositionFiber-rich access environment

More than 8 DS1s or 10 Mbps Ethernet delivered on fiberNew market: SONET/SDH-based Customer Located Equipment

Upgrading networks to handle data-centric traffic loads

Next-generation requires combined TDM and Ethernet functionality

Cost-efficient ADTN solutions designed specifically for the access portion of the networkExtremely versatile platform

Wireless connectivity, Ethernet to large business, DS1/DS3 to small and medium business, metro and access transport applications, Digital Cross Connect (DCS)

Now OC-12 and Ethernet over SONET enabled

Optical Access

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Strategic Product PositionTraffic explosion

Voice usage now averaging 711 minutes per monthData revenue now represents 8% of ARPU12,170 new cell sites added in 2004

Increasing fiber and copper lines to towerOpportunity for ADTN SONET multiplexers and HDSL platforms

Upgrading network for data services (3G/EVDO/HSDPA)Requires OC-3 (new) to DS1 (legacy) connectivityOpportunity for ADTN SONET and M13 multiplexers

Increasing microwave bandwidth per siteNew demand for combined TDM/Ethernet transportOpportunity for ADTN broadband radios

Improving bandwidth efficiencyOpportunity for newly introduced ADTN wireless backhaul solutions

Wireless Access

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Unified VoIP networks present compelling business case for most companies

Requires changes in network architectureIP phones and PBXs, IP servers, voice-enabled switches and routers, IP-enabled DSLAMs and IADs, PoE-enabled switches

Challenge: Maintain quality of voice as it passes over data networks (QoS)

Challenge: Power IP phones and Wireless Access Points (WAPs)

Opportunity for ADTN integrated switch/routers, PoE switches, IP IADs, IP DSLAMs, T3/T1 routers, and VPN appliances

IP Access

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Extensive portfolio of IP-based, enterprise-class networking equipment

Essential component of enterprise networksMulti-tier reseller channel (5,000+ VARs)

Essential component of bundled service offerings

AOS investmentImproves margin on products

Improves time to market

IP technologies transferable to global markets

IP Access

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Broadband Access Platforms PoE/non-PoE Ethernet Switches

CO/Remote/OSP DSLAMs Integrated Switch/Routers

OC-12/OC-3 Fiber Multiplexers T1/Multi-T1 Access Routers

M13/STS-1 Multiplexers T3 Access Routers

Integrated Access Devices VPN/Firewall Devices

HDSL, HDSL2, HDSL4 Fixed Wireless Connectivity

SHDSL, ADSL Fiber Optic Connectivity

Narrowband Access Platforms Frame Relay Bandwidth Management

Packet & Next-Generation DLCs T1/E1 Multiplexers & DSU/CSUs

DLC Retrofit Kits T3 DSU/CSUs

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Deeply Entrenched in Carrier Infrastructure

ADTRAN solutions widely deployed in carrier networks

DSLAMs in top eight domestic carriersSONET mux in five of top eight domestic carriersHDSL in top eight domestic carriers

Extensive knowledge of carrier operationsStrategically aligned with current and future services roadmapsService level improvement tools and initiatives

Long-standing relationships in key accountsEstablished contractual relationshipsAble to navigate approval cycles and processesRecipient of numerous quality and cost management awards

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Carrier Wireless Global Enterprise Distribution

ADTN Customer View

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Entrepreneurial Engineering

Nimble, adaptive design and engineering operations

Vertically integrated design process

Internally developed intellectual propertyControl over design and manufacturing issues

Greater control over product costs

Enter market with improved technology at price point below established market

Continually re-engineer successive generations to improve margin

Drive for market share leadership

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World-Class Supply Chain

Two largest international contract manufacturers

Diversified sourcing

Supplemental in-house production Enables quick response to customer issues

Certified to ISO 9001:2000, TL 9000 Release 3.0, and ISO 14001 international standards for quality and environmental management across design, manufacturing, and service operations

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Demonstrated Financial Competence

Only company this size (<$500 million) in position to excel in these marketsConsistently strong results over past four years despite unprecedented industry downturn

17 years of uninterrupted profitability

Long-term growth strategyConsistent investment in R&DProven performance in key markets

Transitioning into larger markets

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20012002

2003

2004

$454.5

$396.7

$345.7$387.1

($ millions)

In 2004, revenue increased 14.6% to $454.5 million.

Revenue

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20012002

2003

2004

$0.93

$0.76

$0.42

$0.22

*Excludes investment impairment charges

*

Earnings per share increased 22% from $0.76 in 2003 to $0.93 in 2004.

Earnings Per Share

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Gross margin reached a record 57.4% in 2004, up from 56.0% in 2003 and up from 50.6% in 2002.

20012002

2003

2004

57%

56%

51%

45%

Gross Margin

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Net of Debt($ millions)

Cash position remains strong after $25 million in dividend payouts and $81 million in stock repurchases in 2004.

Unrestricted Cash & Marketable Securities

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Q3 2005 Results

Revenue: $149.2 million

Earnings per share: $0.42

Gross margin: 59.9%

Unrestricted cash & marketable securities: $345 million, net of $24.1 million in stock repurchases and $18.9 million in dividend payments year-to-date

Q1Q2

Q3

$149

$119$104

2005 Revenue($ millions)

Q1Q2

Q3

$0.42

$0.27

$0.20

2005 Earnings Per Share

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ADTN: Uniquely Positioned

Strategic product position

Deeply entrenched in carrier infrastructure

Entrepreneurial engineering philosophy

World-class supply chain operations

Demonstrated financial competence

ADTRAN is number two in certain key markets, second only to Cisco and Alcatel.

Jim [email protected]

Powering Today’s Networks

Powering Today’s Networks Jim Matthews Senior Vice President, Finance Chief Financial Officer.

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