Powering Today

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Powering Todays 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 cable
• Capex on the rise Projected to increase 5 to
  61 billion in 2005
• Favorable regulatory environment easing
  investment concerns
• Technologies now mature enough to deploy
• Softswitch, VDSL2, ADSL2, GPON
• VoIP driving investment in enterprise sector

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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

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Favorable Regulatory Environment

• FCC policies encouraging investment in broadband
  access technologies
• Removing barriers to investment
• Relaxing unbundling requirements
• Sunsetting UNE-P
• Encouraging real competition in residential
  broadband access
• Encouraging VoIP and related facilities
  investment
• Encouraging alternative facilities
• Cable, Broadband Wireless Access, and Broadband
  over Power Lines
• ILECs investing to meet competition

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The Carrier Response
SBC Communications to Rapidly Accelerate Fiber
Network Deployment in Wake of Positive FCC
Broadband Rulings October 14, 2004
Verizon FiOS TV Will Offer a New Customer
Experience April 18, 2005
BellSouth Initiates Technical Trial of Microsoft
TV IPTV Edition January 6, 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
Qwest Launches Expanded Nationwide VoIP Service
for Businesses December 8, 2004
SBC Communications to Detail Plans for New
IP-Based Advanced Television, Data and
Voice Network November 11, 2004
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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.
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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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Strategic Product Position
Broadband Access

• Aggressive competition for high-speed
  business- and consumer-class DSL subscribers
• Critical revenue source for carriers
• Customer retention, customer growth
• Ethernet in the first mile
• Widely deployed, established LAN technology
  migrating into access network
• Data-centric business networks demanding 50-80
  Mbps Ethernet pipes
• Extremely versatile broadband deployment
  platforms
• ADTN DSLAM equipped with SHDSL or ADSL
• ADTN Metro Ethernet extension (Ethernet Over
  Copper)
• ADTN Integrated Access Devices (IADs)

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Strategic Product Position
Fiber to the Node

• Deep fiber strategy to increase residential
  bandwidth to 15-40 Mbps
• Network model
• Fiber from the Central Office to the node or
  neighborhood
• Copper from the node to the customer premises
• ADSL2, VDSL2
• ADTN DSLAM solution
• Brings 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

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Strategic Product Position
Optical Access

• Fiber-rich access environment
• More than 8 DS1s or 10 Mbps Ethernet delivered on
  fiber
• New 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
  network
• Extremely 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

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Strategic Product Position
Wireless Access

• Traffic explosion
• Voice usage now averaging 711 minutes per month
• Data revenue now represents 8 of ARPU
• 12,170 new cell sites added in 2004
• Increasing fiber and copper lines to tower
• Opportunity for ADTN SONET multiplexers and HDSL
  platforms
• Upgrading network for data services
  (3G/EVDO/HSDPA)
• Requires OC-3 (new) to DS1 (legacy) connectivity
• Opportunity for ADTN SONET and M13 multiplexers
• Increasing microwave bandwidth per site
• New demand for combined TDM/Ethernet transport
• Opportunity for ADTN broadband radios
• Improving bandwidth efficiency
• Opportunity for newly introduced ADTN wireless
  backhaul solutions

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Strategic Product Position
IP Access

• Unified VoIP networks present
  compelling business case for most companies
• Requires changes in network architecture
• IP 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

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Strategic Product Position
IP Access

• Extensive portfolio of IP-based, enterprise-class
  networking equipment
• Essential component of enterprise networks
• Multi-tier reseller channel (5,000 VARs)
• Essential component of bundled service offerings
• AOS investment
• Improves margin on products
• Improves time to market
• IP technologies transferable to global markets

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Strategic Product Position
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Deeply Entrenched in Carrier Infrastructure

• ADTRAN solutions widely deployed in
  carrier networks
• DSLAMs in top eight domestic carriers
• SONET mux in five of top eight domestic carriers
• HDSL in top eight domestic carriers
• Extensive knowledge of carrier operations
• Strategically aligned with current and future
  services roadmaps
• Service level improvement tools and initiatives
• Long-standing relationships in key accounts
• Established contractual relationships
• Able to navigate approval cycles and processes
• Recipient of numerous quality and cost management
  awards

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ADTN Customer View
Carrier
Wireless Global Enterprise
Distribution
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Entrepreneurial Engineering

• Nimble, adaptive design and engineering
  operations
• Vertically integrated design process
• Internally developed intellectual property
• Control 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 90012000, 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 (lt500 million) in
  position to excel in these markets
• Consistently strong results over past
  four years despite unprecedented industry
  downturn
• 17 years of uninterrupted profitability
• Long-term growth strategy
• Consistent investment in RD
• Proven performance in key markets
• Transitioning into larger markets

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Revenue
In 2004, revenue increased 14.6 to 454.5
million.
( millions)
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Earnings Per Share
Earnings per share increased 22 from 0.76 in
2003 to 0.93 in 2004.

Excludes investment impairment charges
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Gross Margin
Gross margin reached a record 57.4 in 2004, up
from 56.0 in 2003 and up from 50.6 in 2002.
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Unrestricted Cash Marketable Securities
Cash position remains strong after 25 million in
dividend payouts and 81 million in stock
repurchases in 2004.
Net of Debt( millions)
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Q3 2005 Results
2005 Revenue ( millions)
2005 Earnings Per Share

• 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

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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.
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Powering Todays Networks
Jim Matthewsjim.matthews_at_adtran.com