Advanced Fibre Communications, Inc | Installing the First UMC System in 1993
Installing the First UMC System in 1993
While the DSC litigation moved slowly through the court system, AFC began to ship its product. The first UMC 1000 system was installed in Mexico in 1993. Within a year a dozen countries adopted the technology. In the United States the first customer was the Sioux Valley Telephone Company, located in South Dakota. By mid-1994, some 40 systems were installed in the United States. Also in 1994 AFC entered into a joint venture with Tellabs Operations to develop a system that could transmit telephone and cable television service into a home over a single line. AFC would sell the product to telephone companies and Tellabs would market to cable companies. Revenues during these early years grew at a rapid pace for AFC, totaling just $620,000 in 1993, then increasing to $18.8 million in 1994 and $54.3 million in 1995. The company also turned profitable in 1995, posting net income of $2.3 million.
In June 1996, after three years in court, AFC reached a settlement with DSC. Although the terms were not publicly disclosed at the time, both sides acknowledged that neither company would be denied the use of its own technology, and it was later reported by Communications Week that AFC agreed to pay $10.1 million in cash and 719,424 shares of stock to settle the matter. Because Tellabs owned an interest in AFC, it was included in the settlement, but the relationship between the partners would soon come to a close when their joint venture was dissolved in 1996.
AFC was only free of litigation for a brief period. In July 1996 it filed suit against ITRI and its member companies for breach of contract, trade secret misappropriation, and other claims. A month later ITRI member companies sued AFC, alleging breach of contract. This litigation would be settled two years later when the two sides reached an agreement that awarded three Taiwanese telecom companies a license to produce and sell the European version of what was now older AFC technology. In return, AFC received an undisclosed payment plus royalties.
On a far more positive note, in 1996 AFC completed a highly successful initial public offering of stock. Underwritten by Morgan Stanley & Co., Merrill Lynch & Co., Cowen & Company, and Hambrecht & Quist, the offering netted AFC approximately $118.1 million. Initially priced at $25, the stock quickly soared to $47 by the next day. A major cause for investor confidence was the adaptability of the UMC 1000, able to help telecoms in the switch from copper wire to fiber optics, and also a highly desirable product for the global marketplace, especially in Third World countries where the UMC 1000 was an inexpensive way to create a telephone system. For the year, AFC saw its revenues grow to $130.2 million in 1996, with net income improving to $7.2 million.
Several months later, in May 1997, AFC began shipping the next generation of its digital loop carrier product, the UMC 1000 DLC. It was a far more robust system, able to provide standard telephone service and high-speed broadband service to as many as 2,000 users, and offer speeds of 155 megabits per second for a single subscriber, as opposed to 1.5 megabits per second for the UMC 1000. Moreover, standard telephone lines were capable of carrying only 64 kilobits of data per second, roughly 2,500 times less than the capacity of the UMC 1000 DLC. Management hoped that the new product would triple its market potential, since it could now sell to larger telecom companies, which represented the lion's share of the market. In fact, business in 1997 improved dramatically, especially due to new contracts in Asia, Latin America, and South Africa. Revenues for 1997 more than doubled the previous year's total, reaching $267.9 million, while net income grew fivefold to $36.8 million.
Green took steps to groom a successor to the CEO post. In July 1995, Carl J. Grivner, the former president of the Enhanced Business Services unit of Ameritech Corp., was named a vice-president with the understanding that he would eventually replace Green at the top. He became president and chief operating officer in January 1996, and in July 1997 he replaced Green as CEO. Green, who was now 66 years old, stayed on as chairman of the board and planned to remain involved in charting the company's course. His tenure as CEO, however, would last only one year.