Mar. 7--Call it the long arm of capital spending.

AT&T and Verizon are not based in the Twin Cities, and neither of them provides wired local telephone service here. But the way they spend money has a direct effect on ADC Telecommunications of Eden Prairie, which sells equipment to the big phone companies.

Because AT&T and Verizon together account for more than 35 percent of ADC's revenues, their capital spending can fuel ADC's growth and stock price. Or not. Cuts in capital spending by its customers contributed to ADC's $442.8 million fiscal first-quarter loss last week. The firm has eliminated 1,000 jobs, or about 10 percent of the workforce, in the first and second quarters.

So when AT&T says its capital expenditures will decline 10 to 15 percent this year because of the recession, and that most of the money will be spent later in the year, ADC and the analysts who follow it have to react.

Spending-sales correlation isn't exact

"ADC's revenue over time is essentially the capital expenditures of the telecom carriers and other corporate customers as they upgrade their networks," said Lawrence Harris, an analyst at CL King & Associates in New York. "To the extent that AT&T and Verizon reduce capital spending, that translates into reduced sales for ADC, although it's not an exact correlation."

Among the 16 analysts who cover ADC, 10 recommend holding the shares, five have buy recommendations and one advises selling the stock, according to Bloomberg News. The consensus 12-month price target is $4.97. Meanwhile, shares closed Friday at $2.64.

Being tied to the ups and downs of customer capital expenditures is not such a bad thing, said James Mathews, ADC's chief financial officer.

"Even if AT&T and Verizon pull back their annual capital spending by 10 to 15 percent, they still spend about $18 billion each," Mathews said.

But the effect of customer capital expenditures is not always as clear as it is at ADC.

Disk-drive maker Seagate Technology, based in California but with big operations in the Twin Cities, and Hutchinson Technology, which makes a critical disk drive component in Hutchinson, Minn., both depend on corporate capital expenditures, said Tom Coughlin, a disk drive industry analyst in Atascadero, Calif.

That's because businesses buy roughly half the PCs on the market, plus all the network server computers, he said. As a result, corporate buyers account for more than half the disk drives sold.

Hutchinson agreed that business customers predominate; Seagate declined to discuss the revenue split between business and consumer customers.