VOIP success stories keep coming.

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) posted a fourth-quarter net loss Thursday but cited a surge in demand for legacy products that support voice-over-IP networks (see Tellabs Q4 Revenue Up 14%).

The Naperville, Ill., telecom equipment company posted a net loss of $23 million or 6 cents per share. That was 6 cents ahead of the Thompson First Call analysts' estimate. Revenues were up 14 percent to $279 million from $245 million in the third quarter.

Revenue for voice-quality enhancement (VQE) products (formerly known as echo cancelers) and other related products amounted to $51 million, up 65 percent from $31 million in the third quarter. Most of this revenue reflected a surge in demand for the Tellabs 2300 telephony distribution system and the Tellabs 3000 series of voice-quality enhancement products, which are generating interest among customers deploying VOIP services, the company said.

”This revenue grew significantly. Is Tellabs becoming a closet VOIP play?” muses Steve Levy, managing director for wireline telecom equipment with Lehman Brothers, in a note to investors.

In the early days, VOIP networks were infamous for being poor quality, and as a consequence only devoted fanatics used them. In the past two years the technology has matured considerably, with voice-enhancement products like Tellabs gear making it impossible to distinguish between a VOIP call and a call made on the regular phone network.

During a conference with press and analysts Thursday morning, Michael Birck, Tellabs chairman and CEO, said he is optimistic about the renewed opportunities in the market, pointing to the surge in VOIP and a recovery in the telecom sector in general. "I'm encouraged by the improving industry environment," he said in a statement.

Sales of optical networking systems in North American were less impressive, according to Levy. Sales were $117 million, up 11 percent from the third quarter. Only 2 percent of Tellabs' overall revenue came from new products in North America, the company said.

Sales of next-generation SDH and managed access systems totaled $74 million, up from $70 million in the third quarter. And about 6 percent of Tellabs' overall revenue came from new products in international markets; sales of these new products surged 48 percent to $16 million from $11 million in the third quarter. This increase came from the Tellabs 6350 switch node, for which the company has now received more than 300 orders, it says.

Services revenue was $37 million, basically flat with $39 million in the third quarter.

For the year, Tellabs revenue totaled $980 million. The company recorded a net loss of $242 million or 58 cents per share. Excluding the after-tax impact of restructuring and other charges of $161 million, Tellabs lost $80 million or 19 cents per share for the year 2003.

Shares in the company slide 10.75 percent to $9.38 a share. Analysts said the selloff was most likely due to investors cashing out as the stock has climbed 25 percent so far this year.

— Jo Maitland, Senior Editor, Light Reading