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Tellabs CEO Says He's Not Scared of Change

Light Reading
News Analysis
Light Reading
2/27/2008

New Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) CEO Rob Pullen admits there are some serious challenges ahead in shaping the future of his company. (See Tellabs Appoints Robert Pullen CEO.)

In a conversation with Light Reading, Pullen says, "One of the perceptions when you have an insider is that you're averse to change. I can assure you that I'm anything but that." (See More of the Same?)

Industry analysts Light Reading spoke with agree that Pullen is a good choice for the role, and believe that his long tenure at the company will help to enable a "seamless transition" at the CEO position.

Robert W. Baird & Co. Inc. analyst Ken Muth says of Pullen: "I think he's the natural choice, due to his deep history at Tellabs. He knows the customers and what they've been asking for."

Even so, those same analysts believe that the new chief executive has a lot of work to do to get the company back on track.

For his part, Pullen touts his part in previous Tellabs transformations "from analog to digital, digital to optical, and optical into data" as proof that he can help shape the next phase of the company's growth.

That next phase will be particularly crucial for Tellabs, which relies on sales of its legacy 5500 crossconnect to drive margins and earnings in an industry that is increasingly moving to next-generation network architecture. That means the company will look for new ways to drive sales and margins through its optical transport and fiber access businesses.

On the conference call announcing his appointment, Pullen listed a series of priorities in reshaping Tellabs, from both a cost and portfolio perspective.

As part of that transformation, he says the company will review and innovate its product portfolio to grow it beyond its legacy products. Tellabs will also look to expand its customer base by looking into international carriers, government agencies, and independent operating companies (IOCs).

The trick is that Tellabs will be looking to do all this while also reducing costs, including a previously announced $100 million restructuring plan. (See Tellabs Cuts Continue, Tellabs Cuts Run Deep(er), and Tellabs Trims in Access.)

Morgan Keegan & Company Inc. analyst Simon Leopold believes Pullen is on the right track, in terms of diversifying its customer base. "I think it's the right thing to do," Leopold says. "But it's hard to do that and control costs."

When asked how the company will rationalize innovating its products and expanding into new markets while also cutting costs, Pullen says, "It will be a challenge. But it's a challenge that we have overcome before and have seen our way through... I'm used to making tough decisions about how to reduce costs while also trying to growing the business."

Even so, analysts say it's going to take some time before the new CEO will be able to right the ship.

"This is not a fix that's going to be taken care of in one or two quarters. This is a one- or two-year fix," Muth says.

— Ryan Lawler, Reporter, Light Reading

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