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Tellabs Whipped by Weak Wireless Demand

The Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) 5500 platform is getting a lot of long looks today, as the product line is shouldering the blame for a lackluster quarter.

Tellabs today reported sales and earnings fell in the third quarter as a result of weak demand in the wireless transport segment. Softer sales of the 5500 product line, used to aggregate voice and data traffic coming from cell sites, were reflective of an overall weakness in the North American wireless market, the company said. (See Tellabs Reports 3Q07.)

Third-quarter earnings fell to $3.6 million, or 1 cent per share, on sales of $457.9 million. That compares with earnings of $59.1 million, or 13 cents a share, on sales of $522.5 million in the year-ago quarter.

On a non-GAAP basis, Tellabs earned $14 million, or 3 cents a share, compared with $73 million, or 16 cents a share, in the previous year's third quarter.

That beat analyst expectations by a penny, according to Thomson Financial . Sales for the quarter were roughly in line with analyst forecasts.

But Tellabs said sales in the fourth quarter would be "about the same" as they were in the third, which would put revenues well below analyst expectations. Analysts are calling for sales of $485.6 million for the fourth quarter.

Gross margins also disappointed. Due to product mix, Tellabs reported that gross margins were 31.5 percent in the third quarter of 2007, compared with 48.6 percent a year ago.

As noted, Tellabs blamed a weak North American wireless market and weak sales of its Tellabs 5500 crossconnect for the poor quarter. Sales in the company's transport segment fell 39 percent, from $203 million a year ago to $123 million in this year's third quarter.

In the company's broadband segment, sales were up 2 percent to $279 million from $273 million in the year-ago quarter.

That included strong data revenue, which was up 79 percent year-over-year, to a record $57 million. Access revenue was down 3 percent from the year-ago quarter, to $157 million, but that included record fiber access revenue of $114 million. Managed access sales were down 19 percent year-over-year, to $65 million.

Services revenue was up 20 percent from the year-ago quarter, to $56 million.

The lower sales and earnings weren't totally unexpected, as the company pre-announced third-quarter expectations earlier in the month. Tellabs shares were up $0.35 (3.95%) to $9.20 in midmorning trading on Tuesday. (See Tellabs Trips Over Wireless and Tellabs Pre-Announces Q3.)

— Ryan Lawler, Reporter, Light Reading

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