SDN architectures

Tellabs Boasts SDN 'Engagements'

Tellabs talked up its optical and software-defined networking (SDN) advances Friday morning as it reported second quarter financials that were less than impressive but still beat many analysts' expectations.

The vendor's financial report, issued late Thursday, included signs of recovering optical revenues and hopes of increasing 100G business activity.

And Dan Kelly, Tellabs CEO and president, told investors and analysts on a Friday morning second quarter earnings conference call that the vendor has "several active SDN customer engagements, with lab evaluations happening this year," and that SDN capabilities are being incorporated technology into its 7100 platform, as well as its 8000 network management solution and 8600 Smart Routers, with releases likely in early 2014.

Of further note on the 8600 front, Kelly said the 8602 Smart Router, which has been positioned as a network management solution to backhaul small cells in a self-organizing network (SON) architecture, is currently involved in several RFPs, with deals expected next year.

Tellabs will need to turn some of those engagements into sales. The vendor generated second quarter revenues of $212 million, well off the $288 million collected in the year-ago quarter but up slightly from $209 million in the first quarter this year. The GAAP net loss of $8 million, or $0.02 per share, was a bit deeper than the $5 million net loss reported a year earlier, while the non-GAAP net loss (excluding one-time charges) was about $1 million, or $0.00 per share.

Pretty much the only sales highlight came from the vendor's optical equipment segment, which generated sales of $113 million, better than expected and a 21 percent jump from the previous quarter. Much of that revenue was pulled through the vendor's 7100 packet optical transport platform and its 7300 metro Ethernet platform.

Larry Rieger, who became acting CFO at Tellabs last month after Tom Minichiello left for Westell, noted that this was the "highest ever second quarter revenue from our optical 7100 and 7300 platforms," before adding that Tellabs had won four new optical customers during the quarter. (See Tellabs CFO Roundabout Gets Another Spin.)

CEO Kelly added: "We are seeing strong demand in optical, particularly in North America, driven by network operators' video and mobile investments."

Tellabs's other product segments offered less encouragement. The data product set (IP router products) generated only $35.8 million in revenues, down nearly 54 percent from a year ago, though better than some analysts had anticipated, while the access equipment sector had a disastrous quarter, bringing in only $19 million in revenues, resulting from lower sales of the company's 1600 optical network terminal (ONT).

Michael Genovese, managing director of MKM Partners, said in an investor note after the earnings call that the stronger than expected optical and data revenue mix, offset by weaker access equipment revenues, is reminiscent of Alcatel-Lucent's most recent quarter. (See Charges Slam AlcaLu's Q2.)

"The optical and router spending cycle is so strong that it even lifted Tellabs' boat in 2Q13," Genovese said in the note, adding that several other vendors are similarly floating along on upward optical and data spending trends.

Tellabs offered third quarter guidance of total revenue expected to land between $200 million and $220 million, the mid-point of which is lower than a pre-call estimate made by Simon Leopold, managing director and communications equipment analyst at Raymond James.

Kelly also said Tellabs shipped 100G modules during the second quarter to customers that included CenturyLink. "In 100G, we're seeing it first in the long-haul and we're just at the beginning of 100G rollout in the metro regional space," he said. The company does not break out revenue from 100G as a percentage of its total optical segment revenue.

In response to analyst questions on the call, Kelly said price competition is becoming an issue in the 100G market but also continues to have impact even in the 10G market, where carriers continue to demand that costs be driven out of products via ongoing innovations. Analysts and carriers have noted that 100G is close to reach its pricing tipping point for deployment. (See Carrier CTO Sees 100G Tipping Point and 100G Action Spurs Optical Optimism).

— Dan O'Shea, Managing Editor, Light Reading

DOShea 8/5/2013 | 1:31:39 PM
re: Tellabs Boasts SDN 'Engagements' They only had surface-level comments on SDN on the call, even when pressed further by one questioner. I agree that is worth following up on.
Dredgie 8/5/2013 | 1:46:45 AM
re: Tellabs Boasts SDN 'Engagements' This just reeks of a proprietary ‘SDN’ play, rather than
anything that resembles standards-track. Any word on what flavor or SDN this
is, Dan? Are they talking (stateful / active) PCE with PCEP for path establishment
and maybe PCEP (with extensions) or openflow for guiding flows onto the paths?
Or is this just the 8000 with an SDN badge?
DOShea 8/2/2013 | 8:04:12 PM
re: Tellabs Boasts SDN 'Engagements' Also, given recent history, probably best for now that Tellabs keeps "acting" in front of "CFO" title.
DOShea 8/2/2013 | 7:59:56 PM
re: Tellabs Boasts SDN 'Engagements' Analysts on the call nudged Kelly for details about the optical wins, but he didn't budge--only said sometimes the effect isn't always immediate and plays out over multiple years. Also coy on future direction of access revenue.
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