Optical/IP Networks

Tekelec Turns a Q2 Profit

Citing strong sales, Tekelec Inc. (Nasdaq: TKLC) reported a significant year-over-year profit increase during its second quarter -- and the company splashed out $11 million to bring a SIP routing vendor into its fold.

Investors were encouraged by the continued activity -- and the fact that Tekelec continues to take advantage of new software and signaling markets. The company's shares traded up $0.19 (1.07%) to $17.99 during normal trading on Wednesday. They jumped another $0.86 (4.78%) to $18.85 after hours.

The company reported a GAAP profit of $5.6 million, or 8 cents a share, on revenues of $133 million for the second quarter of 2005. Excluding one-time items, its profit was $9.4 million or 14 cents a share, which beats analysts' expectations. According to First Call, Wall Street analysts expected Tekelec to report a pro forma profit of 13 cents a share on revenues of $131 million.

Tekelec's second-quarter numbers also handily beat its year-ago performance. In the second quarter of 2004, Tekelec reported a GAAP loss of $304,000, or 0 cents a share, on revenues of $95.6 million.

Overall, more than 10 percent of Tekelec's business came through its Alcatel (NYSE: ALA; Paris: CGEP:PA) sales channel, a factor that could be trouble down the road should Alcatel ever decide to push its own solutions rather than reselling Tekelec's (see Alcatel Gateway Troubles Tekelec).

Tekelec execs say that $26.7 million of the quarter's sales were directly attributed to products from Spatial Wireless. Spatial Wireless, now owned by Alcatel, uses the Tekelec Santera gateway as part of its Spatial Atrium mobile switching solution.

"We're quite pleased with our relationship with Alcatel," says Tekelec CEO Fred Lax.

The signaling and softswitch company also bought SIP routing vendor Iptelorg for about $7 million in cash, and about $4 million worth of Tekelec shares.

Tekelec's products already allow carriers to initiate, modify, and terminate calls and other applications on their voice networks. By adding SIP routing to the mix, carriers can enable customers to set up, modify, and finally end various types of communications sessions, such as a voice call or a videoconference (see SIP Guide).

Iptelorg's gear and software is already being used at T-Online International AG and EarthLink Inc. and is being trialed at a "Tier 1 U.S. carrier" as part of a Tekelec IMS solution, according to the Tekelec CEO.

The company also announced that it has bought the last bit of Santera Networks that it did not already own. Tekelec bought the remaining interest in Santera for $75.6 million in cash. The transaction is expected to close in early October 2005.

Tekelec forecasts that its revenues for its third quarter will be between $142 million and $147 million, with GAAP earnings in the range of 10 cents a share to 13 cents a share.

Analysts were only expecting Tekelec to report $140 million for the third quarter, according to First Call.

The company says it had $301 million in cash and investments at the end of the second quarter.

— Phil Harvey, News Editor, Light Reading

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