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Optical/IP

Tellabs Fails to Impress

Monday should have been a big day for Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA). But the telecom equipment vendor's share price actually dropped after announcing a new high-end optical platform (see Tellabs Announces New Optical Switch) and a $100 million contract with Sprint Corp. (NYSE: FON).

Wait a minute, you say. Announcements like these are supposed to impress investors, not depress them. Somehow, Tellabs managed to strike a sour note on a day of triumph -- highlighting a key area where it admits to being challenged.

"Customers say to me, 'I didn't know you were doing that... You're really doing that? Get somebody over here!' " said CEO Richard C. Notebaert in an analyst presentation today. "We have work to do in marketing and selling our products."

Sadly, Tellabs execs proceeded to demonstrate that point during the conference that followed, which (for better or worse) was transmitted for hours by Webcast and conference dial-in.

The afternoon was a marketer's nightmare, during which the leaders of Tellabs did their best to smother their good news under a bushel of dull and poorly considered verbiage. At one point, Robert Pullen, VP and general manager of Tellabs' Optical Networking Group, mentioned that the new Titan 6700 platform had "a long way to go." Speaking of carrier customers, he said, "We're throwing everything we have at them, and they want more." About a particular platform in development, he said, "It's running at 10-gig in prototype. But that's prototype, so don't get your hopes up."

Perhaps it was a lesson in the extent to which press, analysts, and investors have come to prefer slick and polished presentations to homespun candor. Analysts say it also was proof positive that Tellabs needs to shape up its image. "They need to be sharper. Technologically, they're starting to move into the league of Alcatel Optronics [(Nasdaq: ALAO; Paris: CGO.PA)], Cisco Systems Inc. [(Nasdaq: CSCO)], Corvis Corp. [(Nasdaq: CORV)], and Nortel Networks Corp. [(NYSE/Toronto: NT)]. They need to be more aggressive in marketing what they have," says Christopher Nicoll, director at Current Analysis.

Ironically, the new products had impressed analysts in a roadshow last week. Tellabs officials claim the Titan 6700 switch, an optical switch with an electrical core, is designed to compete with the likes of Ciena Corp. (Nasdaq: CIEN), Cisco, and Sycamore Networks Inc. (Nasdaq: SCMR). Such switches serve as crossconnects on the Internet's largest backbones (see The Optical Future).

The Titan 6700 is set to ship during the second half of 2001. Up to twenty 6700s can be grouped in a single switch fabric supporting 2,000 protected OC48 ports. The vendor reportedly has stated that it plans for the 6700 to support up to 8,000 ports in one switch (sometime next year).

Rollout of the Titan 6700 follows a spate of other announcements designed to market Tellabs as an optical power. Last week, for instance, it revealed plans to implement optical layer performance monitoring across its optical product line. It also announced an interoperability project in which it successfully linked another of its switches, the Titan 6100, with an all-optical switch from Calient Networks. This partnership could result in Tellabs reselling technology from the Calient switch, according to analysts.

Tellabs even appears to have the potential customers for such gear: The company reported a banner third quarter (see Optical Boosts Tellabs Quarter). It could be that all the company lacks is some polish and panache on the marketing side.

"From here on in, they can't just approach the market like another player," says Scott Clavenna, president of Point East Research and director of research at Light Reading. "They need to be twice as good to stand out in this crowded market, and they need true differentiation in both price and performance."

Tellabs' share price closed Monday at $63.19, down 2.51 percent.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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