Optical/IP Networks

Tellabs Names Prabhu as New CEO

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) has appointed 49-year-old Krish Prabhu as its new CEO, taking over from Michael Birck, who remains as chairman (see Tellabs Appoints New CEO).

Prabhu, who joins from VC firm Morgenthaler Ventures (see Prabhu Joins Morgenthaler), was formerly COO of Alcatel SA (NYSE: ALA; Paris: CGEP:PA) and CEO of Alcatel USA.

Birck, a founder of Tellabs, announced his intention to step down from the role last year (see Tellabs CEO to Retire... Again). He had taken over from Richard C. Notebaert, who vacated the CEO's chair after only 22 months to join Qwest Communications International Inc. (NYSE: Q) in June 2002.

Now Birck sees Prabhu as the man to take Tellabs to a new level. The industry is showing signs of recovery, Birck told a conference call, "and it's time for a transition at Tellabs. We need someone that can make that happen. Krish is that man."

While his appointment is expected to herald a greater shift towards data networking and a lesser focus on the company's traditional optical systems, Prabhu would not be drawn on any strategy details.

He did, however, note that while Tellabs has "a great product portfolio, it's been around a while," and that he saw certain trends in the telecom sector that needed to be addressed.

"Transport and access will blend, wireline and wireless will converge, and there is a transition from [traditional networks] to packets. The industry is undergoing a transition in front of our eyes, and we will need to change." That change will involve an evolution of the existing business, and could include acquisitions.

Prabhu would not elaborate on any M&A possibilities, saying only that if the company needs to "broaden its playground, we'll make the right move at the right time."

Tellabs has been linked with a number of potential targets recently that could take the company into the access space (see M&A's New Currency and Tellabs Angling for Access – and AFC).

As for ongoing growth of the existing business, Prabhu notes that the industry still has strong cashflows that provide significant opportunties to "grow and make lots of money."

And Tellabs is currently making some money from the noted transition towards packet networks. In its most recently reported quarter the company recorded a surge in demand for legacy products that support VOIP deployments, and this helped the vendor to post an increase in revenues (see Tellabs Has a VOIP Secret ).

Investors will be hoping for more of the same and a long-term strategy that will help Tellabs back to profitability. The company recorded a net loss of $242 million on revenues of $980 million in 2003 (see Tellabs Q4 Revenue Up 14%).

The key to success, believes Prabhu, is experience and timing. "Tellabs has a great brand, and understands the industry. It knows how to deliver to its customers." But it's vital to also have a vision, says Prabhu, and to have that vision early. It's important, he says, not just to have the right products but to be able to launch them into the market early.

The former Alcatel man has been busy gaining wide experience during his time at Morgenthaler, sitting on the board of a number of equipment vendors, including one of Tellabs' potential acquisition targets, Catena Networks Inc. (see Prabhu Joins Catena Board, Agere Adds to Board, Overture Raises $15M, ECI Puts Prabhu on Board, and Krish Prabhu Joins Westwave ).

The appointment is not the only senior management change at Tellabs in recent weeks (see Nulty Leaving Tellabs and Ed Kennedy Leaving Tellabs).

Having risen 26 cents yesterday to close the day at $10.20, Tellabs's share price is up another 9 cents in early morning trading at $2.29.

— Ray Le Maistre, International Editor, Boardwatch

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