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Tellabs Trips Over Wireless

Shares of Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) took a dive last night as the company announced its third-quarter results would fall short of the mark.

After yesterday's market close, Tellabs announced its revenues for the quarter ended Sept. 28 would be between $452 million and $460 million. (See Tellabs Pre-Announces Q3.)

Analysts were expecting revenues of $501 million, according to Thomson Financial .

Moreover, non-GAAP earnings will be 2 or 3 cents per share, Tellabs said, compared with the 6 cents analysts were looking for.

Tellabs shares were down 70 cents (7.3%) at $8.88 in early after-hours trading.

What went wrong? Sales to North American wireless carriers were down, CEO Krish Prabhu said in a prepared statement yesterday.

Analyst Simon Leopold of Morgan Keegan & Company Inc. presaged this last month in a research note. Alcatel had altered its forecast for the September quarter, citing weak spending in the North American wireless market. Leopold felt Tellabs could end up saying the same thing. (See AlcaLu Provides Update.)

Analysts had also cited concerns that fiber-to-the-curb deployment at AT&T Inc. (NYSE: T) -- the former BellSouth piece, specifically -- was slowing. (See Analysts See Bumps in Tellabs Fiber Biz .) But Tellabs's announcement yesterday said sales of access and data gear were up from the previous quarter.

As for Tellabs' net income, that's being weakened by lower gross margins -- 31 to 32 percent for the third quarter, Tellabs says, compared with 35 percent in the company's second quarter. Slowed sales of the company's 5500 digital cross-connects were to blame, the company's statement said.

It's been an eventful year for Tellabs. The company recently made cuts in its broadband access division. And it's been on the buying and selling end of various merger rumors: The one that might stick is the possible acquisition of Carrier Access Corp. (Nasdaq: CACS), which sources say could spring soon. (See Tellabs Still Stands Alone, Tellabs Trims in Access, and Tellabs Still Looking at Carrier Access.)

Tellabs exceeded expectations in its second quarter, but its first-quarter earnings were marred in part by weak broadband sales, possibly the result of competition from Adtran Inc. (Nasdaq: ADTN) and Calix Inc. (NYSE: CALX) (See Tellabs Earnings Drop on Access.)

Tellabs is slated to announce its third-quarter financials on the morning of Oct. 23.

— Craig Matsumoto, West Coast Editor, Light Reading

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