Tellabs Busts Out in H1

Whatever it is the sales team at Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) is drinking, the rest of the industry could do with a few slugs.

The transport and access equipment company reported first-quarter revenues of $379.7 million, a gross margin of 50.7 percent, and earnings per share of 12 cents, all higher than a year ago, and better than expected by the company and the financial community. (See Tellabs Reports Q1.)

And the company says this isn't just a blip. Based on current orders, its order backlog, and current market conditions, Tellabs expects its second quarter revenues to be 10 to 12 percent higher than in the first quarter, and for its gross margin rate to be maintained. That puts the second-quarter revenues range at $418 million to $425 million, way above average analyst expectations of $388 million.

Tellabs also updated its guidance for full year gross margin, raising its own expectations from the mid 40s to the high 40s.

All that positive news lit a fire under the vendor's stock: In early trading, Tellabs' share price was up by more than 10 percent to $9.05.

The big drivers for Tellabs this year have been a resurgence in North American carrier spending, plus growing demand for transport platforms that support mobile backhaul and enterprise business services.

But the company's big excitement is around the traction it's gaining in the mobile packet core, following its acquisition of specialist vendor WiChorus in the late months of last year. (See Core Blimey! Tellabs Buys WiChorus and Tellabs Completes WiChorus Deal.)

CEO Rob Pullen's new mantra is "We're helping companies succeed in the mobile Internet," a phrase he slipped into today's earnings conference call as often as possible.

Pullen said the SmartCore 9100 platform, which was originally developed by the WiChorus team for the WiMax service provider market, is now being checked out by 3G mobile operators following the launch of the Smart GGSN version. (See Tellabs Touts Smart GGSN.)

Pullen even claims that a Tier 1 operator, during a meeting at this year's Mobile World Congress in Barcelona, decided to put its order for a rival mobile packet core product on hold while it put the SmartCore platform through its paces.

The vendor's key rivals in this sector are Cisco Systems Inc. (Nasdaq: CSCO) (Starent), Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), Nokia Networks , Huawei Technologies Co. Ltd. , and NEC Corp. (Tokyo: 6701), while Juniper is also joining the fray. (See Cisco to Buy Starent for $2.9B.)

Pullen says Tellabs has seven SmartCore customers currently (all WiMax operators), and has a further 18 trials underway, of which 11 are with WiMax carriers and seven with 3G operators. Clearwire LLC (Nasdaq: CLWR), which is using the platform in the US and Spain, is the big-name reference account. (See Clearwire Takes Tellabs to Spain and WiChorus Packet Core Is in the Clear.)

The next move is to evolve the platform for the Long Term Evolution (LTE) market, where the Evolved Packet Core (EPC) is a critical component involved in the management of mobile data traffic. Pullen says the EPC version of SmartCore will be ready during the second half of 2010, by which time Juniper Networks Inc. (NYSE: JNPR) will have also joined the fray. (See Juniper Challenges Cisco in the Mobile Core and LTE Core Action Heats Up.)

— Ray Le Maistre, International Managing Editor, Light Reading