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Backhaul

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

digits 12/5/2012 | 4:38:29 PM
re: Tellabs Busts Out in H1

Anyone listening to today's Tellabs conference call might have thought this is a company that focuses on the mobile packet core and does some transport and access gear on the side (OK, a gross exaggeration, but you know what I mean...)


I'm not doubting how excited the Tellabs team might be, but... with just 7 customers and revenues so small they're not disclosing them, I'm wondering whether Rob Pullen is trying to justify the $165M price tag for WiChorus (was that too much?), attract attention away from other matters (no obvious signs of unusual trends), or simply playing mind games (hoping that the Mobile Internet tag will stick).


No doubt it was an interesting move, and that having a position in the backhaul and packet core sectors is a neat play, but is Pullen bigging this up a bit too soon? 


 

paolo.franzoi 12/5/2012 | 4:38:25 PM
re: Tellabs Busts Out in H1

Ray,


If I look at the future at Tellabs at the moment, it is really based around the growth of the 8600 business first and foremost.  Luckily for them, the 8800 is tied to this in AT&T where the Red Map/Blue Map is causing a lot of investment.


The next step theoretically would be WiChorus - but as you point out that is pretty well unclear what will come out of that.  They are also hoping that the 7100 gets some play in Mobile Networks, because it looks to be hard to grow outside its current customer base (it has lots of entrenched competitors).


So, I think the idea is Tellabs is:


a - Focused first and foremost on serving Wireless Carriers


b - Trying to make itself more about switching and routing (and higher level intelligence) than Transport and Access


c - Trying to shed the old stodgy label so is pushing down discussions of old businesses (Saying the 5500 had a great quarter doesn't really inspire for the future eh?).


 


seven


 

^Eagle^ 12/5/2012 | 4:38:23 PM
re: Tellabs Busts Out in H1

Ray,


One way to look at this is that the Mobile Packet Core is not all that different than transport and switching.


And if you pull back to the vernacular "30,000 ft. view", I think the focus on this core interconnect and transport of mobile bits that download from RF to some sort of fixed transport / routing / switching network to interconnect with the world is not all that different conceptually than the problem that Tellabs solved long ago with the 5500 Titan.  Admittedly different technology that is IP based, probably evolving to OTN transport with some sort of "ethernet" fabric distributed in some parts of the network.... but conceptually, not all that different than the Titan.  The Titan solved problems that enabled rapid growth in bandwidth and services by the carriers and allowed "flexible" architectures.


So, this play in the mobile packet core in some ways makes perfect sense.  It fits with the knowledge and skills and the market will readily accept Tellabs into these applications.  If you check with most carrier crews, everyone loves / loved their Titan's and Tellabs really has a stellar reputation.


Given the big wireless networks are all really run by old "phone company" guys from either SBC or GTE... even though the acronyms are different in wireless... Tellabs is a good fit into this application space and plays to their strengths.  Where the earlier focus on PON many would question, I think this fits into their DNA.


And given that long long ago, Rob led the team that thought up the entire Titan application space and product family and he led many of the developments on the Titan... well, this should not be a surprise.


I say: WAY TO GO ROB!


sailboat 

pdonegan67 12/5/2012 | 4:37:56 PM
re: Tellabs Busts Out in H1 In the 2006-2008 timeframe, TellabsGÇÖ market positioning in packet backhaul was head and shoulders above the rest. My sense, though, is that the rest of the pack has closed the gap pretty significantly in the last twelve months GÇô Alcatel-Lucent, Cisco and Huawei in particular. Look at the first LTE networks in the U.S, Europe and Japan and youGÇÖll find Alcatel-Lucent equipment being deployed in the backhaul rather than Tellabs. Too much shouldnGÇÖt be read into that, for now. For example, Tellabs is the preferred supplier of packet backhaul solutions to the Vodafone group but itGÇÖs not any kind of a reflection on Tellabs that Vodafone-owned affiliates arenGÇÖt in the vanguard of LTE roll-out whereas some of Alcatel LucentGÇÖs customers are. All the same, while this quarterGÇÖs results show Tellabs reaping the benefits of the 8600 footprint it has put down, growing and even sustaining that footprint looks to me as if it is going to be a good bit more challenging going forward than it has until now. If they get the integration of WiChorus right, the evolving end-to-end backhaul and core proposition will certainly be right in the sweet-spot of the mobile networkGÇÖs longer term architectural direction. But does WiChorus do amazing things for TellabsGÇÖ top line over the course of the next couple of years? Probably not. My latest report, GÇ£Backhaul Evolution Strategies For LTE operatorsGÇ¥, out tomorrow, touches on a number of these issues.
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