Tellabs Issues Profit Warning

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) issued a profit warning for its second quarter today as it reported slightly better than expected first-quarter results and confirmed it is culling its 8865 optical line terminal, which had been developed specifically for Verizon Communications Inc. (NYSE: VZ). (See Tellabs Kills Its Verizon GPON Efforts.)

That's one helluva debut for new CEO, Rob Pullen. (See Tellabs CEO Says He's Not Scared of Change.)

The equipment vendor this morning reported first-quarter revenues of $464 million and net income of $17 million, or 4 cents per share on a GAAP basis. On a non-GAAP basis (before one-time costs and charges), the company earned $32 million, or 8 cents per share, giving it a non-GAAP gross margin of 39 percent.

On average, financial analysts had expected non-GAAP earnings of 4 cents per share from revenues of $453.7 million.

Tellabs also reminded the industry that while it is "discontinuing the Tellabs 8865 optical line terminal" -- a decision that now excludes it from Verizon's GPON rollout program -- it is "continuing development of the Tellabs 1100 GPON (gigabit passive optical network) multiservice access series. Tellabs will use freed-up resources to fund growth initiatives." (See Verizon's Going Strong on GPON.)

But analyst and investor attention will today be focused on the vendor's outlook for its second-quarter performance, which is set to fall way below expectations in terms of sales and margins.

On average, analysts had been expecting revenues of $474.9 million, but Tellabs says revenues are on course to be in the range of $425 million to $445 million, while non-GAAP gross margins are set to fall significantly quarter-on-quarter to 31 percent "as a result of product mix" –- that means a greater proportion of sales will come from the company's lower-margin products and services.

As a result, the company's second-quarter revenues will miss Wall Street's current target by between 6.3 percent and 10.5 percent.

The company's share price closed Monday at $6.02, but had already started to creep south in early pre-market trading on Tuesday morning –- at 7:23 a.m. Eastern Time it had dipped by 2 cents to $6.00.

Tellabs is hosting a conference call to discuss its financials at 8:30 a.m. Eastern today.

— Ray Le Maistre, International News Editor, Light Reading

Cequity 12/5/2012 | 4:08:50 PM
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