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Optical/IP

Tellabs Revenues May Rise in H2

After a brutal first half of the year, increased spending by AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) should boost revenues at Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), predicts MKM Partners analyst Michael Genovese in a research note sent Wednesday.

He believes that even if the two U.S. giant carriers cut their year-on-year capex for the second half of 2012 by 5 percent, which he thinks is likely, the overall spending would still be about 15 percent higher than during the first half of the year. That would be good for Tellabs, which counts Verizon as a major customer and can expect renewed infrastructure spending from AT&T following a dramatic slowdown.

Consequently, Genovese expects Tellabs' revenues, gross margins and days sales outstanding (DSO, the number of days it takes for a company to collect money after a sale) to improve in the third and fourth quarters.

Tellabs reported revenues of just US$258 million, down nearly 20 percent year-on-year, a gross margin of 37.1 percent and a net loss of $139.8 million (including one-time costs of $113.7 million, the vast majority comprising restructuring costs) for the first quarter. (See Tellabs Loses $139.8M in Q1.)

The vendor is expecting second-quarter revenues to be between $280-305 million, with gross margins (before one-time costs) to be about 40 percent.

With those numbers in mind, Genovese expects Tellabs to increase its revenues well beyond $560 million for the third and fourth quarters combined and improve its gross margin beyond the 40 percent mark for those quarters.

With costs cut and its financials set to improve, Genovese believes the vendor's management "could be even more open than usual to using M&A to unlock shareholder value." The analyst believes Tellabs, which is currently trading at $3.75 per share, is undervalued currently and is actually worth about $4.50 per share, slightly less than the price Tellabs' stock was commanding a year ago.

— Ray Le Maistre, International Managing Editor, Light Reading

FbytF 12/5/2012 | 5:32:57 PM
re: Tellabs Revenues May Rise in H2

Was this a paid advertisement to sell Tellabs stock based on merger speculation? Must be, there wasn't anything else of substance in the story.

DCITDave 12/5/2012 | 5:32:56 PM
re: Tellabs Revenues May Rise in H2

Right again. The story said a respected analyst who has good sources at carriers said they MAY be spending more. If he KNEW for a fact and NOTHING would ever change that, we would have bagged the story and gone to Vegas.


 

FbytF 12/5/2012 | 5:32:56 PM
re: Tellabs Revenues May Rise in H2

Agree, but the story only said their customers MAY buy more in the second half, that's like saying it may rain tomorrow then again it may not.

DCITDave 12/5/2012 | 5:32:56 PM
re: Tellabs Revenues May Rise in H2

Absolutely. Now we just need to figure out how to profit from the sale of Tellabs stock, which doesn't seem to involve us at all. Oh well. Back to the drawing board.


I think the thing of substance -- and of interest to our readers -- is how long Tellabs can go on with its current product set before it requires a major restucturing. We take today's note as a sign that it has some breathing room as spending from its core customers picks up.

digits 12/5/2012 | 5:32:50 PM
re: Tellabs Revenues May Rise in H2

I checked again in the analyst note and he didn't say anything about the rain.


Here's the thing. We see a lot of information washing around each day. A lot of it is dull. I thought this was an interesting view, from (as Phil pointed out) a respected analyst who has been following the optical market for may years, of how the fortunes of Tellabs, a company currently under the cosh, look set to change in H2 (in his considered opinion). As I thought it was interesting, I shared it.


Have a nice day.

macster 12/5/2012 | 5:32:47 PM
re: Tellabs Revenues May Rise in H2

LOL! I actually have some Tellabs stock. Oh well.....


Anyway, is there a granular breakdown? Would be interesting to know what happened to WiChorus. Thanks.

paolo.franzoi 12/5/2012 | 5:32:46 PM
re: Tellabs Revenues May Rise in H2

macster,


WiChorus got killed off.  They took some of the technology and built an updated bit of hardware for the 8800.  But other than that, WiChorus failed and lots of folks lost their jobs over it.


seven


 

macster 12/5/2012 | 5:32:45 PM
re: Tellabs Revenues May Rise in H2

Thanks Seven. Bummer :-( Had quite a few friends there! Sigh :-( When did this happen? Any ideas re. Starent? Cisco treating them well?


Head a different practice now, so we do even lesser TMT work - lost touch with friends. Not good. After this engagement, really need to spend some time getting back in touch.

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