Tellabs Revenues May Rise in H2
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