Tellabs Slowdown Surprises Street

Tellabs reported a big third-quarter loss this morning, thanks mostly to restructuring costs and slower-than-expected sales across all product segments.

Tellabs reported a net loss of $138 million, or 38 cents a share, on revenues of $314 million during the third quarter of 2011. That compares to the year-ago quarter, when Tellabs recorded a profit of $57 million, or 15 cents a share, on revenues of $430 million.

"We are targeting fourth-quarter 2011 revenue to be flat to slightly up, but given our lower visibility into customers' spending, we are guiding to a broader range from $300 million to $330 million," the company said in a statement.

Though Tellabs has been laying off workers to cut costs, the revenue drop was still surprising. JP.MorganChase analyst Rod Hall wrote in a note to clients that Tellabs' fourth-quarter guidance missed Wall Street's estimates by 9 percent and "ours by 14%." The capex slowdown bit Tellabs the hardest in North America, where sales fell 8 percent, compared to a 4 percent slowdown in international sales.

“We’re disappointed by third-quarter revenue in North America,” said Rob Pullen, Tellabs president and CEO, in statement. “Yet we’re encouraged by the continuing growth of our business outside North America, which generated more than half of Tellabs' quarterly revenue for the first time.”

— Phil Harvey, Editor-in-Chief, Light Reading

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Scott Raynovich 12/5/2012 | 4:50:36 PM
re: Tellabs Slowdown Surprises Street

Really, people are surprised? That Tellabs disappointed?


paolo.franzoi 12/5/2012 | 4:50:35 PM
re: Tellabs Slowdown Surprises Street


You know its funny Scott.  During all of this Rob still has a job.  I know Chairman Mike will not read this but here is the deal.  Your management team needs overhauling.  Starting at the top and working its way down.  They blamed so many problems on Access in the past and yet - here they still are cratering.  Now the rest of the world has caught up to the 8600 and they really have no products with an advantage that anyone cares about.



PS - some good quotes from the release

Revenue from our growth portfolio (the Tellabs® 6300 Managed Transport System, the Tellabs® 7100 Optical Transport System, the
Tellabs® 7300 Metro Ethernet Switching Series, the Tellabs® 8600 Managed Edge System, the Tellabs® 8800 Multiservice Router
Series, the Tellabs SmartCore® 9100 Platform, and professional services) was $185.1 million (or 59% of total revenue), compared
with $224.4 million (or 52% of total revenue). Given the level of research and development expenses in early lifecycle products, this
portfolio is not presently profitable. (Growth - what growth...my edit)

Our core portfolio (the Tellabs® 5000 series of digital cross-connect systems, the Tellabs® 8100 Managed Access System, the Tellabs®
8000 Intelligent Network Manager, the Tellabs® 3000 Series of voice-enhancement products, the Tellabs Access products and
deployment, training and support services) accounted for $128.7 million (or 41% of total revenue), compared with $205.4 million (or
48% of total revenue).

Broadband Segment
Revenue from the Broadband segment was $170.1 million, compared with $199.2 million. Within this segment, increased revenue
from managed access products was offset by lower revenue from data and access products. Managed access revenue was $46.3
million, up 53.3% compared with $30.2 million. Most of this increase came from higher revenue from managed access systems. Data
product revenue was $80.6 million, compared with $111.0 million as higher revenue from managed edge systems was offset by lower
revenue from our multi-service router series. Access revenue, was $43.2 million, compared with $58.0 million primarily as a result of
lower revenue from single-family optical network terminal (ONT) units. Broadband segment profit was $22.9 million, compared with
$48.8 million. The decline in segment profit was driven primarily by lower revenue from multi-service router series products and
higher research and development expenses.

Revenue from the Transport segment was $86.6 million, compared with $170.1 million. Within this segment, revenue from digital
cross-connect systems and optical transport systems declined. Transport segment profit was $4.6 million, compared with $71.6
million. The decline in segment profit was driven primarily by the lower level of digital cross-connect system revenue. (Is the 5500 finally dead?)

DCITDave 12/5/2012 | 4:50:35 PM
re: Tellabs Slowdown Surprises Street

I mean surprised in the technical sense as in, they didn't meet forecasts. No comment on whether I was personally shocked and amazed. :)

paolo.franzoi 12/5/2012 | 4:50:34 PM
re: Tellabs Slowdown Surprises Street


Not a complaint about the story - but we need to stop talking about the consensus estimate of a group of morons...err sell side analysts being meaningful.  Might as well talk about a group of lobotomized tree stumps.



Edit:  For example here is a real question...Hey Rob...You say 90% of your R&D spending, which is UP year over year, is going to your growth products.  But your Growth Revenue is DOWN.  Kinda a problemo there eh?  Are your engineers just bad or are they being directed to develop bad products?

^Eagle^ 12/5/2012 | 4:50:34 PM
re: Tellabs Slowdown Surprises Street

Note my comments in my previous post could equally be applied to ALU, Ciena, HP, Oracle and many other makers of hardware communications platforms and computing systems.

Where is the leadership?  Where are the great ideas?  Where is the innovation?  Where is the tech that is disruptive and can create new applications.  Where are the things that can make a company really shine and grab market share from low cost nearly slave labor chinese suppliers and outsource manufacturing locations in the east?


^Eagle^ 12/5/2012 | 4:50:34 PM
re: Tellabs Slowdown Surprises Street

bashing is so easy to do.

I am more interested in clear thinking about what could be done to revamp the technology / products to make the company competitive.  and no, I do not mean twiggling at the margins or same old worn out strategy of more layoffs and cost cutting.

We need to make USA telecom manufacturers world leaders once again.  

So, what really would all you business experts out there reccommend?  Again, for the sake of this discussion, I am taking off the table items like layoffs and cuts.  Also taking off the table more outsourcing to china et al.  And taking off the table for this discussion the old tired worn out complaint by some parties that "regulation is killing us..."

I am looking for innovation ideas, ideas that can bring a market leading position, ideas that are long term winners.  In other words, constructive comments.  Not interested in comments that would only please a short seller.

We need to strenghten our industries and technology base and become competitive again.  And make good ole' american good paying jobs.


^Eagle^ 12/5/2012 | 4:50:33 PM
re: Tellabs Slowdown Surprises Street


Indeed.  I have wondered for a long time about why we all seem to listen to these analysts who really have almost no clue about what is really happening in the world of technology and communications.

the bottom line is that yes, some companies might be mismanged (eg your comments re Tellabs), but the real issue is our trade policies and the pirating of technolgy by near slave labor manufacturing centers in Asia and elsewhere.  Decimates jobs, and decimates innovation.  If you cannot make a profit, you cannot afford to invest in innovation.  If workers cannot pay their bills and keep a good job in this country, they cannot send their kids to college and we dramatically affect innovation and breakthrough thinking for generations.

None of those other players in the east are really innovating anything.  They are just figuring out how to make things really cheap by what is essentiall indentured workers living in company towns / company housing, not too unlike what we had in coal towns and garmet work districts in the USA a hundred years ago.  Including child labor.




Scott Raynovich 12/5/2012 | 4:50:33 PM
re: Tellabs Slowdown Surprises Street

This about says it all about Tellabs:

Return on Equity (12 months): .09%

Profit margin: .11% (note the decimal)

Book value (shareholder equity) has gone nowhere in two years.

Liabilities have grown from $559M to $$663M.

Debt has increased.

Profits have decreased.

Now they are losing money again.

In other words, financially, they have been destorying shareholder value.


Scott Raynovich 12/5/2012 | 4:50:33 PM
re: Tellabs Slowdown Surprises Street

Brookseven -- right-on about the sell-side. You can made steady money taking the opposite view.

Take a look at Netflix, they were rushing to upgrade over $200 and now that the stock collapsed many of them still have it at "overweight," when it is now trading noticeably underweight at $75.

Surely they will all rush in to downgrade near the bottom.

Why are they still able to play these games?

paolo.franzoi 12/5/2012 | 4:50:33 PM
re: Tellabs Slowdown Surprises Street


So a bit of a rant...

A man's got to know his limitations - Dirty Harry in Magnum Force

Here is the thing.  Companies have to know what they are, what they have and what they don't have in the coldest of cold lights.  You can not be too blunt about where you are.  I expect them to "sell" a better story to the street.  But internally, they have to have a cold hearted realism to where they stand.

I worked at Tellabs.  I listen to their calls.  Here is the thing:  They are investing heavily in Routers.  I count them as the number 7 router player on the planet (Cisco, Juniper, Alcatel, E, Huawei, ZTE all ahead of them).  Now step back in time to 2002 and most of those players were in the same spot as Tellabs or worse.  They did the Vivace acquisition poorly and managed it in an awful way.

I remember the first time I went there (to Vivace) after we were acquired and they were stunned by how much business our simple access boxes did.  I pointed out to them that they needed to get to double our business for Tellabs to survive the way it was.  Which is the whole problem - Tellabs can not survive the way it was.  The death that will come to it will be trying to return to the glory days of the 5500 instead of trying to carve a new and different future.

And that is the heart of the problem with this company.  Instead of trying to change the company to match the business that it had, they are trying to make businesses that match the profile of the business that they used to have in the heady days of a $2B/year crossconnect business.

In my mind, comm equipment left innovation a long time ago.  We are now down to the incremental improvement business.  My old boss at Tellabs (not part of the inner core) described the business as being like the airplane manufacturing business.  Very high tech but low margin with a few huge players and some side players occupying niche markets. 

If you don't believe that model, then let us try this on for size.  How many companies are there that could buy Tellabs (when we started to sell AFC we thought there were 7 companies that could buy us).  Outside of the Chinese, why would any of the bigger players acquire Tellabs?  Now you can say, "Well don't build your business on your acquisition value."  And you would be right.  BUT....think about Starent.  They got acquired because they went after something unique.  When was the last time Tellabs led anything:  The 8600?  FiOS BPON?  You have to sell when you are a leader and you have to build the company to be a leader.

But is there a new router category for which any of those 6 bigger router vendors do not have a play?  Nope.  And all of those guys have bigger reach then Tellabs.  So, what will Tellabs do to make one of those companies buy it or at least value it highly?  Because if one of them did it would be because the customers did.  And that my friend would cause shareholder value. 



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