Tellabs, Adtran: Earnings Mixed Bag

Broadband access growth is all the rage right now, but acquisitions and seasonal slowdowns are creating a mixed picture for vendors Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) and Adtran Inc. (Nasdaq: ADTN), which both reported their fourth-quarter and full-year earnings today.

Tellabs reported a fourth-quarter loss, thanks to costs associated with its acquisitions of Advanced Fibre Communications Inc. (AFC) and Vinci Systems (see Tellabs Vacuums Up Vinci). In addition, the company didn't exactly paint a bullish picture of the future: It announced more layoffs, facility closures, and an asset writedown related to its acquisition of Ocular Networks.

First the numbers. Tellabs posted a net loss of $139 million, or 32 cents a share, on revenues of $379 million for the fourth quarter of 2004. On a pro forma basis -- excluding the charges related to its acquisitions -- the company earned $41 million or 9 cents a share (see Tellabs Ups Q4 Revenue).

Analysts were expecting the company to earn 9 cents a share on $344.3 million, so Tellabs matched the EPS estimate and beat the revenue number.

A year ago, Tellabs lost $23 million, or 6 cents a share, on revenues of $279 million, during the fourth quarter of 2003.

For the full year 2004, Tellabs' revenues grew a whopping 26 percent, but the company still lost money. The company lost $30 million, or 7 cents a share, on revenues of $1.23 billion. This compares to the $980 million in revenues that the company reported in 2003.

During the quarter, Tellabs wrote down $47.2 million worth of assets and intangibles from Ocular Networks, which it acquired in 2002 (see Tellabs Nabs Ocular). The company also closed AFC's facility in San Jose, which came to it from the 2002 acquisition of AccessLan (see AFC Goes Multiservice).

Tellabs is cutting a total of 110 jobs in the U.S., 60 of which were related to the AccessLan facility shutdown. As already reported by Light Reading, Tellabs has been quickly restructuring its international operations and will eliminate as many as 210 jobs from its facilities in Denmark and Finland (see Headcount: Mama Mia!).

Analysts expect yet more cost cuts ahead for Tellabs as it continues to absorb its acquisitions and trim its losses. "We believe TLAB will repeat recent history and respond to the lower profitability with aggressive cost cutting," writes J.P. Morgan Chase & Co. analyst Ehud A. Gelblum.

As for Adtran, the story was a bit less dramatic, but still an odd mix of seasonal hiccups and brisk sales (see Adtran Reports Q4). In fact, some analysts are questioning how big the company's near-term growth will be.

Adtran's full-year sales jumped 15 percent, and its full-year profits grew an impressive 23 percent. But the company's customers appeared to hit the brakes in the last half of 2004. Sales for the second half of the year were down 6 percent from the first half.

For the full year 2004, Adtran earned $75.4 million, or 93 cents a share, on revenues of $454.8 million, compared to earnings of $61.5 million, or 76 cents a share, on revenues of $396.7 million during 2003.

The equipment vendor reported a profit of $14.9 million, or 19 cents a share, on revenues of $104.9 million for the fourth quarter of 2004. That compares to the $21.4 million, or 26 cents a share, it earned on revenues of $113.8 million during the year-ago quarter. The company's earnings beat analysts' earnings expectations by 2 cents.

Adtran chairman and CEO Mark Smith says the company "saw a pause in our markets in the last half of 2004."

"We anticipate this pause will resolve itself as employment and IT spending continue to expand and as carriers continue to aggressively promote consumer broadband services," he says.

Shockingly, Smith didn't comment on his company's recent inclusion in the Light Reading Index (see LR Index Gets Fresh Blood).

"While the company has had a history of successful execution, we are concerned that the niche segments (DSLAM, low-end routers, optical mux) targeted for growth may not be big enough to impact financials in the near-term," writes Merrill Lynch analyst Vivek Arya.

Shares of Adtran climbed $1.24 (7.87%) to $17.00 on the soothing earnings news. Tellabs went the other direction, with its shares falling $0.21 (2.75%) to $7.44 in midday trading on Tuesday.

— Phil Harvey, News Editor, Light Reading

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