Tellabs CEO Sees 'Tough Sledding'

CEO Michael J. Birck of Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) continues to hope for better things next year. But he acknowledges that, in the meantime, being CEO of a leading telecom supplier is no picnic.

"It was a helluva lot more fun in the latter part of the 90s," Birck quipped during an interview with Light Reading after today's third-quarter earnings presentation.

Birck served as CEO of Tellabs from 1974 through 2000. After a two-year stint as chairman of the board, he took the helm again when Richard C. Notebaert ended his brief tenure as chief exec to head up Qwest Communications International Inc. (NYSE: Q) (see Notebaert Takes Out Nacchio).

"It's an awful time... It's tough sledding," Birck told analysts today. Tellabs' latest earnings punctuate the observation (see Tellabs Reports Q3). The company reported $288 million in sales, 16 percent lower than last quarter's sales and 22 percent lower than the first quarter's (see Tellabs 'Stays the Course' and No Surprises From Tellabs). Excluding restructuring and other charges, Tellabs showed a pro forma net loss of $17 million, or $0.04 for the quarter, versus $565,000 in pro forma net income (resulting in $0 per share) the preceding quarter.

On the plus side, the company reported seven new customers (up from one, last quarter) for the Tellabs 6400 metro transport switch, a strategic product acquired through Ocular, whose ex-CEO Edward Kennedy now heads up a new Tellabs metro networking group as part of a recent management regrouping (see Tellabs Regroups, Promotes Kennedy).

Birck noted that the 6400 recently completed the Osmine process at Telcordia Technologies Inc., furthering its chances with U.S. incumbent LECs (see Tellabs Trumpets Osmine). "It's a bit like going to the dentist," he said of the process. "You have to do it, and it's expensive, but without it, you don't fare so well."

All told, though, sales of optical products, including the 6400, the 6500 transport switch, 5500 crossconnects, and the 7100 DWDM platform, were down 29 percent sequentially. Interestingly, there was a 4 percent uptick in sales of broadband access equipment, including the company's 8100 SDH access system and 6300 SDH transport switch, as well as the 2300 series of cable telephony gear.

Birck thinks the droop doesn't mean much. “The numbers are too small to show a trend. It’s just the vagaries of the market,” he told Light Reading. Indeed, the upsurge in sales of Tellabs’ international gear isn’t anything to rave about, either, he notes. While Tellabs continues to want the international market to contribute between 30 and 40 percent of sales (it was 31 percent this quarter), Birck says it’s not a panacea. Indeed, things are getting worse in areas like Latin America, he notes. And “I certainly don’t want to see international sales higher because domestic ones are slower."

Tellabs issued no guidance, though Birck says he hopes for better things next year. “Levels should be higher, maybe not gloriously so."

Throughout today’s events, Birck maintained his plainspoken demeanor. Here are some more of his thoughts:

  • On the future: “This industry will be different, it’s changing… There has to be more focus and intensity, a more compressed industry.”
  • On the North American regulatory situation: “The Feds have to get out of the act. Let the weak players go, allow competition to take over.”
  • On his successor: “I’m not seeking a successor… but we’re putting some people to the test inside the organization.”
  • On how he copes: “I keep Maalox around and lots of aspirin."
  • On his focus: "There needs to be an absolute focus on expenses, it's crucial, including executive salaries and bonuses. We're relentlessly examining all areas.”
  • On what else to do during the downturn: "Staying close to customers is important, even if they're not buying. I spent an uncomfortable hour recently with WorldCom. Still, you do that. When they get better and get the checkbook out again, we'll be there."

— Mary Jander, Senior Editor, Light Reading
optical 12/4/2012 | 9:31:21 PM
re: Tellabs CEO Sees 'Tough Sledding' Some very sound advice in this interview from the type of CEO that will deliver this troubled market out of the mess that it is in. Tellabs may not be the sexiest company out there, but they are what is need... no debt, results as opposed to just hype. Good article LR.
BobbyMax 12/4/2012 | 9:30:59 PM
re: Tellabs CEO Sees 'Tough Sledding' Going back a number of decades, there is a clear sign of devastation of certain industry or professions. There is not a single industry, services, and professions that have been affected by the US Governments or its agents.

What we are seeing is not a simple or temporary downturn. The telecom downturn is permanent and very transparent. There does not appear to be any solution to the current problems that have afflicted the twelecom industry.
rjmcmahon 12/4/2012 | 9:30:56 PM
re: Tellabs CEO Sees 'Tough Sledding' Technology providers will have no choice but to abandon and rip up the copper. The following article discussing GM and the auto industry gives hints at the future of legacy monopoly bit distributors. Fortunately, this time, air pollution and our dependency on foreign natural resources will be eased and not exacerbated.


Ripping Up Rail
Auto Industry Conspiracy
Finished Off the Streetcar

If you're from Detroit, you don't have to be ancient to remember an era before World War II when electric trolley service was so good that passengers on the Jefferson Avenue line waited just minutes between trains. As late as the 1940s, people who lived in Detroit GÇö or for that matter in Grand Rapids, Kalamazoo, or Battle Creek GÇö did not need automobiles. Trolley lines, owned and managed by private companies, provided remarkably efficient, nonpolluting, and low-cost transportation within cities and from city to city.

Cause of Death

Trolleys and commuter trains and buses were mainstream modes of transportation before sprawl put miles of travel between homes and everyday activities, such as grocery shopping and basketball practice. In 1945, according to the Detroit Free Press, the city's transit system carried 492 million riders, most of them on electric trolleys. In contrast, some 70 million riders use Detroit's public transportation system today, and they have only one choice: Buses.

Why did trolleys vanish in Detroit and every other city that had them? The advent of the automobile made traveling long distances easy and convenient. State and federal policies encouraged massive taxpayer investments in new roads and discouraged public support for private urban transit companies. Working families sought larger homes and more space. The result was a flood of people that flowed from city neighborhoods, where they had walked to street corners to catch trolleys, out to far-flung suburbs where empty roads encouraged driving.

Sales Trick

But new technology and government subsidies did not alone kill off the public transit systems that once served Michigan. One more salient factor sealed the streetcar's fate and simultaneously laid the foundation for America's current predicament of near-total reliance on cars. It was a big business conspiracy launched during the Great Depression that finished off the nation's public transit systems and which continues today to have costly and damaging implications.

In 1932, General Motors formed the first of two private companies, United Cities Motor Transit, to buy urban streetcar lines, tear them up, and substitute buses the company manufactured. When the American Transit Association criticized United Cities for attempting to tear up Portland, Oregon's electric transit system, G.M. closed the company temporarily because of fears of a political backlash.

G.M. returned to its sales strategy in 1936 by forming National City Lines, a new private company jointly owned by G.M., Firestone, Standard Oil of California, Mack Truck, and Phillips Petroleum. According to testimony from congressional hearings and a federal court case, between 1936 and 1956 National City Lines bought, dismantled, and replaced 100 electric rail systems in 45 cities with buses. Detroit, Kalamazoo, and Battle Creek were among the places that National City Lines targeted. G.M. also owned Omnibus Corporation, which in 1935 converted New York's extensive streetcar system to buses.

Guilty Verdict

In 1949 the United States found G.M., Standard Oil, Firestone, Mack Truck, and Phillips Petroleum guilty of anticompetitive behavior in violation of the Sherman Antitrust Act. What the court called a "criminal conspiracy" proved ultimately to be a splendid business investment for the perpetrators. G.M., Standard Oil, Firestone, Mack Truck, and Phillips Petroleum have since realized hundreds of billions of dollars in product sales connected with motorized transportation. They were fined only $5,000 each.
rjmcmahon 12/4/2012 | 9:30:56 PM
re: Tellabs CEO Sees 'Tough Sledding' There does not appear to be any solution to the current problems that have afflicted the twelecom industry.

Any complete solution will flip the assumption of bandwidth scarcity and replace it with bandwidth abundance. Speech tariffs and fraudband will not be a significant part of the answer. Market generated revenues will come from content, applications, and services, which require real broadband and the replacement of the Cu last mile.

Unfortunately, for the next 50 years, bit distributor businesses will face challenges as difficult as those faced, over the last 50 years, by urban home builders constructing in Detroit proper. The prudent will accept this reality, abandon the historical copper loop and legacy TDM infrastructure, and begin to build the new infrastructures and new businesses which will serve the infant but growing markets.
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