Tellabs Looks to Europe

Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) ended last week with news that it expects revenues to sink 15 percent to 25 percent this quarter (see Tellabs Lays Off, Warns). It started this week with a rollout of products aimed at the Western European market (see Tellabs Targets Ethernet-Over-Sonet).

The two news items show that optical vendors are now looking outside the U.S. for traction, say analysts.

Let's start with the warning. Tellabs, whose report of $345 million in sales was a relief from a stream of otherwise terrible news last quarter (see Tellabs 'Stays the Course'), was hoped by analysts to be on track for a flat report this quarter. Now, though, it's anticipating a loss, due to reduced North American carrier spending.

Tellabs is cutting 800 jobs, half in North America and half elsewhere, thereby reducing its overall workforce by about 14 percent. It's closing a plant in Shannon, Ireland, where echo cancellers and some other voice enhancement products are made, and moving the manufacture of those products to Espoo, Finland, and Bolingbrook, Ill. Charges of about $110 million will be recorded this quarter related to the news.

Tellabs' news is disappointing but not surprising, analysts say. "It's consistent with what we hear across the industry," says George Notter of Deutsche Banc Alex Brown LLC. Nortel Networks Corp. (NYSE/Toronto: NT) is guiding Wall Street to a 10 percent sequential drop, he says. ADC Telecommunications Inc. (Nasdaq: ADCT), which issued its own press release pointing to Tellabs' (see ADC Comments on Tellabs' Warning), has implied to analysts that it expects a falloff of about 16 percent this quarter, Notter notes. Ciena Corp. (Nasdaq: CIEN) has seen business fall off dramatically (see Ciena Follows the Incumbents), and it's repositioned itself to cater to international incumbents.

Which brings us to the second part of Tellabs' news. Like Ciena, Tellabs also recently underwent a regrouping to aim for the international market, particularly Europe (see Tellabs Reorganizes). Today's announcement is the first news to emerge since that restructuring. It's primarily aimed at carriers and enterprises that want to replace time-division multiplexed (TDM) leased lines with faster, cheaper Ethernet connectivity that also incorporates Sonet (Synchronous Optical NETwork) and SDH (Synchronous Digital Hierarchy) protection and management.

Tellabs' 6300 transport switch will be equipped with the ability to send Ethernet traffic over SDH channels. Specifically, by the end of this year, Tellabs expects to be able to funnel gigabit Ethernet into VC-12 (2 Mbit/s) or VC-4 (155 Mbit/s) channels. The Ethernet 6300 additions, called the Tellabs 6340 switch node and 6310 edge node, support virtual concatenation, a method of glomming together small Sonet channels to create larger Ethernet pipes without wasting bandwidth.

The new gear also will support Generic Frame Protocol (GFP), a method of mapping any kind of traffic onto Sonet/SDH, and, by the end of 2003, GMPLS (generic Multiprotocol Label Switching (MPLS)), Tellabs says.

Tellabs announced virtual concatenation for its Sonet gear at the Supercomm tradeshow in June (see Tellabs Comes Ready to Play). And the company says European markets typically lag North America by six to eight months. Still, Tellabs says its motivation in announcing Ethernet-over-SDH isn't just to flesh out the same thing for Europe. Instead, it's following a market, a spokesperson says.

Tellabs certainly isn't alone. Startups like Appian Communications Inc., as well as older players like Nortel and ECI Telecom subsidiary Lightscape Networks Ltd. also offer Ethernet-over-SDH gear with virtual concatenation capabilities. And some say customers are looking to replace leased lines with Ethernet more eagerly in Europe than stateside.

"Do we see the trend accelerating in Europe compared with North America? Yes. Do we see it as contributing to recovery? Yes," says Karen Barton, VP of marketing at Appian. She's not sure where to attribute the European market strength, but she says there appears to be a bit more money to spend among European carriers, possibly because they didn't subscribe to the bubble as expansively as their North American counterparts did.

Others agree. "Apparently, Europe is doing OK and Asia is doing really well," writes analyst Steve Levy of Lehman Brothers in an email today.

If no one thinks the 6300 enhancement will boost Tellabs' earnings this quarter, some think it's certainly a stab in the right direction. "I would say we see global demand for Ethernet over Sonet/SDH, it's one of the things carriers like to talk about the most," says Emanuel Nachum, acting president of Lightscape Networks.

But these days, few are willing to say when carrier interest in any part of the globe will translate into an upturn or even a bottom for plummeting spending. "I'm really hesitant to call a bottom. Analysts who've tried to call a bottom have been wrong for a year and a half," George Notter says. "I envision nothing will change a terrible amount going forward."

— Mary Jander, Senior Editor, Light Reading
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gtjohnso 12/5/2012 | 3:25:58 AM
re: Tellabs Looks to Europe I can supply these.
Steve ABT 12/5/2012 | 3:25:58 AM
re: Tellabs Looks to Europe We have 1630 partial, whole and individual cards available if you're still interested. We do have the 3AL11008AA (LMU 101) instock.
Steve McNeill
lightstalk 12/5/2012 | 3:25:54 AM
re: Tellabs Looks to Europe Please look at the date on the earlier posts. :)
Steve ABT 12/5/2012 | 3:22:16 AM
re: Tellabs Looks to Europe I have up to 100 of the 3AL-11008-AA
Heci: SNCBAVXEAA available if your are still in need.
Steve McNeill
Rhosford 12/5/2012 | 12:51:51 AM
re: Tellabs Looks to Europe I am looking to stock cards for the ALcatel 1630. Is the 3AL11008AB (LMU102) a substitute for the 3AL11008AA (LMU 101), We were offered this as a sub and I need to verify this.
We are using Software release 8.1
burrtd 12/5/2012 | 12:51:50 AM
re: Tellabs Looks to Europe There has to have been a functional change or the customer wouldn't be able to see the part number variant change. The optical interface might be different or it is the board they replaced the Nikki ASIC with a cooler running ASIC. Back plane
connections will be the same. If it is the ASIC only then they might be compatible (software wise) with the LMU 101
burrtd 12/5/2012 | 12:51:50 AM
re: Tellabs Looks to Europe I believe they are they only difference would be the Niki ASIC was replaced with a cooler ASIC.
I worked with the guy who designed this module.
Rhosford 12/5/2012 | 12:51:49 AM
re: Tellabs Looks to Europe Would you know if the application would be the same? The 3AL11008AA is a Near End PM and the 3Al11008AB is a Far End PM
burrtd 12/5/2012 | 12:51:47 AM
re: Tellabs Looks to Europe My guess it has to do with long reach and short reach optics. Look at the optics and it they are different part number then this is the case. And it can be confirmed by looking up the part number and seeing if they are long reach and short reach. The long reach have a greater power output that can burn up a receiver that is looking for a short reach power value. It is only a guess.
grapsfan 12/5/2012 | 12:51:45 AM
re: Tellabs Looks to Europe This may seem like a bizarre question, Rhosford, but why don't you ask your friendly neighborhood Alcatel account manager for your company? I mean, you can probably get the right info here (hell, better shot here than Alcatel, maybe), but that's his job to take care of you like that. At least, it should be. It is at the company I work for.
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