Tellabs Warns; Shares Recoup Losses

Shares of Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) showed surprising strength after the company preannounced disappointing first-quarter results on Wednesday.

Tellabs shares had been down as much as 3, or six percent, in the morning, but recovered toward the end of the day and closed at 48.44, up 2.75 (6.02%).

Company officials cited lower than anticipated revenues from the Cablespan product and conservative revenue recognition for the Titan 6500 product as reasons for the weakness.

Management said the company expects $830 million to $865 million in revenue and 0.35 to 0.38 EPS (earnings per share) in the first quarter. For the full year (2001), management now expects revenues to come in between $4.35 billion and $4.4 billion, with earnings in a range of 2.13 to 2.17 a share.

Company officials also noted that weakness in Cablespan sales accounted for half of the quarterly shortfall. Meanwhile, the Titan 6500 product has been well received in the marketplace, according to the company. Revenue recognition on initial shipments was delayed due to lengthy initial acceptance testing during the quarter, said company officials.

In terms of business segments, optical networking is expected to grow between 35 and 40 percent year-over-year in the first quarter. This projection would be above Tellabs’ average of 30 to 35 percent, but below previous expectations. Broadband Access sales are now estimated to increase by 8 to 10 percent in the first quarter, while Next Generation Switching is expected to drop by 25 to 30 percent year-over-year.

In a research note issued March 8, Credit Suisse First Boston analyst James Parmelee left his estimates unchanged, noting that they had been revised downward on February 16. Parmelee maintained his first-quarter EPS estimate at 36 cents on $815 million in revenues, and is keeping an earnings forecast of $2.00 a share on $4.1 billion in sales for the year.

“We continue to believe next-generation product momentum is critical to TLAB outlook," writes Parmalee. He also notes that the Titan 6000 product series should account for 20 percent of growth in the optical networking division for the full year. Parmelee believes that “despite the estimate revisions, management’s guidance remains aggressive within the context of the current service provider spending environment.”

Other analysts followed with cautious comments, but Salomon Smith Barney was the only brokerage house to downgrade Tellabs shares (to Outperform from Buy). UBS Warburg lowered their price target but did not downgrade the stock. W.R. Hambrecht & Co. maintained a Neutral stance, while reducing estimates, and Robertson Stephens lowered estimates and maintained a Long Term Attractive rating. -- Christopher P. Bulkey, special to Light Reading http://www.lightreading.com