Tags: Tellabs | TLAB | telecom | Internet | stocks

Tellabs: Tough Time in a Tough Market

By Dan Weil   |   Wednesday, 29 Jun 2011 11:43 AM

The telecommunications sector is exploding, but that means competition in all areas is intense. Tellabs (TLAB), which provides networking equipment that telecom service providers use to manage voice and data traffic on their networks, is feeling that competition as much as anyone. Tellabs’ primary products are digital cross-connect systems, which carriers use to improve network efficiency, and optical access equipment, which carriers are installing to provide faster broadband access.

Tellabs experienced a difficult first quarter, with a net loss of $24.1 million, reversing a gain of $45.6 million in the first quarter of 2010. Revenue dropped 15 percent to $322 million.

“While international revenue grew 40 percent from a year ago, lower revenue in North America drove Tellabs’ first-quarter results,” Tellabs CEO Rob Pullen said in a statement accompanying the earnings report.

“Going forward, we will continue to invest in the smart mobile Internet through increased R&D spending to position Tellabs for long-term growth.”

Indeed, Pullen stressed research and development in a conference call with analysts. “What you see this quarter reflects our conscious decision to increase our investment in R&D and drive our strategy to make Tellabs one of the top companies in the mobile Internet,” he said.

“Right now, Tellabs is making major investments in R&D to extend our existing platforms and launch new ones for the smart mobile Internet. Smart mobile networks will include our Smart Mobile Backhaul, smart packet core and analytics using our deep packet inspection technology.”

Mobile future

With about $1 billion in net cash, the company has the wherewithal to see its strategy through. But given the intense competition in Tellabs’ markets, the company is unlikely to produce superior profits.

With all that competition, it’s no wonder that Tellabs’ shares sit near the bottom of their 52-week range, notes William Power, an analyst at Robert Baird. All 23 analysts tracked by Thomson/First Call rate the stock a hold.

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The telecommunications sector is exploding, but that means competition in all areas is intense. Tellabs (TLAB), which provides networking equipment that telecom service providers use to manage voice and data traffic on their networks, is feeling that competition as much as...
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