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Tellabs Beats on Bottom Line

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Tellabs Inc. reported fourth-quarter 2012 adjusted (excluding special items) earnings per share of one cent, beating the Zacks Consensus Estimate of a negative 2 cents. On a GAAP basis, net loss in the fourth quarter was $23 million or a loss of 6 cents per share wider than a net loss of $5 million or 1 cent per share in the prior-year quarter.

Total Revenue

Quarterly total revenue of $242.2 million was down 30.9% year over year, and also below the Zacks Consensus Estimate of $250.0 million. All the four reporting segments of Tellabs witnessed declines in annualized sales.

During 2012, the company reported total revenue of $1,052.6 million compared with $1,285.7 million in 2011. Adjusted (excluding special items) earnings per share stood at $1 million in 2012 as compared to a net loss of $8 million in 2011.

4Q Segment Details

Optical Segment

The Optical segment revenue stood at $97.2 million, down 14.2% year over year. The decline was primarily driven by significantly lower sales from the Tellabs 5000 digital cross-connects systems, Tellabs 6300 managed transport systems and Tellabs 7100 optical transport systems. Optical segment profit was $22.3 million compared with $26.2 million in the year-ago quarter. The decline in segment profit was attributable to lower overall revenue.

Data Segment

Total revenue generated by the Data segment was $52.2 million, down 48.4% year over year, hamstrung by lower sales of the Tellabs 8100 managed edge systems and the Tellabs 8800 and 8600 multiservice router series. The segment generated a loss of $8.6 million, compared to a profit of $1.2 million in the prior-year quarter. Segmental loss resulted from lower overall revenue and lower gross margin.

Access Segment

Total revenue of the Access segment was $41.0 million, down 5.3% year over year.  The decline in revenue was attributable to lower revenue from Tellabs 1600 single family Optical Network Terminals (ONTs) partially offset by increased revenue from Tellabs 1000 and 1100 access systems. The segment’s profit surged to $8.4 million, from $7.5 million recorded in the prior-year quarter, buoyed by better product gross margins.

Services Segment

Total revenue of the Service segment was $51.8 million, down 12.2% year over year, hurt by lower revenues generated from the deployment services and support systems. The segment profit rose to $22.0 million, from $20.9 million in the prior-year quarter, mainly due to improved service gross margins.

Other Highlights of the Release

Quarterly Non-GAAP gross margin was 42.2% compared with 39.4% in the year-ago quarter. Non GAAP Operating expenses, in the reported quarter, were $99.4 million compared with $96.6 million in the prior-year quarter.

During 2012, Tellabs generated $45.1 million in cash from operations against a consumption of $49.1 million in cash from operations during 2011. Free cash flow, during 2012 was $13.7 million compared with a negative $114.3 million during 2011. Tellabs exited the quarter with $604.4 million of cash and marketable securities on its balance sheet compared with $976.6 million at the end of 2011.

Geographic Distribution

In the fourth quarter of 2012, North American region generated $132.1 million (55% of total revenue) in revenue compared with $146.1 million recorded in the prior-year quarter. The rest of the world generated the remaining $110.1 million (45% of total revenue) in revenue compared with $170.7 million recorded in the year-ago quarter.


Management expects the company’s first-quarter 2013 revenue to be in the range of $205 million to $220 million. Non-GAAP gross margin is expected to be 34%, plus or minus 1 or 2 percentage points, based on product mix. Non-GAAP operating expenses are expected to be flat or down compared with fourth quarter of 2012, while non-GAAP tax rate is expected to be around 32% for the upcoming quarter.

Financial Release of Related Company

One other stock to consider in this industry is Juniper Networks (JNPR - Free Report) . Juniper’s net earnings of 17 cents managed to beat the Zacks Consensus Estimate of 15 cents in the most recent quarter.

Other Stock Set for Earning Releases

Another related stock InterDigital Inc. (IDCC - Free Report) is about to release its financial results on Feb 13, 2013. Currently, InterDigital carries a Zacks Rank #2 (Buy).

Our Take

We belive, Tellabs will benefit from the demand from wireless operators as they continue to upgrade their network to support the significant surge in data traffic around the world. Additionally, the company has decided to reduce its expenses and will cut 300 jobs, thereby resulting in improved margins going forward.

Our major concern for Tellabs is the increasing competition in its core wireless backhaul solutions segment. The company has already lost a significant amount of business from its most important customer AT&T Inc. (T - Free Report) .

Currently, Tellabs carries a Zacks Rank #3 (Hold).

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