Company looking to retrench from core backhaul as business falls off
Looks like losing out on the AT&T “domain” vendor procurement plan is coming back to haunt Tellabs. The telecom stalwart posted a disappointing fourth quarter in which it earned only $6 million compared to $36 million for the same period a year ago.
Quarterly revenue increased 5.4% to $410.5 million. Analysts had been expecting revenue of about $418 million and earnings of $32 million.
Tellabs’ first quarter guidance also disappointed. The company offered a revenue range at $315 million to $335 million, which falls far short of the $402.4 million expected by analysts. Q1 guidance also 18% to 23% lower than Q4, and off 12% to 17% from the first quarter of 2010.
As a result, Tellabs’ stock tanked, dropping 19.5% as of 3pm today. Some analysts attributed the quarterly shortfall to Tellabs missing out on the AT&T mobile backhaul domain business, which was awarded to Cisco and Alcatel Lucent.
Said Morgan Stanley analyst Ehud Gelblum in an article from MarketWatch today:
“As AT&T migrates aggressively toward Ethernet, we believe Tellabs’ current growth engine and margin driver … loses share to cheaper Ethernet-only competitive solutions from Cisco and others.”
Morgan Stanley was the same firm that wrote last summer that Tellabs was about to lose a key piece of business to Cisco at AT&T. Morgan Stanley at that time said AT&T accounted for about 40% of Tellabs’ revenue, but Tellabs said the carrier was responsible for about half that, with Verizon making up 30%.
Tellabs had been expected to lose some business at AT&T as the carrier winnowed down its vendor roster from 150 to 16.
In remarks to analysts on the Q4 conference call, Tellabs CEO Rob Pullen said his company is managing a core mobile backhaul business in “secular decline,” and focusing now on growth opportunities in the mobile Internet, according to MarketWatch:
“So where is Tellabs today? We are managing a core business in secular decline,” Pullen said. “That’s also as we nurture the growth of new and more global business. We will manage this transition.”
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