C&W deployment of Tellabs 8800 halts

A major customer deployment of Tellabs' 8800 broadband data product halted this week, CEO Krish Prabhu revealed at an investor conference today, though he affirmed the company's ambitious 2005 sales goals for the gear.

Tellabs first announced a deal with Cable & Wireless in June. But after the carrier's subsequent acquisition of Energis, announced this summer, C&W added new requirements to the deal and accelerated the timetable for delivery, Prabhu said. As a result, Tellabs has been negotiating with C&W over the past two weeks, and late yesterday "we both agreed" to suspend acceptance testing and deployment, he said. "We had to make a tough call."

In October, UBS Investment estimated the C&W deal to be worth $20 million to $30 million annually for three years.

However, despite the news, Prabhu did not revise the company's goal of selling $60 million worth of the new equipment this year. As of the third quarter, Tellabs has reported about $30 million in revenue from the product so far.

"The $60-million [target] is certainly doable," Prabhu said, but he implied that it might be at least partly contingent on whether the vendor can close a particular unannounced deal for a fixed-mobile convergence application with a top-tier European carrier before the end of the year.

"When we recognize revenue on a new product, our revenue recognition policies limit us from accepting revenue without formal acceptance [of the product] from customers," Prabhu said. "If acceptance is signed before the end of the year, we'll be on track for $60 million [in 8800 revenue]. If not, we'll be somewhat exposed."

The 8800 product, which Tellabs inherited through its 2003 acquisition of Vivace Networks, has been a particular focus of investors who argue that Tellabs will depend on such next-generation gear to offset anticipated future declines in the vendor's traditional optical crossconnect business.

"This is the business the spotlight's on," Prabhu said of the 8800 today.