Tellabs likely to pour more R&D into AFC FTTP

Once it has merged with Advanced Fibre Communications, Tellabs is likely to apply more of its total research and development resources to AFC’s access products, especially its fiber-to-the-premises (FTTP) equipment, Tellabs Chief Financial Officer Tim Wiggins said in a presentation at the Bank of America investment conference.

“When we look at where should we spend our R&D dollars for growth, we’ll come up with a different answer when we have both access and transport products,” Wiggins said. “Something that might have made the grade for growth at Tellabs won’t make the grade [at the merged company]. We think we’ll look for ways to take R&D dollars out of the Tellabs space and put them in AFC’s space.”

“I think [AFC’s] team thinks some additional focus in [FTTP] would pay dividends, and I think [Tellabs CEO] Krish Prabhu thinks that’s the case as well,” he added. “I think we can provide [AFC] some relief there.”

In the second quarter of 2004, Tellabs spent $61.1 million, or about 20% of revenues, on R&D. During its earnings teleconference, the company reported having divided its R&D funds in the following way: 40% was spent on data platforms, 30% was spent on transport platforms, 15% was spent on product enhancements such as its feature pack 9.0 and the remaining 15% was spent on “maintenance.”

In its second quarter, AFC spent nearly $23 million, or about 19% of revenues, on R&D.

“Can we do something to shore up their [digital loop carrier] space, whether ADSL2 or create some [other] opportunities? I think there’s more legs there,” Wiggins said, in response to an audience member’s question about where else R&D might be spent. “We’re being told some additional attention there would do wonders.”

Wiggins added that he hoped the Tellabs/AFC merger would close quickly. “We don’t have any issues I’d consider screaming line-drive problems,” he said.