Tellabs turns first profit in two years

Tellabs reported its first profitable quarter in two years today on revenues of $264 million, a 19% increase from the year-ago quarter.

"This is my first Tellabs earnings call," said the company’s new CEO, Krish Prabhu, who joined Tellabs nine weeks ago, "and I couldn’t have asked for a better quarter."

The revenue increase came chiefly from a surge of sales to wireless carrier customers in North America, the company said. Tellabs’ North American revenue jumped 20% from the year-ago quarter, and the fraction of the company’s revenue coming from North America rose to 65% in 2004’s first quarter from 60% in 2003’s last quarter.

Sales of transport products were up 15% sequentially and 28% from the previous year’s quarter, driven mainly by sales of the vendor’s traditional money-maker, the 5500 digital crossconnect, which also benefited from an increase in T-1 (and equivalent) deployments, Tellabs said. And revenue from the vendor’s voice quality enhancement product group in the first quarter was nearly double what it was in the year-ago quarter, thanks in large part to its use in voice-over-IP applications by one of Tellabs’ OEM partners.

Sales of Tellabs’ managed access gear were down 28% sequentially and 5% year-over-year, due primarily to a drop in sales of Tellabs’ 2300 cable telephony product. Given the advance of voice over IP, the 2300 is "probably a dying product line," Prabhu said.

Though Tellabs would not quantify sales of its new next-generation transport products, sales of its 8800 managed access product (the fruit of its 2003 acquisition of Vivace Networks) totaled about $4 million for the quarter. However, more than $15 million worth of the gear was sold last year, and Tellabs’ CFO and executive vice president Tim Wiggins said in January that that number should double this year. Tellabs also said the number of carriers trialing the gear jumped from 10 to 30 in the first quarter and expects sales of its internally developed broadband data product, the 8600, to bloom in the second half of this year.

"This is a startup business," Prabhu said of the company’s new next-generation products. "Is that market going to show up, in which case we continue to invest, or will that market never show up, in which case we cut bait and go somewhere else?"

The company expects overall revenue to increase sequentially throughout 2004 as it continues to "hold the line" on operating expenses.