Tellabs to cut 550 jobs, SALIX switching program

(Telephony) Tellabs announced today that it plans to eliminate 550 jobs--about 6% of its work force--and end all development and sales efforts associated with its SALIX next-generation switching platform.

The company reported first quarter 2001 sales of $772 million, a 21% increase over the $639 million posted in first quarter 2000. Net income for first quarter 2001 was $123 million, a 13% increase compared to $108 million in the year previous. Diluted earnings per share in first quarter 2001 were 29 cents, up 12% from first quarter 2000.

It also announced additional cost-cutting measures, including a freeze on pay increases for remaining employees this year, pay cuts for all corporate officers, and the elimination of an additional 450 contract or temporary positions.

Moreover, the company will not fill 1100 positions that are currently open and will move to a four-day workweek from April 23 through June 1. The exception will be facilities involved in the production of the company’s Titan 5000 series optical networking products.

Tellabs expects these measures to reduce its overall cost structure by 5% to 6%.

While generally pleased with the company’s financial results in the first quarter, President and CEO Dick Notebaert indicated that the current economic downturn has shadowed Tellabs’ strategic thinking regarding its future.

“Tellabs had a relatively solid performance in what was clearly a challenging quarter for the entire industry,” he said. “However, the quarter clearly did not live up to our expectations. The decline in business trends late in the quarter indicates that we are operating in a different market than a few short months ago. In fact, it’s a very different environment than just a few weeks ago.”

Translated, Tellabs’ customers have reduced their spending to the point where the company feels it needs to tighten its belt.

“The larger service providers continue to view our products and services in a very bright light, and we continue to have growth there, but not as high growth last year,” Notebaert explained. “On the CLEC side and on the smaller service provider side, we see the same things you read about in the press. A lot of people have a difficult cash position, and everyone is being very judicious in how they spend it.”

Regarding SALIX, Notebaert said that the company never achieved “traction” with the product line.

“This was the most difficult decision we had to make because of the effect it has on the lives of so many talented Tellabs’ employees,” he explained. “[However] the switching market is changing rapidly. From a technology standpoint, we are still in a transition, one that will ultimately lead us to solutions that are fundamentally different from what can be delivered by today’s technology.

“We’re simply not convinced that today’s model will generate sufficient returns to warrant continued investments, so we are changing our approach.”

According to a Tellabs spokeswoman, the company will be focusing its efforts on developing a longer-term solution for its customers.

"We looked at SALIX as more of a transitional technology," she said. "So I think we're going to look at leap-frogging a couple of generations."

Notebaert indicated, however, that Tellabs plans to continue pursuing this market opportunity.

“We will be leveraging everything we’ve learned over the last few years by focusing our development efforts on a new set of solutions. This decision will enable us to accelerate our initiatives into other high-growth and high-return areas which are our core competencies.”

Consequently, Tellabs is reassigning a portion of the engineers that had been working on the SALIX platform to develop what Notebaert described as “feature richness in optical networking.”