Tellabs cuts 800, expects weak quarter

Citing weak spending by North American carriers, Tellabs today announced guidance for the third quarter that is sequentially lower, while at the same time announcing it was cutting 800 positions.

For the period ending Sept. 30, the company expects revenue to be 15% to 25% lower than the $345 million it posted during the second quarter. The company expects to post a loss compared with a $565,000 profit for the second quarter.

According to Tellabs CEO Michael Birck, the third quarter is usually the company’s weakest, and if the decline in revenue is near 15% it will be close to the historical trend. If the revenue fall is steeper, however, the drop will be too severe to attribute to seasonality.

Today’s guidance is the first Tellabs’ has given for the quarter, having previously declined to provide a forecast because of limited visibility. The company did not provided guidance for the fourth quarter or for 2003. Birck, however, said he expects the market to remain essentially in this state through all of next year.

In response to this market weakness, the company said it is cutting 800 positions, bringing its total headcount to approximately 4700.

As part of this round of layoffs, the company is shutting down its manufacturing plant in Shannon, Ireland, which accounts for about half the job cuts.

In addition to reduction in manufacturing capacity, the layoffs are also affecting Tellabs’ customer service employees and research and development team.

According to Birck, the cut in R&D will bring the spending in that area down to around 20% of revenue. It has historically been in the low teens.

The new R&D budget, Birck said, strikes a balance between new products, which get 60%, and existing products, which get 40%.

The money allotted to existing products reflects the realities of current carrier spending patterns, Birck said. “Most of that is being used to add features, add functionality to existing products. That is the realization that our customers aren’t going to install new system if they don’t have to.”

The cuts, along with other cost-saving measures, are expected to reduce Tellabs quarterly operating expenses from $165 million to $145 million by the Q1 2003. For the current quarter, the company will record restructuring and other one-time charges of about $70 million and an impairment change for facilities and investments of about $40 million.