Tellabs earnings fall sharply

Tellabs reported a dismal second quarter and said it could not provide guidance for upcoming quarters because there was little sign of a recovery on the horizon.

The vendor’s operating earnings plummeted in the second quarter, falling to $10 million, or 2¢ per share, from $163 million, or 39¢ per share, one year ago.

Second-quarter revenue was $516 million, slightly above the guidance provided by the company on June 19 but down about 55% from 2000’s second-quarter revenues of $801 million.

The revised estimate of analysts surveyed by First Call/Thomson Financial was for Tellabs to post a break-even quarter.

Tellabs net loss, which includes $262 million of restructuring and other one-time charges, was $174 million, or 43¢ per diluted share, compared with a profit of $157.1 million, or 38¢ per share, in the year-ago quarter.

The one-time items includes charges related to the company’s exiting from its SALIX switching business, plant consolidations, and fixed-asset and inventory-related charges.

Tellabs lowered its operating expenses to $224 million in the second quarter, a decrease of $19 million, or 8%, from the first quarter. Tellabs President and CEO Richard Notebaert said the company will continue to drive more “expense efficiencies” by “further aligning manufacturing operations with expectations for lower revenue.” By the fourth quarter, the company hopes to reduce operating expenses by an additional 5%.

“Tellabs, like just about every other supplier of telecom equipment, has just finished two challenging quarters,” Notebaert said. “The first half of 2001 will be remembered by all of us as the beginning of a fundamental rationalization of the entire telecom industry, and all indications are that we have several more challenging quarters ahead.”

Optical networking product sales declined about 58% on a year-over-year basis to $221 million. During the quarter, Tellabs’ new TITAN 6700 optical switch was made available for field trial, and the company recognized its first revenues from the TITAN 6500 multiservice transport switch and the TITAN 6100 optical transport switch.

Broadband-access product sales were down $10 million from last year to $148 million. During the quarter, Tellabs announced contracts with Jupiter Telecommunications, a Japanese MSO, as well as Nokia and Ericsson. Voice-quality enhancement product sales were $45 million, essentially flat with last year’s number, and solutions and services revenue rose 48% to $102 million.

Tellabs said its balance sheet remains strong, with end-of-quarter cash and cash equivalents of about $1 billion. Accounts receivables dropped 31% in the second quarter, while inventories declined 11%.

Tellabs did not provide guidance for the third quarter or the full year 2001.

“Given the current business climate and the difficulty with visibility we experienced in the second quarter, we have less confidence in the predictability of our traditional forecasting tools,” said Joan Ryan, chief financial officer of Tellabs.

Before today’s earnings report, analysts surveyed by First Call projected Tellabs would earn 3¢ per share in the third quarter and 42¢ per share for the full year.