Tellabs shares plummet on lowered guidance

The latest telecom equipment provider to pre-announce a disastrous second quarter is Tellabs, which informed investors yesterday that second quarter sales would be almost 40% lower than previous projections. The news sent Tellabs shares into a dive, as their price dropped about 20% in morning trading.

A company statement said the carrier-spending slowdown was caused by the fact that “service providers are temporarily able to meet increased customer demand for bandwidth by reallocating capacity within their networks.” Carriers are only buying equipment to meet the immediate needs of their customers, according to Tellabs.

“After two months, we are experiencing more pronounced weakness in order flow than we had anticipated,” said Richard C. Notebaert, Tellabs’ president and CEO. “We anticipate several more challenging quarters ahead. However, the conversations with customers indicate healthy end-user demand for services. Our market share positions are intact.”

Revenue for the company’s second quarter will be about $500 million, compared with prior estimates of $780 million to $820 million. The $500 million consists of $210 million in optical network products sales, $150 million in broadband access sales, $100 million in professional services revenue, and $40 million in voice quality enhancement sales, said Joan Ryan, chief financial officer of Tellabs.

The company expects to begin to recognize revenue for its new TITAN 6000 series optical networking systems in the second quarter, Ryan added, and the TITAN 6700 shipped last week for its first field trial.

“Due to a material shift in revenue mix across our product groups as well as lower shipment volumes through our manufacturing plants, we now see our second quarter gross margins to be in the low 40% range,” she said.

Tellabs executives said operating earnings for the second quarter would be break-even on a per share basis. Analysts surveyed by First Call/Thomson Financial were predicting earnings of 29¢ per share, off 10¢ from the year-ago quarter. Including a $262 million restructuring charge announced in May, other one-time charges, and dilution from acquisitions, Tellabs estimated that its net loss for the second quarter would be 45¢ a share. The $262 million includes $129 million in inventory-related charges.