Tellabs aims to balance cuts with investments

Tellabs announced that it will discontinue its 9200 Series IP edge routing platform and lay off approximately 300 employees. However, it also plans to invest in its remaining product lines, particularly optical transport.

The company made the announcements upon the release of its fourth quarter and year-end results. For the quarter, Tellabs saw revenues decline of $242 million, a steep decline from the $317 million it earned in the same quarter a year ago. On a GAAP basis, the revenue declines helped lead to a net loss of $23 million ($0.06 per share) in the quarter versus a net loss of $5 million ($0.01 per share) in the fourth quarter of 2011.

For the year, Tellabs accrued revenues was $1.053 billion, a drop from the $1.286 billion it enjoyed in 2011. The company lost $172 million ($0.47 per share) for the year on a GAAP basis – better than the $188 million ($0.52 per share) the previous year.

The company’s performance required action, according to Dan Kelly, Tellabs CEO and president. “Over the last quarter, Tellabs initiated a review of its strategy, product portfolio and cost structure,” Kelly said via a press release. “Based upon our analysis of ROI [return on investment], customer needs, and market conditions, we are discontinuing development of the Tellabs 9200. We will reduce our expenses, which will affect about 300 people during 2013.

Tellabs introduced the 9200 in September 2011. An article in a Tellabs house magazine touted Telstra as a customer who planned to deploy the platform in 2012.

While discontinuing the 9200 (which will require a restructuring charge of $38 million, mostly in the first quarter of 2013) will decrease spending on products within its Data business overall, Tellabs will continue to invest in new features for the remaining systems in the Data portfolio, the 8600 and 8800. For example, the company will demonstrate a new “self-optimizing networks” feature and discuss software-defined networking (SDN) capabilities for both its data and optical platforms at this month’s Mobile World Congress.

Meanwhile, Kelly told participants in an analyst call last week that Tellabs will increase R&D spending on optical products “modestly.” Areas of spending include colorless and directionless ROADM capabilities and extending Optical Transport Network (OTN) features to edge platforms. The company also has begun to ship 100-Gbps modules for the Tellabs 7300 Ethernet switch and has a higher-capacity shelf in the works that will lay the foundation for 400-Gbps support. Kelly added that the SDN concepts discussed at Mobile World Congress will lead to demonstrations of SDN capabilities for the Tellabs 7100 to customers over the first half of this year.

The company won 19 new customers for its optical transport products in 2012, Kelly added.

In the access arena, Tellabs also will increase R&D spending in a modest fashion, Kelly promised the analysts. The company won 10 new access product customers in 2012.

Looking more near term, Kelly and the rest of Tellabs management project 1Q13 revenues will range from $205 million to $220 million. Things should pick up during the rest of 2013, the executives believe, with both revenues and non-GAAP gross margin increasing as the year goes by. They also expect non-GAAP operating expenses to decrease to a target quarterly run-rate of $75 million in the second half of the year.

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