Tuesday, January 25, 2011

Tellabs Inc. (NASDAQ: TLAB): Q4 Earnings Preview

Tellabs Inc. (NASDAQ: TLAB) is scheduled to release its fourth-quarter earnings before the opening bell on Tuesday, January 25, 2011. Analysts, on average, expect the company to report earnings of 8 cents per share on revenue of $418.36 million. In the year ago period, the company reported earnings of 8 cents per share on revenue of $389.30 million.

Tellabs, Inc. designs, develops, and supports telecommunications networking products for communications service providers worldwide. The Company’s products and services enable its customers to deliver wireline and wireless voice, data and video services to business and residential customers.

In the preceding third quarter, the Naperville, Illinois-based company's net income was $56.5 million, or 15 cents per share, compared to $29.3 million, or 7 cents per share, in the comparable quarter last year. Revenue rose to $429.2 million from $389.3 million. Analysts, on average, expected the company to report earnings of 14 cents per share on revenue of $426.94 million. 

At its last earnings call in October, the company said that it expects fourth-quarter revenue to be in the range of $410 million to $430 million, which is up from $389 million in the fourth quarter of 2009. Tellabs anticipates international revenues to increase in fourth quarter. North American revenue is forecasted to be down. It expects fourth quarter gross margin to be 44% plus or minus one or two points. Analysts attributed Tellabs' weak forecast to a shift in product mix which it believes is indicative of the company.

The communications equipment industry has shown significant growth this year. As corporations become more mobile, connection solutions allowing employees to connect directly with the corporate server are growing in appeal. Businesses are looking for faster options and equipment makers that offer these options have the opportunity to bolster their top lines. With such growth potential throughout the industry, companies are fighting harder than ever to secure their respective niches. At the moment there is massive demand for mobile internet -- and demand is only likely to grow going forward -- and telecom customers are typically looking for smooth transitions to 3G or 4G networks. Tellabs has zoned in on this growth driver, and its management has claimed throughout the year that it is focused on growth areas in so-called mobile "backhaul solutions."

The company's management has decided to substantially focus on the growth areas of mobile backhaul solutions, optical networking solutions, and business services solutions. Mobile backhaul solutions will support massive demand for mobile Internet and video and will enable telecom customers a smooth transition to 3G or next-generation 4G networks. Optical networking solutions will enable the carriers to meet the growing demand for bandwidth for metro-Ethernet networks. Business services solutions, on the other hand, will serve large enterprises that need reliable multimedia services.

In terms of stock performance, Tellabs shares have gained nearly 12 percent since the beginning of the year.

Full Disclosure: None.
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