Monday, April 25, 2011

Tellabs Inc. (NASDAQ: TLAB): Q1 Earnings Preview 2011

Tellabs Inc. (NASDAQ: TLAB) is scheduled to release its first-quarter earnings before the opening bell on Tuesday, April 26, 2011. Analysts, on average, expect the company to report a loss of 3 cents per share on revenue of $326.14 million. In the year ago period, the company reported earnings of 10 cents per share on revenue of $379.70 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 fourth quarter, the Naperville, Illinois-based company's net loss was $10.9 million, or 3 cents per share, compared to profit of $62.1 million, or 16 cents per share, last year. On an adjusted basis, the company earned 2 cents per share. Revenue rose to $410.5 million from $389.3 million. Analysts, on average, expected the company to report earnings of 8 cents per share on revenue of $418.36 million. 

At its last earnings call in January, the company said that it expects first-quarter 2011 revenue to be in a range from $315 million to $335 million. Tellabs expects non-GAAP gross margin to be 40%, plus or minus two points, depending on product mix. 

The communications equipment industry has shown significant growth in recent years 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.

Recently, Tellabs announced that it will supply backhaul equipment to Russia's two biggest mobile operators, Mobile TeleSystems OJSC (MTS) (NYSE: MBT) and MegaFon , as they build out their 3G networks and brace for strong mobile data growth. In the fast-growing Russian mobile market, MTS and MegaFon had 31.8 percent and 24.8 percent market shares respectively at the end of 2010, according to Pyramid Research .

In the past year, the company benefited from a push by AT&T Inc (NYSE: T) and other phone companies to build advanced wireless networks to support smartphones and other new devices. But analysts have long speculated that Tellabs may be losing market share as AT&T upgrades its networks using equipment from competitors such as Cisco (NASDAQ: CSCO) and Alcatel-Lucent (NYSE: ALU). AT&T and Verizon made up about 53 percent of its customer base for much of 2010 -- but that fell to 41 percent by the fourth quarter. The decline was largely due to less business from AT&T, company executives said in January. 

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 67.38. In terms of stock performance, Tellabs shares have lost nearly 33 percent since the beginning of the year.

Full Disclosure: None.
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