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Tellabs Warns
By Mike Trigg
The Motley Fool
June 20, 2001

Tellabs (Nasdaq: TLAB) lowered its second-quarter financial guidance yesterday as difficult economic conditions force customers to cut back spending on telecommunications equipment.  Rather than purchasing new equipment, the company's customers have met demand for bandwidth by reallocating existing network capacity.  That's meant poor sales for Tellabs, and the company's management indicated last night that several challenging quarters lay ahead.

"While we continue to see caution from our customers in the pace of equipment deployment, our market position remains intact, and we are focused on ensuring the most profitable path through the current environment,'' said CEO Richard Notebaert.  "I remain confident Tellabs has the right people, products, and strategies to meet the needs of our customers and deliver future growth.''

The company now expects sales of $500 million, down from earlier guidance of $780 million to $820 million.  On the bottom line, it expects to break even on a per-share basis, versus $0.39 per share in the year-ago period and below Wall Street's expectation of $0.29 per share.  Tellabs said earlier it would take a charge of $262 million related to jobs cuts and office closings.  Including that charge and a loss from buying a cable equipment firm, it will lose $0.45 per share.

Tellabs' problems will most likely continue as sales of its TITAN 5500 system struggle.  The TITAN digital cross-connect systems, which made up 56% of sales, direct different protocols, such as Internet protocol and asynchronous transfer mode.  The TITAN system receives the signals, separates them based on their destination, and determines the best route.  The company's new optical products haven't made up for the sales slowdown.  Until that happens, things could get worse.

Mike Trigg spends his days offering readers what Gordon Gekko called "the most valuable commodity": information. Mike's holdings can be viewed in his personal profile. The Motley Fool is investors writing for investors.