) declared fourth-quarter 2011 financial results before the opening
bell today, beating the Zacks Consensus Estimates. Management has
strategically decided to thoroughly revamp its business model
emphasizing on smart mobile Internet, including mobile backhaul
solution, packet optical solution and Tellabs' Insight Analytics
Services. For this, the company will reduce its present headcount
by around 530 people and will incur approximately $107 million of
pretax charges in the first quarter of 2012. In a major decision,
Tellabs has decided to abandon its SmartCore 9100 LTE project, but
will continue its existing SmartCore 9100 WiMAX project.
Quarterly total revenue of $316.8 million was down 22.8% year
over year, but managed to surpass the Zacks Consensus Estimate of
$315 million. Although international revenue increased, lower
revenue from North America is the primary reason for this poor
performance year over year. All the three reporting segments of
Tellabs witnessed sales reductions.
On a GAAP basis, net loss in the fourth quarter of 2011 was $4.9
million or a loss of 1 cent per share compared with a net loss of
$10.9 million or 3 cents per share in the prior-year quarter.
Adjusted (excluding special items) EPS in the reported quarter was
a break-even, better than the Zacks Consensus Estimate of a loss of
GAAP gross margin was 42.5% compared with 38% in the year-ago
quarter. Operating expenses, in the reported quarter, were $137.9
million compared with $162.5 million in the prior-year quarter. The
fourth quarter of 2011 operating margin was a negative 1.1%
compared with a negative 1.6% in the year-ago quarter.
During fiscal 2011, Tellabs consumed $49.1 million of cash for
operations compared with a cash generation of $288.8 million in
fiscal 2010. Free cash flow in fiscal 2011 was a negative $114.3
million compared with $233.2 million in fiscal 2010. At the end of
fiscal 2011, Tellabs had $976.6 million of cash & marketable
securities on its balance sheet compared with $1,134.5 million at
the end of fiscal 2010. Tellabs' balance sheet had no outstanding
Total revenue of the Broadband segment was $166.3 million, down
26.7% year over year. Within this segment, Data Product revenue was
$76.4 million, down 36.3% over the year-ago quarter. Access revenue
was $43.2 million, down 37.9% over the prior-year quarter. Managed
Access revenue was $46.7 million, up 24.5% year over year.
Broadband segment profit was $15.9 million compared with $33.8
million in the year-ago quarter. The huge decline in segment profit
was driven by lower revenue from data products and higher R&D
Total revenue of the Transport segment was $91.5 million, down
25.8% year over year. Decline in revenue resulted from lower
sales of digital cross-connect products and optical transport
systems. The segment generated a profit of $19 million, down 19.1%
year over year. This was mainly due to lower revenue from
high-margin digital cross-connects.
Total revenue of the Services segment was $59 million, down 2%
year over year. Decline in revenue was attributable to lower
deployment services revenue in North America. The segment generated
a profit of $20.9 million, up 13% year over year, mainly due to
higher professional and support services revenue.
In the fourth quarter of 2011, North America region generated
$146.1 million (46% of total revenue) of revenue compared with
$240.5 million in the prior-year quarter. The rest of the World
generated the remaining $170.7 million (54% of total revenue) of
revenue compared with $170 million in the prior-year quarter.
In the fourth quarter of 2011, Growth products generated $170.9
million of revenue compared with $231.4 million in the prior-year
quarter. Growth products now constitute 54% of total revenue. Core
products generated the remaining $145.9 million compared with
$179.1 million in the prior-year quarter.
Future Financial Outlook
Management expects its first-quarter 2012 revenue to be in the
range of $260 million to $290 million. Non-GAAP gross margin is
expected to be 39%, plus or minus 1 or 2 percentage points,
depending on product mix. Non-GAAP operating expenses are expected
to be in the mid $120 million range.
Our major concern for Tellabs is the increasing competition in
its core wireless backhaul solutions segment. Tellabs already lost
significant amount of business from its most important customer
). Currently, we maintain a long-term Neutral recommendation on
Tellabs. However,the company has a short-term Zacks #3 Rank (Hold)
on the stock.
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