) reported mixed financial results for its third quarter of 2012
as net earnings managed to meet the Zacks Consensus Estimate.
However, the company's top line still remains weak as depicted by
the year-over-year sales decline of all the four reporting
segments. Tellabs' globally reputed high-margin digital
cross-connect products continued to show a downtrend.
Nevertheless, management has taken several strategic decisions
to thoroughly restructure its business model emphasizing on
mobile Internet sector, including mobile backhaul solution,
IP-packet optical solution and Tellabs' Insight Analytics
Services. Tellabs is aggressively targeting the booming mobile
Internet markets since its legacy switching products are losing
relevance. Further, the company has a healthy balance sheet as
management continues its regular dividend payment. We reiterate
our long-term Neutral recommendation on Tellabs.
A significant surge in wireless data traffic is forcing the
wireless operators to continuously upgrade their networks. This
trend will persist in the long run since mobile Internet is
flourishing all over the world through smartphones, tablets and
machine-to-machine communications. The next-generation (4G) LTE
network becomes another growth area for the company. Over the
next five quarters, Tellabs will reduce its headcount by 200,
which will result into a cost savings of $20 million per annum.
As a result of cost streamlining, Tellabs is expected to improve
its margins going forward.
Meanwhile, Tellabs faces a high level of customer
concentration. Two customers, viz
Verizon Communications Inc.
), accounted for more than 33% of total revenue. Loss of any of
these customers will have a significant material impact on the
company's top line.
AT&T INC (T): Free Stock Analysis Report
TELLABS INC (TLAB): Free Stock Analysis
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on Zacks.com click here.