We reiterate our long-term Neutral recommendation on
) following mixed financial results of the company's fourth
quarter of 2012. While earnings per share came slightly ahead of
the Zacks Consensus Estimate, revenue fell short of the same.
Why Remains Neutral
A continuous fluctuation in Tellabs' top line is the major
problem for the company. In the reported quarter, sales declined
year-over-year in all the four reporting segments. Tellabs'
high-margin digital cross-connect products are gradually showing
a downtrend. Nevertheless, management has taken several strategic
decisions to restructure Tellabs' business model emphasizing the
mobile Internet sector and its Insight Analytics
Services.Meanwhile, the stock price of Tellabs declined 50% in
the last year and is currently trading at the low-end of its
52-week price range. We believe this low-level of valuation may
act as a cushion for further downslide of the stock price.
Tellabs currently has a Zacks Rank #3 (Hold).
Risk - Reward Virtually Balanced
Tellabs is facing serious problems in its core wireless
backhaul solutions segment.
) was the major customer for its 8800 multi-service router.
AT&T decided to upgrade its network with pure Ethernet
solutions since it is aggressively deploying 4G LTE networks and
thus shifted to other vendors. AT&T historically generated
35% of Tellabs' total sales and 40% of Data product revenue. Loss
of business to AT&T had a significant adverse effect on
Tellabs. Comparing year over year, Data product revenue shrank
48% in the fourth quarter. AT&T currently has a Zacks Rank #3
However, Tellabs is trying hard to expand is global reach to
make up for losses incurred from AT&T. During 2012, Tellabs
won a series of new contracts. The company added 18 new Tellabs
8600 and 8800 customers. These products are used for mobile
backhaul solutions. Tellabs won 19 new optical customers. The
company already offers 10 Gbps, 40 Gbps and 100 Gbps Ethernet
switches. Currently, its product pipeline contains a 400 Gbps
switch. Additionally, the company won 10 new customers in 2012
for its Access products.
Other Stocks to Consider
Other stocks to consider in the telecom network infrastructure
Juniper Networks Inc.
). Ericsson currently has a Zacks Rank #1 (Strong Buy) whereas
Juniper carries a Zack Rank #2 (Buy).
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JUNIPER NETWRKS (JNPR): Free Stock Analysis
AT&T INC (T): Free Stock Analysis Report
TELLABS INC (TLAB): Free Stock Analysis
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