We upgrade our recommendation to Neutral on
Tellabs Inc.
(
TLAB
). Tellabs met the Zacks Consensus Estimates in its fourth-quarter
2011 financial results. In the last quarter, the company witnessed
solid improvements with respect to several valuation metrics.
Management has taken a strategic decision to thoroughly restructure
its business model emphasizing smart mobile Internet, including
mobile backhaul solution, packet optical solution and Tellabs'
Insight Analytics Services.
For the last year, Tellabs has aggressively targeted the mobile
Internet market since its legacy switching products are gradually
losing relevance.Tellabs' globally reputed high-margin digital
cross-connect products continued to show a downtrend, while
significantly affecting its bottom line. Nevertheless, the company
has a healthy balance sheet as management continues its regular
dividend payment.
In the previous quarter, Tellabs won several contracts for its
growth products throughout the world. The company won 11 new
contracts for its Optical 7100 and 7300 systems. It also won 2 new
contracts for 8600 and 8800 systems. At present, Tellabs has over
160 mobile backhaul customers globally. Currently, Tellabs services
25 mobile packet core customers. Tellabs expects its first revenue
from Insight Analytics services in late 2012.
Tellabs is facing serious problems in its core wireless backhaul
solutions segment.
AT&T Inc.
(
T
) was its major customer for its 8800 multi-service router.
However, AT&T decided to upgrade its network with pure Ethernet
solutions since the company is moving toward deploying 4G LTE
networks. As a result, AT&T is at present using Ethernet
routers of
Cisco Systems Inc.
(
CSCO
) and
Alcatel-Lucent
(
ALU
) instead of Tellabs. AT&T historically generated 35% of the
company's total sales and 40% of Data product revenue. We believe
loss of businesses from AT&T will have severe consequences on
Tellabs' financial condition in 2012.
ALCATEL ADS (
ALU
): Free Stock Analysis Report
CISCO SYSTEMS (
CSCO
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
TELLABS INC (
TLAB
): Free Stock Analysis Report
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