Tellabs Inc. (TLAB) declared its first quarter of 2011 financial results today, lagging behind the Zacks Consensus Estimates. Total revenue of $322.4 million was down 15% year over year, below the Zacks Consensus Estimate of $339 million. Although international revenue increased, lower revenue from North America is the primary reason for this poor performance.
On a GAAP basis, net loss in the first quarter of 2011 was $24.1 million or a loss of 7 cents per share compared with a net income of $45.6 million or an income of 12 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS in the reported quarter was a loss of 5 cents, significantly higher than the Zacks Consensus Estimate of a loss of 3 cents.
GAAP gross margin was 37.9% compared with 50.6% in the year-ago quarter. Massive decline in gross margin was mainly attributable to higher cost of revenue for both Product and Services segments. Operating expenses, in the reported quarter, were $154.9 million compared with $156.5 million in the prior-year quarter. However, the first quarter of 2011 operating margin was a negative 10.1% compared with 9.3% in the year ago quarter.
During the first quarter, the company repurchased 0.1 million shares for a consideration of $0.5 million. Tellabs plans to continue returning capital to stockholders through dividends and share repurchases.During the reported quarter, Tellabs also distributed more than $7.2 million to stockholders through quarterly cash dividend.
During the first quarter of 2011, Tellabs consumed $81.5 million of cash from operations compared with a cash generation of $60.3 million in the year-ago quarter. Free cash flow in the reported quarter was a negative $91.9 million compared with $56.3 million in the prior-year quarter.
At the end of the first quarter of 2011, Tellabs had $1,057.2 million of cash & marketable securities on its balance sheet compared with $1,134.5 million at the end of fiscal 2010. Balance sheet of Tellabs had no outstanding debt.
Broadband Segment
Total revenue of the Broadband segment was $173 million, down 9.5% year over year. Within this segment, Data Product revenue was $106.5 million, down 18.5% over the year-ago quarter. Access revenue was $40.1 million, up 33.2% over the prior-year quarter. Managed Access revenue was $26.4 million, down 12.9% year over year.
Broadband segment profit was $19.7 million, down 67.6% year over year. The huge decline in segment profit was driven by lower revenue from data products, higher mix of lower margin international data revenue, and higher R&D expenses.
Transport Segment
Total revenue of the Services segment was $99.4 million, down 22% year over year. Decline in revenue was the effect of lower sales of digital cross-connect products partially offset by higher sales of optical transport systems. This segment generated a profit of $16 million, down 64.4% year over year. This was mainly due to lower revenue from high-margin digital cross-connects.
Services Segment
Total revenue of the Services segment was $50 million, down 17.6% year over year. Decline in revenue was attributable to lower deployment services revenue in North America. This segment generated a profit of $10 million, down 48.7% year over year. This was mainly due to lower revenue and less favorable product-mix.
Geographic Distribution
In the first quarter of 2011, North America region generated $175.1 million of revenue compared with $240.5 million in the prior quarter. The rest of the World generated the remaining $147.3 million compared with $170 million in the prior quarter.
Portfolio Distribution
In the first quarter of 2011, Growth products generated $194.4 million of revenue compared with $231.4 million in the previous quarter. Growth products now constitute 56% of the total revenue. Core products generated the remaining $128 million compared with $179.1 million in the previous quarter.
Future Financial Outlook
Management expects its second quarter of fiscal 2011 revenue to be in the range of $325 million to $345 million. Non-GAAP gross margin is expected to be 38%, plus or minus 1 or 2 percentage points, depending on product mix. Non-GAAP operating expenses are expected to be in the low $140 million range.
Recommendation
Our major concern for Tellabs is the increasing competition in its core wireless backhaul solutions segment. We believe Tellabs will not be able to maintain its current business rate with its most important customer AT&T (T). Historically, AT&T generated 20%-21% of Tallabs’ total revenue and accounted for nearly 40% of the company’s sales of the broadband-data networking products.
We maintain our long-term Neutral recommendation for Tellabs. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
AT&T INC (T): Free Stock Analysis Report
Be the first to comment