Tellabs forced to cut 10% of workforce as revenue declines 21%

Tellabs (Nasdaq: TLAB) is being forced to hand out pink slips to about 330 workers, or 10 percent of its workforce, as the vendor reported that its Q2 revenue dropped 21 percent year-over-year from $423 million to $334 million.

A big contributor to Tellabs' Q2 revenue decline was a 46 percent plunge in North American revenue compared to the same period last year. However, there was one bright spot as international revenue was up 70 percent when compared with Q2 2010.

The job cuts are part of a companywide plan to reduce expenses and costs by $50 million. At the same time, the company plans to devote more of its revenue to "growth products."

Rob Pullen, Tellabs' CEO, said in the company's earnings release that while the loss is disappointing, its "growth products generated a record 61 percent of revenue, and the Tellabs 7100 system had its best quarter ever."

One of the growth areas that will top Tellabs' list is wireless, an area that Tellabs has shown more interest in over the past year with the purchase of the former Zeugma and WiChorus.

"We are investing aggressively in research and development, devoting one-fourth of our revenue to growth products, as we focus on next-generation platforms to help customers succeed in the mobile Internet," Pullen said.

Here's a breakdown of the company's key metrics:

  • Broadband/Data: Tellabs' broadband segment revenue declined 29 percent from Q2 2010 to $163 million, compared with $228.7 million. What ate into Tellabs' broadband/data revenues in Q2 was lower SDH transport systems revenue and multiservice router sales in addition to higher R&D expenses. Data product revenue declined from $158.8 million to $95.1 million as higher revenue from managed edge systems was offset by lower multiservice router revenue.
  • Transport: Due to an ongoing drop in digital cross-connect systems, transport segment revenue declined 14 percent to $114 million. Likewise, transport segment profit was $27.2 million, compared with $51.7 million. 
  • Services: Similar to broadband and transport, services also declined, but not at as steep of a rate. During the quarter, services declined 6 percent from $60.9 million, to $57 million. Tellabs attributes the decline in service revenue to lower deployment revenue, which was somewhat offset by higher support revenue.  

Things don't look all that compelling for Q3 2011 either. Already expecting the next quarter to see a seasonal slowdown, Tellabs forecast that Q3 2011 revenue will be flat between $325 million to $345 million.

For more:
- see the release (PDF)

Earnings Summary: Wireline in the second quarter 2011

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