UPDATED: Layoffs on tap as Tellabs Q4 revenue declines to $242 million

Tellabs (Nasdaq: TLAB) reported on Thursday that Q4 2012 revenue was $242 million, down from $317 million year-over-year, prompting it to lay off another 300 employees and discontinue its 9200 product line.

The company said on a GAAP basis it recorded a net loss of $23 million, or 6 cents per share, in Q4 2012, versus a net loss of $5 million, or 1 cent per share, in Q4 2011. On a non-GAAP basis, Tellabs recorded net earnings of $3 million, or 1 cent per share, in the fourth quarter of 2012, compared with $4 million, or 1 cent per share, in the year-ago quarter.

For the year 2012, Tellabs reported that revenue declined to $1.05 billion from $1.28 billion in the same period a year ago.

On a GAAP basis, the company said it lost $172 million, or 47 cents per share, compared with $188 million, or 52 cents per share, in 2011, while on a non-GAAP basis, Tellabs earned $1 million in 2012, compared with a net loss of $18 million in 2011.

"Over the last quarter, Tellabs initiated a review of its strategy, product portfolio and cost structure," said Dan Kelly, Tellabs CEO and president, in the earnings release.  "Based upon our analysis of ROI, customer needs and market conditions, we are discontinuing development of the Tellabs 9200."

Kelly added the company "will reduce our expenses, which will affect about 300 people during 2013." 

Revenue losses have prompted Tellabs to reduce its headcount in recent quarters.

In Q4 2011, the company was forced to lay off 530 employees. Then, in the third quarter of 2012, it announced that it would lay off an additional 200 employees in Q4 2012.

Following the trend being driven by a host of other hardware-based vendors, Tellabs is also developing new software defined networking (SDN) and self-optimizing networks (SON) capabilities which it will display during the Mobile World Congress trade show later this month.

"We are really looking at SON at that as a backhaul and what we can do between our network management and our 8600 product that we have sold to over 150 customers for backhaul, so we have a fairly focused strategy there in which to roll that out," Kelly said. "Really, the idea there is that we can shorten roll outs quickly with automated provisioning tools, ease the installation process, and eliminate some of the human error and make sure we properly document the rollouts as we go."

Stopping short of revealing any specific details, Kelly said they will also demonstrate how its SDN capabilities can operate with its optical and data product lines.

"As far as SDN goes, we're looking at that from both a data and optical perspective, but the particular interest about what we'll be talking about in Barcelona will be around the SDN capabilities at the optical layer," he said. "We are looking at that ecosystem and we have worked with some partners and we'll be able to give a little more color on our strategy in Barcelona at the end of the month.

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

  • Optical: Optical segment revenue was $97.2 million, down year-over-year from $113.3 million. During the fourth quarter, Tellabs said it reported lower revenue from its three key optical product lines: the 5000 digital cross-connect systems, the 6300 managed transport systems and the 7100 optical transport systems. Overall, the optical segment profit was $22.3 million, compared with $26.2 million in Q4 2011. The company attributed the decline in optical segment profits to the lower overall revenue level.
  • Data: Data revenue declined year-over-year to $52 million from $101.2 million as it reported lower revenue from its 8600 and 8800 smart routers and the 8100 managed access systems. Driven by the lower revenue level and lower gross margins, the company's data segment loss was $8.6 million versus a segment profit of $1.2 million.
  • Access: Access segment revenue was $41 million, down from $43.3 million in Q4 2011. An increase in revenue from the Tellabs 1000 access systems and the Tellabs 1100 access systems was offset by a decline in Tellabs 1600 single-family Optical Network Terminals (ONTs). However, access segment profit rose 12 percent to $8.4 million.
  • Services: Service revenues were $51.8 million, down from $59 million, a factor Tellabs attributes to lower revenue from deployment, support agreements and professional services. Services segment profit, driven primarily by an improvement in service gross margins, grew to $22 million, up 5.3 percent from $20.9 million.

Looking towards Q1 2013, Tellabs has forecast that it will report revenues between $205 million to $220 million and non-GAAP gross margin to be 34 percent, plus or minus a point or two.

"We expect overall quarterly revenue to increase in the back half of the year based on the following: our expectations of for when major customers will release their budgets in 2013 for projects we have already won and for projects we expect to win," said Andrew Szafran, Tellab's CFO during the earnings call. 

Tellabs' shares closed at $2.28, up $0.06 or 2.7 percent, on the Nasdaq at the end of the day trading on Thursday.

For more:
- see the earnings release (.pdf)

Special report: Wireline telecom earnings in the fourth quarter of 2012

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