Tellabs provides communications service companies with the nuts and bolts of their networks. The company's telecom network equipment is used around the world to enable the transmission of data, video, and voice signals over wired and mobile networks. Its broadband network access and transport systems enable carriers to build fiber-optic backbone networks, while its digital cross-connect systems help connect incoming and outgoing digital and fiber-optic lines. Tellabs also provides such services as product deployment, training, and technical support. The company's customers include top phone service providers, local telephone carriers, as well as cable companies, corporations, and US government agencies.
Tellabs suffered a more than 20% drop in revenue in 2011 compared to 2010 due to significantly lower sales made by its broadband and transport segments, in particular. (With the exception of 2010, the company's revenue has been declining since 2007.) Increased revenue from all regions outside North America was offset by lower sales made to wireline and wireless customers in North America.
Operating costs rose in 2011, despite decreased spending on sales, marketing, and administrative activities, due to increased research and development expenses, as well as goodwill impairment charges related to declining business from a key broadband customer. Consequently, the company lost money for the year. To cut costs, Tellabs instituted workforce reduction plans in 2011 and 2012.
Tellabs has cited an industry-wide drop in prices and consolidation among equipment suppliers as the key factors behind mounting competitive pressure in the marketplace. The company is responding by refocusing its product portfolio on mobile backhaul and packet optical systems.
For the second year, Tellabs reported a double-digit percentage increase in its research and development spending in 2011 to fuel new products for mobile, optical, and Ethernet applications. Tellabs is putting its R&D dollars into products that address the growing market for wireless Internet services, driven by users of smartphones and mobile computers. Meanwhile, the company has ceased development on some products, such as the SmartCore 9100 WIMAX gateway platform, in order to focus R&D efforts on fewer, higher-margin areas.
Tellabs' largest customer is Verizon, which accounted for more than 20% of revenue in 2011. Sales to AT&T have historically accounted for a significant portion of revenue (35% in 2010), but made up only 10% of the total in 2011. The company primarily sells directly to customers, but its relationships with distributors, resellers, and systems integrators are key to the global delivery of its products.
Tellabs is trying to expand the international appeal of its brand, particularly in Brazil, Russia, India, China, and South Africa. Over the past decade, annual sales to customers outside of North America have typically accounted for between one-quarter and one-third of sales. In 2011 overseas business made up nearly half of total revenue.
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