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, which serves telephone carriers and cable companies among other customers, is being acquired by investment firm Marlin Equity Partners.
Change in Company Type
Marlin Equity Partners agreed to purchase Tellabs in late 2013 for some $891 million. Marlin was one of more than 30 firms contacted about possible interest in Tellabs as the telecommunications equipment company struggles with losses and intense competition.
Tellabs' Optical segment (products for managing heavy telecommunications traffic in metro areas) is its largest, accounting for about 40% of total revenue. The company's other segments include Data (products for mobile backhaul operations), Access (products for the delivery of bundled services over the "last mile," or final leg, of networks), and Services (training, support, and other professional services).
It depends primarily on two contract manufacturers, Jabil and Flextronics, for manufacturing and assembly of its products.
The company operates some 40 facilities in nearly 30 countries across the Americas, the Asia-Pacific region, and in EMEA (Europe, the Middle East, and Africa). In addition to its US headquarters, regional headquarters are located in Brazil, Singapore, and the UK. Tellabs generates about half its sales outside North America.
Sales and Marketing
Tellabs' offerings are marketed and sold worldwide, primarily via a direct sales force. It does utilize distribution partners and value-added resellers internationally (they account for about a third of non-North American sales). The company targets markets such as cable/multi-system operators, mobile, utilities, telecommunications, and federal government.
Verizon (including Verizon Wireless) accounted for nearly a quarter of 2012 revenue. Other clients include AT&T, Ericsson, General Dynamics, Nokia Siemens, Telecom Italia, and Vodafone.
Tellabs suffered a nearly 20% drop in revenue in 2012 to $1.05 billion, the latest in a string of declining results. The company saw drops across all product and geographic segments, with the Data segment falling by more than a third. It hasn't reported a profit since 2010, although the 2012 loss of about $172 million was marginally better than the $188 million loss the prior year.
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. In addition, as customers migrate to new technologies, it sees a decline in revenue for its legacy product portfolio.
To return to profitability, Tellabs has initiated several rounds of restructurings and cutbacks. It is also refocusing its product portfolio on mobile backhaul and packet optical systems. Although research and development costs were reduced in 2012, the company reported a double-digit percentage increase in its R&D 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 has also been expanding 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 20121 overseas business made up just over half of total revenue.