Tellabs (TLAB) 18.10 -3.10: Bottom fishers beware... the telecom equipment stocks aren't expected
to bounce back in material fashion anytime soon-- at least not for fundamental reasons. Tellabs
provided the latest reminder of that sad reality when it warned of an impending Q2 shortfall after the
close, saying it expects earnings per share, before restructuring and other charges, to be break even on
sales of approximately $500 mln. The current First Call consensus EPS estimate is $0.29 while the
Multex consensus revenue estimate is $781.8 mln (the low end of the prior guidance of $780-$820 mln
provided by TLAB). With Nortel Networks (NT) warning of an earnings shortfall last Friday, it
certainly isn't a surprise to hear TLAB guide estimates lower; however, as was the case with NT, the
real surprise is the magnitude of the TLAB warning which provides a telling indication of the speed and
severity of the slowdown in the telecom equipment industry. As a reminder, TLAB reported revenues in
the December qtr of $1.16 bln-- roughly 57% greater than what the company is expecting for its June
qtr. For NT, the decline in revenues between the December and June qtrs was 49%. The principal
reason for the pronounced slowdown is that telecom service providers are cutting back on capital
spending, no longer buying products in advance of demand; rather, they are only spending when they
absolutely have to. In the meantime, when they are able to, they are reallocating capacity within their
networks to meet increased customer demand for bandwidth. On its conference call, TLAB made a
special point of stating that it is as confident as ever in its long-term prospects, citing its relationship with
its customers, its product breadth, and the resilience of its business outside the U.S. When a company
goes out of its way to emphasize its long-term prospects at this stage of the game, though, it is really
saying our near-term prospects don't look so hot. The latter point was made abundantly clear when
TLAB acknowledged that it anticipates "several more challenging quarters ahead." Suffice it so say,
investors in virtually all telecom equipment stocks should, too, until there there has been a wash-out of
most emerging carriers and suggestions of rising 2003 capex plans by incumbent carriers.-- Patrick J.
O'Hare, Briefing.com |
