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To: pat mudge who wrote (12291)	7/15/1999 11:23:00 AM
From: zbyslaw owczarczyk	Read Replies (2) \| Respond to of 18016

Tellabs reaches a crossroads By Ben Heskett Staff, CNET News.com July 15, 1999, 5:20 a.m. PT The Internet is pulling along even the unlikeliest of companies. Tellabs, a nearly 25-year-old firm, specializes in network equipment for communications carriers, serving as a "traffic cop" for connections to and from businesses and residential communities. But with an acquisition here and a market shift there, Tellabs is currently in vogue despite its esoteric technology, growing at a rate of 30 percent a year and enjoying a sky-rocketing stock price that is near record highs in the aftermath of a recent stock split. The company's stock has doubled since the start of this year. The company has built a billion-dollar business making switching equipment and associated management systems that sit on a communications carrier's network and divvy up circuit-based connections to business and residential customers. But the company reached a crossroads. A new method of delivering data and voice across a network has engulfed the industry in recent times. Going forward, many carriers plan to move toward a network based on protocols that treat voice and data as "packets" and "cells." The question facing Tellabs, and other companies in the networking industry, is what kind of window is available to transition strategies and technologies in order to meet the demand for packet-based networks. While competitors such as Cisco systems, Lucent Technologies, Nortel Networks, and Alcatel have spent considerable time and energy articulating their strategies to the market, Tellabs has quietly chugged along, seemingly oblivious to the hype surrounding a trend that is sometimes known as the "convergence." Then Tellabs purchased high-speed routing upstart NetCore Systems last month for $575 million, an initial stake in the ground in an emerging Internet strategy based largely on internal product evolutions. "If you don't cannibalize your own, somebody else will," said president and chief executive Michael Birck in a recent interview. "It's an implementation change, not a philosophical one. If we don't keep pace, we could have some revenue issues. "It's what you have to do," he said. Tellabs' technology was built for older, circuit-based networks. But the company has largely held its tongue and maintained a conservative stance until recently on the issue of how it would transition its products to the world of packet-based Internet systems. That approach is akin to the manner in which many of Tellabs' telecom customers operate: slowly and methodically. "Nothing in this industry has ever happened overnight," said Steve Kemp, a marketing manager within Tellabs' adaptive network solutions division. "We have a good record of delivering on what we say we're going to do." The company's pragmatic approach to the evolution underway in the networking market has won many fans on Wall Street in recent times, who have quickly forgotten the bitter aftertaste left by Tellabs failed merger with Ciena last fall. Analysts are also bullish due to an expected surge of new technology from the firm that will bridge the company's current circuit "cross-connect" systems with the packet worlds. "They are adapting their products," noted equities analyst Chris LeBlanc of Bank of America Securities. LeBlanc said the firm is well-respected for taking a conservative approach to market expectations and enjoys a solid base of customers in two key segments: regional bell operating companies, or RBOCs, and long distance carriers. LeBlanc also noted that the firm has been "more visible with their strategy going forward" in recent months, a fact reflected in their current valuation, he said. Over the course of the next year, Tellabs is expected to debut a new gateway to tie its traditional technology to layouts based on asynchronous transfer mode, or ATM a favorite transmission method for service providers. It also plans to add density to its traditional cross-connect switches and add management systems for broadband networks, eyeing the rapidly emerging cable network opportunity, according to analysts. The niche that would have been filled by Ciena---dense division wave multiplexing, or DWDM---is slated to debut next year. That said, Tellabs--with $1.6 billion in revenue for its most recent fiscal year--remains a small firm on a networking landscape where one could even view Cisco as small in the shadow of giants such as Lucent, Nortel, Alcatel, and Siemens. "They're clearly challenged because they don't have the resources of their competitors in the market," said Jeremy Duke, analyst with the Synergy Research Group. But Tellabs pace may provide the salve that soothes Wall Street in an era where companies can lose billions of value in less than an hour. "We aren't going to do anything radical in these areas," cautioned Tellabs' Birck. "We certainly choose our market opportunities."