We downgrade our recommendation for Tellabs Inc. (TLAB) to Underperform, following its poor financial results of the fourth quarter of 2010, well below the Zacks Consensus Estimates. The company is facing serious problems with its key customer AT&T, which accounts for 35% of total revenue in 2010.
We believe Tellabs will continue to lose businesses from AT&T as depicted by its extremely weak revenue outlook for the first quarter of 2011. More disastrous is that, Tellabs’ highly reputed high-margin digital cross-connect products are also showing a downtrend. For that, gross-margin took a huge pressure in the reported quarter and will remain at that low-level in the near-term.
Tellabs is finding it increasingly hard to market its core growth products. Although, the telecom gear manufacturing industry is growing through a growth phase, Tellabs is facing severe competitive pressure from large rivals such as Cisco and Alcatel-Lucent.
TELLABS INC (TLAB): Free Stock Analysis Report
Zacks Investment Research
