Tellabs Inks Deal with WESCO

Zacks

Tellabs Inc. (TLAB) a leading diversified manufacturer of telecom equipment signed a deal with WESCO International Inc. (WCC) to supply Tellabs' Optical LAN solution through its business arm, Communications Supply Corporation (CSC).

This recent contract will certainly boost the supply of Tellabs' Optical LAN in the U.S. by soldifying its presence across different parts of the country, where Wesco enjoys a strong distribution network.

Tellabs’ popular products, which include Tellabs 7000 series of optical transport systems, Tellabs 5000 and 6300 series of transport systems with optical interfaces save 80% of energy consumption. Moreover, by eliminating conventional copper-based Ethernet LANs, it slashes costs up to 70% for any organization.

Tellabs reported disappointing first-quarter 2013 results, with both the top line and bottom line missing the Zacks Consensus Estimate. Tellabs’ globally reputed high-margin digital cross-connect products continued to show a downtrend.

Tellabs is encountering serious issues in its core wireless backhaul solutions segment. AT&T, Inc. (T) was the major customer for its 8800 multi-service router. However, AT&T decided to upgrade its network with pure Ethernet solutions since the company is aggressively deploying 4G LTE networks.

As a result, AT&T is presently using Ethernet routers of Cisco Systems, Inc. (CSCO) and Alcatel-Lucent, S.A. instead of Tellabs. AT&T historically generated 35% of the company’s total sales and 40% of the Data product revenues. In the first quarter of 2013, Data product revenues were down 52.6% year over year.

The Optical segment, which develops these popular Optical LAN products are the major contributor to Tellabs’ overall revenue and in fiscal 2012 it accounted for 41% of the total revenue. Hence, we believe that the recent deal with Wesco will certainly improve the company’s top line going forward.

Currently, Tellabs carries a Zacks Rank #4 (Sell).

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