First-quarter net income amounted to $123 million, up 13%, from $108 million a year ago and diluted earnings per share were 29 cents, up 12% from last year (all comparisons to prior year in this release refer to the attached pro forma results of operations).
In light of reduced and deferred spending by major communications carriers, Tellabs will realign its cost structure with its current expectations for lower revenue growth. The company will further reduce discretionary spending, eliminate salary increases this year, institute a pay-cut for all corporate officers, align manufacturing capability with demand expectations, and terminate the SALIX next-generation-switching product effort.
As a result, the company will take a restructuring and other one-time charges in the second quarter for costs associated with reducing its workforce by about 550 people, consolidation of excess facilities, related fixed asset disposals, asset impairment and excess inventory. Tellabs also eliminated 450 temporary or contract positions during the quarter and will not fill 1,100 open positions. Total charges are expected to be in the range of $150 million to $225 million. On an annualized basis, the workforce-related actions are expected to reduce Tellabs’ overall cost structure by approximately 5% to 6%.
Tellabs now expects 2001 revenues of $3.6 billion to $3.7 billion; 2001 earnings per share are now expected to range between $1.55 and $1.65, excluding the goodwill from the acquisition of Future Networks Inc.
These actions are unfortunate because they affect a lot of talented people, said Tellabs President and CEO Richard C. Notebaert. By paring back our efforts in next-generation switching, we are aligning with our customers’ priorities and strengthening our initiatives in high-growth areas such as optical networking. Despite the current challenges, I am as confident as ever in Tellabs’ long-term prospects and our ability to deliver strong revenue and earnings growth in the future.
Optical Networking–For the first quarter 2001, sales of optical networking equipment rose 22% to $482 million. During the quarter, Tellabs shipped 3 million DS-1-equivalent ports of TITAN 5000 series optical networking products and continued to ship its new TITAN(R) 6000 series products for customer deployment.
Broadband Access–Sales of broadband access products amounted to $153 million, which was consistent with last year’s quarter. Sales of the managed digital network product line posted year-over-year improvement, which offset slower sales from the CABLESPAN(R) product line. During the quarter, Tellabs completed its acquisition of Future Networks Inc., a leader in standards-based voice and data modem technology, which enables Tellabs to provide cable operators with a complete solution for cable-data modem and voice-over-IP services.
Voice-Quality Enhancement–Sales in the voice-quality-enhancement market amounted to $33 million, compared with $54 million last year. During the quarter, Tellabs announced voice-quality enhancement contracts with major carriers such as Globtel and KPN International Network Services.
Services and Solutions–Building on growth in its core optical networking business, Services and Solutions revenues increased 160%, to $104 million in the first quarter of 2001.
