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In another round of layoffs at Tellabs, 800 lose jobs

By Todd R. Weiss
Computerworld, 09/05/02

Bandwidth management equipment vendor Tellabs is laying off another 800 workers, including 400 in the U.S. and 400 in Ireland, as it again trims costs to cope with continuing sales declines in a tough IT marketplace.

In an announcement Thursday, the Naperville, Ill.-based company said the layoffs are the result of reduced expectations for third-quarter sales. Based on the latest estimates, sales for the quarter will be down about 15% to 25% from second-quarter sales of $345 million, the company said. It expects to record a third-quarter loss as a result of lower North American carrier spending.

Spokeswoman Jean Medina said the 400 U.S. employees affected work in three Illinois facilities, while the 400 in Ireland work at a plant being closed in the town of Shannon.

"Our customers are simply spending less," Medina said. "They're only doing the must-do work" and putting off other spending, which is drastically affecting Tellabs' bottom line. "We're taking the necessary steps to respond," she said.

The layoffs and the Shannon plant closing are expected to reduce the company's quarterly operating expenses by the first quarter of 2003 from $165 million to $145 million. The company expects annualized operating savings of $80 million next year, as a result of these and other restructuring actions made since last year.

For fiscal 2001, Tellabs had revenue of $2.19 billion and a net loss of $245 million. In the second quarter of this year, the company posted revenue of $345 million and a net loss of $143 million.

Claudia Bacco, an analyst at TeleChoice in Tulsa, Okla., said the news continues to be disappointing for vendors in the industry.

"It's just the sort of continuing downward spiral that I was hoping was stopping," Bacco said. One bright area, though, are smaller regional telephone companies that are still spending in an effort keep customers and grow. The problem is that those companies are far smaller than the players that typically sustain telecommunications vendors and can't begin to provide the revenues equipment makers need.

Jeff Kagan, an independent telecommunications industry analyst in Atlanta, said vendors such as Tellabs who make cutbacks now and have low debt or no debt will be in the best position when the downturn ends.

"There's nothing systematically wrong with Tellabs or the space," he said. "It's the industry and the [lack of] spending.

"They couldn't make it through in their original size or configuration," Kagan said of Tellabs. "When their customers backed off, they needed to back off too, and coast."

Today's job cuts marked the second round of layoffs this year at Tellabs and the fourth since last year. In April, the company cut 1,200 workers and closed a plant in New York; in addition, 2,550 workers lost their jobs last year in two separate downsizings.

The company will record restructuring and other one-time charges of about $70 million in the third quarter of 2002 and will take an impairment charge in the third quarter for facilities and investments of about $40 million.

After the latest cuts, the company will have about 4,700 workers, Medina said. That's down from a high of about 8,900 workers in April last year.

"As customers spend less, we must take these painful steps to reduce expenses and position Tellabs for a future return to growth and profitability," chairman and CEO Michael J. Birck said in a statement. "We are focused on sustaining the capabilities we need to be first out of the gate with innovative bandwidth management solutions for our customers when the industry turns."