Tuesday, December 19, 2006

Calls of Note Part 1

- UBS is reducing their 4Q06 revenue estimate on Tellabs (NASDAQ:TLAB) to $530M from $543.5M, toward the low end of company guidance of $525-550M. They expect weakness in the quarter mostly due to delays in the closure of the T/BLS merger. Firm's 4Q06 EPS estimate reduces to $0.14 from $0.15 and they expect CY06 EPS of $0.56 vs.$0.57 prev.

UBS makes no changes to their 2007/2008 estimates. Tellabs should see a strong ramp of the ROADM 7100 at Verizon in 2007 but given this is a new account, initial revenue recognition is challenging to forecast. Firm continues to expect growth in 5500 sales in 2007 though at a much slower rate of 5% Y/Y, and believe 5500 growth will be more challenging in 2008/2009.

They currently estimate 6% growth only in FTTP revenues from Verizon next year for TLAB as they expect revenues from increased customer connects to be offset by ASP declines and share loss (most likely to Alcatel) as Verizon rolls out GPON. Higher FioS penetration, higher churn, or higher market share in GPON for TLAB would present upside potential to FTTP ests.

Maintains $12 tgt on Neutral rating.

Notablecalls: Nothing drastic here. The reason why I wanted to highlight the call is that since early Friday there have been rumors of Ericsson (NASDAQ:ERIC) making a sizeable acquisition in the U.S. TLAB looks like a suitable candidate. I'm aware of the earlier rumor of ERIC + Entrisphere (competitor to TLAB) but given it's small size it would not fit the bill. Also, RBAK would make sense as a target.

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