Tellabs in dire straits

CHICAGO: Tellabs Inc., a telecommunications equipment maker struggling to return to profitability, said on Friday it will stop manufacturing products in North America, turning that task over to contract manufacturer Sanmina-SCI Corp.

Tellabs, which has logged five consecutive quarters of losses, also said it will cut 325 jobs, or about 8 percent of its work force, as it closes a plant in Illinois. It had said last month more job cuts and plant closings were possible.

The company, which in April said it would cut 665 jobs, has had seven rounds of job cuts in the last two years amid the telecom slump. At its peak, in April 2001, it employed 8,900.

Tellabs and rivals, including Lucent Technologies Inc.and Nortel Networks Corp. have been hurt by the slowdown in spending by telephone companies over the past two years due to excess network capacity. That has led suppliers to slash jobs and post financial losses

Analysts said Tellabs' latest move was necessary as other suppliers have already taken similar steps, and now it needs the industry demand to return.

"It's badly in need of top-line (sales) growth," said J.P. Morgan analyst Ehud Gelblum, who has an "underweight" rating on Tellabs' stock. "It's just hard to get excited about (Tellabs) until there's some sort of upswing in revenue."

Tellabs Chairman and Chief Executive Michael Birck said the industry's struggles left him no choice as company strives to return to break-even status by the fourth quarter.

Birck added that the company was evaluating whether it needs to take similar steps at its plant in Espoo, Finland, which makes equipment for the international market and employs about 400 people. No decision has been made there yet.During the industry's peak in 1999 and 2000, Birck said, Tellabs could barely meet demand, but now it cannot keep employees busy during the early parts of each quarter.

No financial terms of the three-year agreement with Sanmina-SCI were disclosed, other than it was valued in the hundreds of millions of dollars.

Sanmina-SCI Chairman and CEO Jure Sola said in a statement his company has worked with Tellabs for more than 10 years and the new agreement will allow Tellabs to speed up product development and reduce manufacturing costs.

Tellabs said, starting in the third quarter, it will begin recording charges of between $90 million and $110 million for the move.

Shares of Tellabs closed off 7 cents, or 1 percent, at $6.54 on the Nasdaq market on Friday.

Sanmina-SCI also makes high-technology goods for big-brand companies including International Business Machines, Philips and Nokia.

© Reuters