Tellabs Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of telecommunications equipment builder Tellabs (Nasdaq: TLAB  ) plunged as much as 14% today on very heavy volume after a disappointing earnings report.

So what: The actual results of the third quarter weren't bad, roughly in line with analyst expectations overall. But management told us that sales are stalling in the fourth quarter, and gross margins will squeeze down to 44% after reaching a healthy 50% in this quarter.

Now what: On the upside, Tellabs remains more profitable than close rival Alcatel-Lucent (NYSE: ALU  ) and the stock is cheaper than Cisco Systems (Nasdaq: CSCO  ) on nearly any metric of valuation you choose. On the downside, the margin drop paints a dire picture of desperate pricing tactics or perhaps trouble finding customers for Tellabs' more profitable product lines. Piles of finished goods and almost no work-in-progress inventories tell the same sordid tale, and it's hard to find a positive take-away from this report.

Interested in more info on Tellabs? Add it to your watchlist by clicking here.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Fool has written calls (bull call spread) on Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is investors writing for investors.


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