Shares of Tellabs
Last quarter, Tellabs impressed me with its broad-based customer list and what looked like the beginnings of a turnaround story under way. But fighting Cisco Systems
One indication of this negative trend shows up in the inventory trends, where Tellabs is building up a substantial overhang in the "finished goods" category without showing a similar commitment to higher volume in the work in progress category. That, combined with the distressed gross margins coming up ahead, tells me that Tellabs has to resort to discounted pricing in order to win new contracts, keeping more profitable systems out of the mix and generating less cash from the sales that do get signed.
I don't envy Tellabs' executives the task of figuring out how to reverse these trends. The easy way out of low sales goes through deeper discounts, but you've already seen where that road leads. This should be an exciting growth phase in the history of selling telecommunications infrastructure equipment, but Tellabs is missing the party. Optical networking specialist Infinera
Fool contributor Anders Bylund holds no position in any of the companies discussed here. Infinera is a Motley Fool Rule Breakers pick. The Fool has written calls (bull call spread) on Cisco Systems. The Fool owns shares of Infinera. 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. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.