UPDATE 3-Tellabs outlook misses Street, shares fall 12 pct

* Q3 rev $429 mln vs Wall St view $427 mln

* Sees Q4 revenue $410-430 mln vs Street view $442 mln

* Q4 margin outlook also disappoints

* Shares down 13 pct
(Updates share move, market share, stock buyback)

NEW YORK, Oct 26 (BestGrowthStock) – Communications equipment maker
Tellabs Inc (TLAB.O: ) gave a weaker-than-expected outlook,
confirming fears AT&T Inc (T.N: ) was turning to rivals like Cisco
Systems Inc (CSCO.O: ) and Alcatel-Lucent (ALUA.PA: ), and sending
its shares down 13 percent.

Tellabs forecast $410 million to $430 million in revenue for
the fourth quarter, missing Wall Street’s average forecast of
$442 million.

In the past year, the company benefited from a push by phone
companies like AT&T to build advanced wireless networks to
support smartphones and other new devices. But it now faces tough
competition from rivals and hard bargaining by carriers.

Its gross margin outlook of 44 percent for the current
quarter also disappointed analysts, many of whom had expected it
to stay above 50 percent. It was 50.2 percent in the third

“We’ve been seeing a rapid decline in its legacy products,
and now growth products seem to have hit an air pocket,” said
Morgan Keegan analyst Simon Leopold, who had downgraded the
shares to “market perform” last month on worries AT&T and others
may not buy as much equipment from Tellabs as the market

“Our expectation had been that Tellabs could have a
challenging 2011, and it looks that way,” he said.

Analysts have long been speculating that Tellabs may be
losing market share as AT&T upgrades their networks using
equipment from competitors like Cisco. Some said the shift may be
happening more quickly than they expected.

The company confirmed it was losing market share in broadband
data equipment in North America. It expects slower sales of cross
connect equipment, which are systems that connect voice and data
signals with high-speed networks.

AT&T and Verizon Communications Inc (VZ.N: ) account for around
half of the company’s total revenue.

Tellabs shares were down $1.03 at $7.03. They had risen
around 5 percent in the past three months prior to the results.

Third-quarter revenue rose to $429 million from $389 million,
mostly in line with the market’s expectations.

Its quarterly profit rose to $59 million from $28 million a
year earlier. Earnings per share, excluding intangible asset
amortization but including stock option expenses, was 16 cents
compared to the market’s forecast of 14 cents, according to
Thomson Reuters I/B/E/S.

Tellabs repurchased around 15.6 million shares in the third
quarter at a cost of $111 million.
(Reporting by Ritsuko Ando; Editing by Dave Zimmerman and Derek

UPDATE 3-Tellabs outlook misses Street, shares fall 12 pct