CEOs Discuss the Telecom Equipment Market: Tellabs, Lattice Semiconductor

Interesting quotes from CEOs and CFOs on recent earnings conference calls, discussing their companies and markets:

Tellabs CEO Krish Prabhu

We have had a track record of providing certain spec guidance for the past several quarters. However, as we had indicated in our preannouncement earlier in the month, our 4Q results were affected by two significant events, the BellSouth-AT&T merger and the deferred revenue associated with the launch of the ROADM product.

...Looking forward to 2007, we have a few initiatives identified. Firstly, we have very active margin improvement programs pertaining to the ONT and ROADM product lines. We will begin to see the impact of these programs towards the latter half of 2007. We are working with Verizon to complete their testing of the GPON product and get approval for field deployment.

We will build upon the momentum in our IP data products, as we penetrate other tier-1 international customers. We plan to work with AT&T to upgrade part or all of the 1.5 million fiber lines in BellSouth territory to provide IPTV service.

We also plan to address AT&T's desire to bring DSL to 100% of their territory by using the 1000 product which is widely deployed there, especially in rural and semi-urban areas. We plan to build upon our ROADM success at BellSouth and Verizon and we hope to announce a few other wins in North America in 2007.

As we look at providing guidance for 1Q, we have assumed that some of the conditions we saw in 4Q will persist in 1Q. While this may be a bit conservative, we feel that this is the best guidance we can provide at this time.

Excerpted from the full Tellabs conference call transcript.

Lattice Semiconductor CEO Steve Skaggs

So all-in-all 2006 was a very positive year for Lattice. Unfortunately it's ending on a downward trajectory. Like our direct competitors and several other semiconductor suppliers who were dependent on the communications equipment end market, our business weakened during the fourth quarter. In particularly our revenue level was negatively impacted by a sharp decrease in business from a handful of large customers in the communications, infrastructure end market. I attribute this weakness to merger activity in that sector and to a buildup of inventory at these select customers and their EMS partners.

Last quarter as a result of these negative industry conditions, we saw our revenue decline 2.6% on a sequentially basis and our string of seven consecutive quarters of sequentially revenue growth was broken. Despite the rather abrupt change in business conditions we were able to improve our gross margin, significantly reduce operating expenses and are pleased to have preserved profitability.

Excerpted from the full Lattice Semiconductor conference call transcript.

STMicroelectronics CEO Carlo Bozotti

We expected automotive would be affected by market weakness, particularly in the United States, while wireless would suffer from a product mix towards the low end. This was indeed the case. However, these strengths were more pronounced than we had anticipated. In particular, our wireless business came in well below historical seasonal patterns, leading to a sequential revenue decrease of 6.5% in telecom. As a result, our net revenues for the company decreased 1.2%, coming in at the low end of the range we had communicated...

Lower than expected revenues and the less favorable wireless mix put additional pressure on our margins and operating performance during the fourth quarter. However, despite the sales performance and a tougher currency environment, we did see sequential expansion of the gross margin to 36.3%, due to our cost reduction activities that we have shared with you in the past. The resolution of the tax claim benefited net income in the quarter also.

Turning to the first quarter, let me begin by saying that we see a continuation of the market correction in some of the major application we address. And the level of this multi-quarter correction is somewhat higher than what we had expected. As a result, our first quarter revenue outlook assumes a sequential decrease of between minus 3% and minus 11%.

Excerpted from the full STMicroelectronics conference call transcript.