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Tellabs Halts Verizon GPON Pact

Shares rise almost 5%.

Shares of



rose Wednesday after the company said it would end its current gigabit passive optical network activities focused on


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The Naperville, Ill., phone-system equipment networker cited economic reasons. Tellabs said it would continue to be a multiproduct and services supplier to Verizon.

"This decision serves the best interests of both companies and their respective stakeholders," the company said in a release. Tellabs added 4.9% to $5.75, although shares remain down about 10% on the year.

Tellabs has been squeezed by stale products and a consolidation among its telco customers, forcing the company to restructure like rivals



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. In January, the company cut an additional 225 employees on top of the 125 jobs it eliminated in September.

Merriman Curhan Ford analyst Tim Savageaux said the announcement is a much-needed positive for the company because it is an indication of decisive and rapid action by new CEO Rob Pullen.

"While we are not adjusting estimates at present, we expect to see a potential benefit in 2008 as GPON

research and development expenses are reduced," Savageaux said in a note. "We continue to see value to the $9 to $10 level for Tellabs as a result of either an operational turnaround or strategic sale of the company."

Analysts have been concerned over ballooning wireless spending at Tellabs. On Friday, UBS analyst Nikos Theodosopolous cut his rating for the stock to neutral from buy as the swell in spending has made the company less attractive as an acquisition target.

"Following the recent announcement of a 23-year company veteran as new CEO, and with stock prices of potential acquirers Nortel and


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down 50% and 20%, respectively, since January, we believe a potential sale of Tellabs is less likely in the intermediate term," Theodosopolous said.