Tellabs Exits GPON

The bid with Verizon with the 8800 based architecture continued and the team prepared to get ready for lab entry. We were going to be third in the lab and many of us knew that meant that our business would be small. Then the announcement came that Tellabs was pulling out of the GPON RFP.

http://www.lightreading.com/broadband/next-gen-pon/tellabs-kills-its-verizon-gpon-efforts/d/d-id/654503

I think there are some very humorous posts in the “Comments” section if you look back at them. So, here we are in April 2008 and Tellabs had pulled out of the GPON RFP. All 3 legs of the Access Networking business had been destroyed. There was still a significant ongoing business but all future revenue growth was killed. So 3.5 years after Tellabs bought AFC, there really was no purpose in a major development effort.

What happened was that resources were redeployed. The team that had been working on GPON was split between work on the sustaining the UMC and being put onto the router development within Tellabs. This router development was focused on Wireless Backhaul. This is a specific portion of the network that was connecting cell towers to the core network of the carrier. Given the growth of the wireless networks, this seemed like a good idea. On top of that, there was a team in Finland that had been working on this capability for years. So, the products had some technical advantage.

On the financial front, nothing happened right away. The “losses” were essentially on future choices and the ongoing business took awhile to start to decline. The stock took hits over this. You can chart a downward slope from 2006 until the end. Revenue took a similar trend. Trying to take an objective view, Tellabs bet a huge chunk of its future on AFC. The integration did not go well and the business did not blossom. Given that AFC was a large chunk (at one point over 50% of the revenue of Tellabs) of the total company that did not bode well.

So, why was all of this happening? The way AFC did business was very different than Tellabs did. The Gross Margins and Spending Profiles were so different, that AFC should have been treated as a separate subsidiary. The groups had huge cultural issues and that was never overcome. I am not sure that the history between the two over Cablespan was good or bad for integration. These kind of issues are what cause acquisitions to fail. Tellabs is not unique here as the vast majority of acquisitions fail.

When you do an acquisition the process people will talk about systems integration. They will talk about G&A integration. But it is the groups that will remain separate that need attention. On top of that there needs to be this evaluation of things that will be combined and understand the parts that don’t really overlap. Don’t assume that people work the same way and plan it carefully.

Tomorrow we come to the next stage of the end of the Tellabs Access Business.

Jim Sackman
FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
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