June 8, 2010 / 7:48 PM / 9 years ago

UPDATE 1-Tellabs shares fall on worry AT&T switches to Cisco

* Tellabs seen losing business to Cisco at AT&T

* Tellabs shares down more than 6 pct on Nasdaq (Adds Tellabs comment, share price update)

NEW YORK, June 8 (Reuters) - Shares in Tellabs Inc TLAB.O were down 6.3 percent on Tuesday after Morgan Stanley downgraded the telecommunications equipment maker’s shares, citing an expectation that AT&T Inc (T.N) would switch to Cisco Systems (CSCO.O).

Tellabs shares fell 44 cents to $6.37 on Nasdaq after Morgan Stanley analyst Ehud Gelblum said AT&T is planning a “relatively quick transition away from” Tellabs 8860 router to a product from Cisco about a year from now.

AT&T, which brought in 21 percent of Tellabs revenue in 2009, declined comment as did Cisco.

Tellabs spokesman George Stenitzer said investors appeared to be overreacting to a rumor in the market and referred questions about AT&T to the operator itself as his company was unable to comment on their current agreement.

“We continue to compete for future business at AT&T and other companies,” Stenitzer said. “The solution we’re providing to AT&T has a longer life and a longer runway in the network than the market has given it credit for.”

Stenitzer also said a lot would happen “in the next year in terms of new products” but he did not give details.

Gelblum said in a research note that while AT&T is buying a lot of Tellabs gear this year to beef up its network to cope with increased wireless data traffic, he sees the orders falling off next year as Cisco wins more business at AT&T.

The analyst slashed his 2011 earnings per share estimate for Tellabs to 44 cents from 56 cents due to the increased competition.

Another analyst, Lawrence Harris from C.L. King, said he was also worried about Tellabs demand next year.

“2010 is going to be a great year but we could see a slowdown in growth in 2011,” he said. (Reporting by Sinead Carew; editing by Leslie Gevirtz, Bernard Orr)

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