Answers to investor questions

CEO and president Robert W. Pullen answers investors' frequently asked questions.

Q. When will Tellabs attain year-over-year revenue growth?

A. We expect first-quarter 2010 revenue to grow compared with first-quarter 2009. It's too soon to say how the year ahead will unfold.

We're committed to profitable revenue growth. We see an inflection point ahead, when user demands and network needs will require customers to increase capital spending. When that time comes, Tellabs is well-positioned to grow faster than the overall telecom equipment sector.

In this context, we focus on what we can control:

• We've cut operating expenses to $572 million, the lowest since 1998.
• We've improved gross profit margins from 38.2% in 2008 to 43.6% in 2009.
• We've strategically focused Tellabs in markets that are growing faster than the overall telecom equipment market — mobile, optical, business and professional services.

Q. Why did you acquire WiChorus?

A. The WiChorus acquisition logically extends Tellabs' mobile business from backhaul into an adjacent market, packet core. It's a great fit in terms of customers, products, technology, cultures and market potential:

• Customers: Tellabs and WiChorus address the same mobile customers. Our global sales and service reach provides WiChorus access to more than 120 Tellabs mobile backhaul customers. WiChorus brings Tellabs new WiMax customers.
• Products: WiChorus has the industry's best-of-breed 4G and 3G mobile packet core solution, now known as the Tellabs^® SmartCore^™ 9100 platform. It handles eight times more throughput and four times more simultaneous Internet sessions than competitors.
• Technology: Both Tellabs and WiChorus products use the same Internet Protocol (IP) technology, which is the key to next-generation 4G mobile networks.
• Cultures: Tellabs' and WiChorus' cultures both focus on developing best-of-breed products that deliver superior value to customers and enable us to beat larger competitors.
• Market Potential: The growth opportunities ahead are compelling. Mobile packet core is a growing market that is essential to the mobile Internet.

Q. When will growth products be the main driver of Tellabs' business?

A. Soon. We expect growth products to generate more than half of Tellabs' overall 2010 revenue. Growth products were 25% of our 2007 revenue, 36% of our 2008 revenue and 46% of our 2009 revenue. Our growth products include the Tellabs^® 6300, 7100, 7300, 8600, 8800 and 9100 platforms, as well as Tellabs professional services.

Q. How will you generate sufficient profit margins with growth products?

A. We constantly work to improve gross profit margins on all of our products. The proof: Tellabs gross profit margins increased to 43.6% in 2009, up from 38.2% in 2008.

Our Tellabs^® 8600, 8800 and 9100 platforms already generate gross profit margins above our corporate average. And gross profit margins on the Tellabs^® 7100 system improved in each quarter of 2009.

Q. Is Tellabs big enough to compete successfully and prosper?

A. Absolutely. As a mid-sized company, we're big enough to tackle the focused markets we pursue – mobile, optical and business. We offer customers more global capabilities than start-ups and greater agility than the giants.

Our financial position also gives customers confidence. After 36 years in business, Tellabs has a rock-solid balance sheet with more than $1.1 billion in cash and cash equivalents, and zero debt.

Q. Do you intend to continue share repurchases?

A. Yes, we may repurchase shares from time to time. We are authorized to purchase approximately $400 million in our shares.

Q. Do you plan further acquisitions?

A. We're always looking for opportunities to deliver compelling value to our customers and investors, but for competitive reasons, we can't share specifics. Today we're focused on maximizing the value of the WiChorus acquisition. We are determined to fully realize its potential to create value for our customers and our investors.