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Tickers in this Article: TLAB, VZ, CIEN, NT, T
Tech stock Tellabs (Nasdaq:TLAB) is trading at just above its cash value per share, making this company an attractive play in the Technology sector despite a weakening economy. New earnings are due out tomorrow before the market opens.

Tellabs manufactures networking and telecommunications equipment for sale to carriers, original equipment manufacturers and government agencies. It has three segments: transport, broadband and services.

Strong Balance Sheet
Tellabs had $1.19 billion in cash, cash equivalents and marketable securities at as of June 27, 2008. This gives the company $3.01 in cash per share compared to Friday's closing market price of $3.63. This excludes the $249.3 million asset of "other marketable securities" and the offsetting liability called "stock loan" of the same amount. This means the market is valuing all of Tellabs at only $0.42 per share. (To find a bargain stocks, check out Stock-Picking Strategies: Value Investing.)

Tellabs: Cash per Share
Marketable Securities
Cash Per Share
Data as Of June 27, 2008

Preparing for the Worst

Management has made some wise moves recently to prepare for a downturn. During the second fiscal quarter conference call held in July, Robert Pullen, the CEO and president, said that the company had "significantly curtailed our open market stock repurchase program" due to the overall macroeconomic environment.

In January 2008, Tellabs started a restructuring plan and announced plans to cut $100 million in expenses out of its cost structure by the end of 2008. The company said that $75 million would come out of operating expenses. This is 12% of the $647 million fiscal 2007 total operating expenses. This will help significantly during any economic downturn. During the conference call CFO Timothy Wiggins said, "We are making steady progress in reducing expenses, and we'll continue to drive toward our cost reduction goals."

A Few Negatives
Tellabs does have significant customer concentration, which can sometimes lead to customers exerting significant leverage over a supplier. In fiscal 2007, Verizon (NYSE:VZ) was 37% of revenue, and AT&T (NYSE:T) was 16% of revenue.

Also, Tellabs doesn't fit the typical Technology company stereotype of high growth in earnings and sales. Sales in 2007 declined from 2006, and operating and net earnings also declined. However, this was an industry wide problem as the company reported a cutback in spending by carriers.

Some of Tellabs competitors have already seen weak spending from their customers. In early September 2008, Ciena (Nasdaq:CIEN) reported weakness in its business. The company missed third-quarter earnings expectations of 37 cents per share by 67% coming in at 12 cents per share, according to analysts polled by Thompson Reuters. The company cut its outlook for fourth quarter sales to be in a range of $190-210 million, compared to analyst expectations of $263 million.

Nortel Networks (NYSE:NT) also cut its outlook for this year to be 2-4% lower than last year citing "competitive pressures and the potential for further reduced spending" by customers.

Bottom Line
Despite its customer concentration issues, Tellabs has an excellent balance sheet and low valuation making it a safe play in technology during the economic downturn.

To learn what it means to do your homework on a stock, read Advanced Financial Statement Analysis.

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