Although Tekelec yesterday announced (as part of its latest earnings report) job cuts of 104 people at its Plano, Texas location, the company appeared to be in good shape heading into the final quarter of 2006.

 

A TradingMarkets.com report noted that Tekelec (News - Alert) stocks went up $1.29, to $15.80 in after-hours trading on the INET.

 

A Deutsche Bank report on the company emphasized Tekelec’s strong revenue for Q3 2006, which exceeded the investment bank’s expectations by $155 million.

 

The report did note, though, that Tekelec is restructuring its IP switching unit and has hired an investment banker to help with the process. The restructuring will involve shutting down the company’s Plano, Texas facility.

 

“In our view, this will likely mean an eventual sale of the business or a shutdown,” Deutsche Bank said. The investment bank cited a crowded softwitch market as a key reason why Tekelec has struggled in this area.

 

Deutsche Bank predicted that Tekelec will be exiting the IP switching market by the second quarter of 2007.

 

 

Deutsche Bank sounded a cautionary note regarding the quarter-to-quarter stability of Tekelec. The investment bank cited several causes for Tekelec’s volatile earnings, including the company’s dependence on shrinking legacy technologies, difficulties it has had achieving scale in media gateways, and its new residual based accounting system.

 

Despite these concerns, Deutsche Bank said Tekelec “remains well positioned for both legacy and next-generation signaling networks, and the transition between the two. Accounting-related quarterly volatility should not mask solid fundamentals or improved profitability.”

 

Based on a DCF analysis, Deutsche Bank raised its EPS estimate for Tekelec during FY07 from $12.50 to $16.00.