TEKELEC REBOUND FOILED\Agoura firm's reversal blamed on slow sales, government delay.

Byline: Gregory J. Wilcox Daily News Staff Writer

The robust turnaround at Tekelec, the Agoura-based telecommunications company, is fizzling amid a stock price plunge that has erased 63 percent of its market value since October.

Analysts blame lethargic sales, a condition tied to government inaction on the telecommunications industry overhaul.

Company President and Chief Executive Officer Philip J. Alford said that when year-end financial statements are compiled, 1995 still will be a good year and he expects sales to rebound.

"We don't think anything fundamental has changed in the long-term prospects of the business," he said, pointing out that 1995's revenue could reach $85 million, up about 20 percent from the prior year.

"Overall, the year is going to be good, but the fourth quarter is going to make it look lousy," he said.

The company, which makes specialized telecommunications switches and diagnostic equipment widely used in research and development, saw its stock price fall from a 52-week high of 26-3/4 to 9-3/4 on Friday.

But this is due to factors beyond the control of Tekelec's management, said analyst Brian T. Modoff at Rauscher Pierce Refsnes in Dallas.

"There is not someone out there who has developed a better product and taken market share, and it's not a company that has a fundamental problem with its core product. We look at it as a temporary situation," he said.

Customers began scaling back purchases of diagnostic equipment in summer pending resolution of reforms for the telecommunications industry, he said.

"They want to see where they should focus their investment dollars, so they are holding back on R&D," Modoff said. "And part of that spending is buying diagnostic switches they use in design and testing."

He expects sales and the stock price to rebound this year.

Alford said sales of diagnostic equipment account for up to 70 percent of Tekelec's business. And they are big-ticket items, with some units costing upward of $50,000.

It's a big outlay for a lot of companies and they are taking time deciding on the purchase, he said.

"The purchase has to go through several levels of review. It seems to be taking longer," Alford said.

But customer trepidation will affect Tekelec's bottom line.

Last week the company said it expects fourth-quarter revenues of $16 million to $17 million, putting earnings at the break-even point.

During the third quarter, Tekelec reported net income of $2.6 million, 20 cents per share, on sales of nearly $20 million. This compares with net income of $1.4 million, or 15 cents, on sales of $15.6 million during the third quarter of 1994.

Tekelec will report year-end 1995 and fourth-quarter results in February.

Founded in 1979, Tekelec initially built its business around diagnostic equipment that could pinpoint why information was not moving between points on communications networks.

Sales sagged in 1992 and 1993, when the company began developing a specialized telecommunications switch, which can be used to verify calling cards, handle 800 numbers and provide premium services such as call waiting and caller ID.

That move paid off in late 1994, as telecommunications giants like AT&T Corp. and McCaw Cellular Communications Inc. began buying the new switch.

And investors expressed renewed faith in the company, bidding up its stock from $8 to the $25 range.

The company employs about 350 people worldwide and the sales slump will keep this number from growing in the immediate future, Alford said.

"We won't be doing very much hiring," he said.

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