In a year of bad news, a change in its chief executive officer and staff cutbacks, Tekelec disclosed some good news Wednesday, sending a jolt to its stock price.

Tekelec (Nasdaq: TKLC) surged the most since 2002 after the maker of telecommunications-signaling systems reported preliminary third-quarter profit that was better than analysts estimated and said it won a new $20 million contract.

The shares surged 23 percent to close at $9.21 in New York, the biggest advance since August 2002. The stock has dropped 23 percent this year.

Profit excluding certain costs was 16 cents to 20 cents a share in the third quarter, the Morrisville, North Carolina- based company said in a statement. Analysts had projected 6 cents on average, according to data compiled by Bloomberg. The company said it will report final third-quarter results on Nov. 9 before U.S. markets open.

Highlights from its statement:

  • “Stronger than expected preliminary third quarter 2011 revenues and earnings
  • “Received a $20 million Diameter Signaling Router related order, the largest Diameter Signaling Router order in the Company’s history
  • “Expects to increase guidance ranges for the year on the November 9, 2011 earnings call”

“A Surprise”

“The stronger result is a big surprise,” said Greg Mesniaeff, an analyst at Kaufman Bros. LP, in an interview. He rates Tekelec “hold” with a target price of $9. “As the telecom equipment sector has been sluggish, the expectations for most companies are not to deliver solid results for the second half,” he said.

The company also said its diameter signaling router, which controls the flow of traffic for so-called voice over Internet protocol, or phone calls transmitted over the Internet, won a $20 million contract in early October, making Tekelec optimistic about the product’s prospects for future sales.

In its statement, Tekelec noted:

“The Company expects orders will be between $66 million and $68 million for the third quarter of 2011, resulting in a range of $201 million to $203 million for the nine months ended September 30, 2011. The Company received a Diameter Signaling Router (“DSR”) related order in the amount of approximately $20 million in early October which was previously expected to be received in the third quarter. This order represents the single largest Broadband Network Solutions order in the Company’s history and the Company believes it demonstrates the continued traction the Company’s products are gaining in the early adoption phase of DSR technology.

“Revenues for the third quarter 2011 are expected to be between $103 million and $106 million, bringing the total revenues for the nine months ended September 30, 2011 to between $307 million and $310 million. Due to higher than expected “book-ship” Eagle 5 revenue, the Company expects non-GAAP gross margins for the third quarter 2011 to be in the 67%-68% range and GAAP gross margins for the third quarter to be in the range of 59%-60%.

“The Company expects non-GAAP earnings per share to range between $0.16 and $0.20 per diluted share for the third quarter 2011, and $0.33 to $0.37 per diluted share for the nine months ended September 30, 2011. The Company expects GAAP earnings per share to range between a loss of $0.01 per share and a profit of $0.03 per diluted share for the third quarter 2011 and a loss of $0.34 to a loss of $0.30 per share for the nine months ended September 30, 2011.”

Big Demand for Tekelec Gear?

“Next year, there is going to be a big upgrade to 4G and LTE,” Mesniaeff said, referring to new wireless technologies being rolled out by carriers. “As that happens there will be big demand for DSR.”

Revenue was $103 million to $106 million in the third quarter, the company said. The average estimate of analysts was for sales of $93.3 million. Tekelec projected orders of $66 million to $68 million.

Read Tekelec’s full statement here.

(Bloomberg contributed to this report)

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