Saturday, November 24, 2007

Letter to management

This is a letter that I will be sending to management ahead of the shareholder meeting.

Dear Sirs,

I have been a shareholder for the better part of the last three years and have been very disappointed with the company/stock performance to say the least. The recent filings show the continued losses in 2006 and 2007 but more importantly, the street has lost confidence in the company due to their lack of communication during these critical times, poor internal controls, bloated expense structure, and lack of visibility in the company’s businesses. The continued losses into 2008 and history of over-promising and under-delivering has weighed on the stock.

It is very difficult to stay positive in light of the current sub $3 share price and know it will take some time to turn this around. I do have some hope with the recent actions from the company such as (1) finishing the options/China investigations-filing the financials for the last 5 quarters, (2) reclassifying and selling long term holdings in Gemdale/Infinera, (3) being able to transfer funds from China, (4) identifying core/non-core operations, (5) cutting operating expenses to $115m/quarter, (6) seeking out cash flow efficiency savings, (7) monetizing the patent portfolio, (8) showing tractions in iptv/broadband, gepon, optical, surveillance and other new initiatives and (9) hopes for profitability in late 2008/early 2009.

I have recently started a web-blog at So far, it has generated about 600 visits in just the last 12 days. The purpose of the blog is to compile information about the company, share investor opinions, and hopefully provide a conduit between shareholders and management. One of the reasons I am writing now is to discuss topics in the upcoming shareholder meeting. Because the stock price is at historic lows right now, shareholders have many questions on the company’s future turnaround plans as well as previous decisions and results. Let me emphasize that as much as we’d all like to move on towards the future, we need to learn from the past. With the stock being where it is, it is apparent that the street is also not moving into the future yet. Most stock price targets are in the $3.5 range and continued significant losses are expected in 2008.

A few topics that I have put on a poll (in the web-blog) that management can hopefully give more color to in the shareholder meeting are the following:

-Details of the strategic options study with Merrill Lynch. Shareholders are very dissatisfied with the explanations and lack of details surrounding such a critical event in the company. Where there offers to buy the company? At what price? If not, what where the major issues? What where the attractive points and negative points? We shareholders can appreciate that some information cannot be disclosed but I am also sure you understand where we shareholders are coming from in light of the shareprice.
-Gemdale/Infinera sale. Updates regarding liquidity are very important during these credit tough times.
-PCD divestiture. Most shareholders did not buy into the company with the PCD in mind and are mostly in favor of divesting the PCD to solidify liquidity position and focus on core businesses. I can appreciate that you cannot divulge too much but anything towards the divestiture of this division will help the shareprice. For me, this was the symbolic move away from core goals of the company and would represent a symbolic re-focusing the goals of the company.
-Japan revenues. Shareholders have not heard much regarding Japan and the close ties with Softbank.
-Convertible Bond update.
-Share repurchase or insider buying. The low share price has to be addressed by management. Projections are great but the street is looking for tangible actions by the company/management.

-OPEX and growth of the Core businesses. There are major concerns that the target opex to core revenue ratios that management has given in the last cc will not be met anytime soon (even in early 2009 and be sustainable) and that opex should be cut further now rather than later. Updates to bookings and future plans are much needed to clarify confusion with this important goal. Aside from 3rd party projections, what do you see in the iptv/broadband markets that give you confidence in attaining these ratios? Otherwise, this is another example of over-promising and under-delivering.

I would like to end by stating I appreciate the updates from the company and hope that it continues. The last conference call presented a very good start to addressing the street concerns but results are needed. Because the turnaround will not occur overnight, shareholders need answers to a lot of questions and management can do much more to defend the share price right now. I am personally looking forward to meeting management during the shareholder meeting next week and hope to get some answers to share in the web-blog to fellow shareholders.

1 comment:

Anonymous said...

congratulations for your efforts! as a european bottomfisher (earlybird_777) buying utsi in 05 based not only but also on their words (not even worth the paper written on) I must admit, this is the worst bunch of fraudulent bullshit crooks (sorry for that) I have ever experienced in my whole investment lifetime. If plain stupidity is an aggressive disease, I would seriously advise you not to attend the shareholder meeting...:-)
feel free to tell them about honest investor`s sentiment like mine and good luck!

thanks for your efforts indeed!

gunter j.