Thursday, November 29, 2007

Recap of Q&A sessions from the shareholder meeting

Shareholder Meeting.

I attended the shareholder meeting today held at the Alameda corporate office. From management side, Hong Lu, Peter Blackmore and Fran Barton were the main speakers. Also in attendance were Susan Marsch (General Counsel), Thomas Toy (Director), other employees, and their auditors. Before I get into the details, I’d like to thank management for conducting a professional shareholder meeting, taking questions from shareholders during the Q&A portion and showing us their current line of products afterwards.

The initial part of the meeting dealt with administrative issues such as Thomas Toy’s nomination and confirmation as a Tier 1 director and reconfirming PriceWaterhouseCooper as their auditors. Then, Blackmore, Lu and Barton each took time to discuss the company business. I will skip their presentation for now as that is recorded and I can listen and summarize that at a later time. I want to move to the Q&A portion that was not accessible to the general public. The format for the Q&A portion was to have each shareholder have an opportunity to ask 1 question and if time permitted, additional questions would be taken. I think it was a good idea for them not to include this in the web-cast for the shareholder’s privacy and the unpredictability of the line of questioning and discussions. There were about 10 shareholders that attended, a few flying in from out of town and one from Mexico! There were no analysts present. I was working in San Francisco and took off from work in the afternoon to go across the Bay. I was concerned with the initial thought of the Q&A session being recorded because we may not have the opportunity to ask as many questions and again would be too unpredictable. That being said, I was also worried that frustrated shareholders would pull punches if it was recorded.

I’m pleased to report that the Q&A session was very candid, open, and sometimes heated starting with the initial question regarding the sale or lack of sale of Gemdale (only 10% has been sold). As you can imagine, each person had multiple questions and management did a good job in responding and moving it along. The questions included:

Why was only 10% of Gemdale holdings sold?
What is the average infra revenue per iptv subscriber deployment?
What are the available options to deal with the convertible bond?
Can you get financing in China?
Will they try to get financing in China or the US?
Why not cut costs further if most of the core technologies are already developed?
What were the details for the ML strategic study? Where there offers for the entire or part of the company?
Based on the current low share price and positive expectations by management for the future, would you consider share buybacks and/or insider purchases? (my question)
What valuation did the board have in mind (my follow up question to the ML discussion that I asked Mr. Toy– I got to ask two questions J and anything directly related to the stock price was applauded by the shareholders)
If iptv is positioned as the growth driver, why are the overall margins relatively low?
Can you clarify your opex to core revenue ratios and the potential core revenues in 2009?
Can you comment on the high short position?
Discussion on PAS revenues-packet data 128kbps (not sure if this was in the general discussion or Q&A)

After the formal Q&A session, they lead us to another room for a more informal one on one discussions and to show us their products. The group basically broke up into two separate groups of shareholders, one with Hong Lu and one with Fran Barton and Peter Blackmore. I spent my time with the 2nd group and had very open and candid discussions primarily with Fran Barton and a bit with Peter Blackmore. After the shareholder meeting, I met up with some of the other shareholders and discussed the meeting and compared notes for another half an hour or so. So, the entire event lasted a little over 3 hours for me. After the more formal Q&A session, the following items were discussed in the more informal session:

· PCD and its place within the company now and in the future
· OPEX- how it is currently bloated even with the planned cuts
· Lack of disclosure during the yearlong quiet period when financials were released
· Discussion on timing of the turnaround
· Why were the previous estimates from Barton so far off?
· Any updates on the recent BSNL tender for GEPON/WIMAX gear
· Info on the WiMax gear shown on their website. Potential market and position within their company in the future
· Updates on Japan revenue
· When will the new iptv Asian customer win be announced?
· Different handsets in the marketplace and if UT was involved with them
· Lu discussed the reasons for originally purchasing the PCD
· Lu discussed the iptv competitors and how their product compared to them
· Lu discussed his impression of the shorts. Someone asked Lu how they can break the shorts
· Lu discussed the impact of the Verizon’s decision on opening up their network
· Lu also discussed Japan ADSL and position of various operators in Japan
· Lu discussed their position as handset integrator for Verizon and others
· What are institutional reactions to the current share price?
· Selling or borrowing against the China building

There are probably more items discussed as I was only in one group and just heard part of Lu’s discussions with the other group.

So, what are my general takeaways from the shareholder meeting? The shareholders did not pull any punches making their frustrations, concerns, and suggestions known. To management’s credit they answered everyone’s questions and are well aware of all the shareholders concerns. Obviously, this was a very difficult environment with the stock price at $3. While I don’t agree with everything done in the past, I believe they are taking reasonable stapes at this stage to return the company to sustainable profitability. It’s a line and management position that we have heard plenty of times before (cutting costs, improving controls/efficiencies, waiting for market to grow, using partners, using OEMs, having great products, concern about shareholder value, etc). I had gone in thinking there was no good option at this juncture anyway so I would be in no matter what. Having talked with management, I have “hope’ that much better times are ahead and somehow things are different this time. Maybe, I’m a sucker for a happy ending. In the short term, not selling the Gemdale position may hurt the stock but it was going to be difficult to go against the bad stock technicals and at this late in the year anyway. The turnaround is not going to occur right away as we all know.

Some thoughts on Peter Blackmore, the future CEO of the company. I paid close attention during the Q&A portion and he was in agreement with the shareholder concerns and you could see him often nodding. I think he is very sharp, is the right person for getting the cost structure right and making UT very competitive on the cost side. I believe he understands the company assets and potential markets that UT has and can lead the company back to profitability and higher share prices. Obviously, this was a shareholder meeting and management has to be generally upbeat so we still need to track their progress and COMMITMENT to profitability.

As mentioned, I had more discussions with Fran Barton and thank him especially for his candidness and willing to engage the shareholders. As most know, I am not a techy like Tigre/Shadow so it was enjoyable to discuss the stock price, the way the street values UT, his previous and current estimates, etc. Ultimately, I hope they are able to better predict their business operations to make necessary changes to their cost basis and to better communicate with the street. Towards the end of the Q&A session, I specifically wanted to thank management for updating the shareholders and having all of those CC. I hope they continue and more importantly hope it will be under much better operational performances.