Wednesday, December 31, 2008

Improving Technicals

First of all, Happy New Year to everyone. I think its fair to say, it was a very tough year for the market and another disappointing year for UT. In the next couple of days, I will post on the negative and positive events for UT and recap some of the predictions/expectations shareholders had at the start of the year. For the last few weeks/months, I've been looking at UTs chart and tracking the 50 day SMA. The stock had been under the 50-day for months now but is showing some flattening out pattern and "threatening" to break above the 50-day:-)

If you pull a 2-year chart, the stock was under the 50-day from the start of 2007 all the way to September 2007 until it broke above the 50-day and had a brief spike to $5 in late 2007. Around May of this year, the stock made its major move for the year doubling from under $3 to just under $6 staying above the 50-day. Once it broke down, however, it has been all downhill. Several attempts at crossing above the 50-day at the $3.5 and $2.5 level failed. If the stock can closed above the 50-day for a few days, that may be a good sign that it can move to the 200-day average in the $3-3.5 level in early 2009. And IF it breaks the 200 day to the upside, .......(ok I'm getting a little ahead of myself :-)

Have a good year everyone!

Sunday, December 21, 2008

Corporate Restructuring and 2009 Cash Flow Impact

"UTStarcom, Inc. (Nasdaq: UTSI - News) today announced a series of corporate initiatives that are expected to reduce its annualized operating expenses by more than 25% or greater than $100 million. The majority of these measures will have been initiated by the end of January 2009 and a significant portion of the savings will be recognized in the first half of 2009."

The above link provides a detailed PR/info on the restructuring. Listening to the call, there were some additional info so I will just summarize the Four point savings initiative.

Non-core businesses - The Korean based handset manufacturing that supplies handsets to PCD in non-Chinese (mainly North American) markets will be closed down by June 2009. The company will take a $6m cash charge and write off $4m in assets. This is expected to save the company $40m/year in OPEX. Two thirds of the workforce is already gone at this time and enable this division to be cash flow positive in Q1/Q2 (last two quarters). The Customs Solutions Business will be disbanded by end of Q1 2009 and result in savings of $10m/year. Certain parts of the operation will be merged with the Multimedia Communications Business Unit.
Commentary: At the beginning of the year, the CSBU was supposed to be a high margin business that was supposed to show strong revenue growth. I had high hopes for a sale but this was not to be. Also, the opex for the business unit was supposed to be around $10m/quarter (according to Barton during one of the previous quarter earnings call). So, it looks like the majority of the business is still intact. The Korea handset manufacturing business turned out to be a major disappointment the last two years. Not only did revenues go down steadily (as we recently just found out) but gross profits were very small. It makes you wonder (again) why they carried this business for so long.

Global 10% Reduction in Workforce - The company ended the quarter with a little over 5000 employees. The company plans to reduce an additional 465 employees on top of the employees let go as part of the non-core business wind downs/merge. Overall, about 15% or 750 employees will be reduced by mid 2009. The reduction in US employees will be completed this week while the Chinese employee reduction to be completed in January. This will result in yearly savings of $30-35m and cost the company $8m in cash charges to be taken in Q4.

Streamline of Backoffice Operations - Details and charges for consolidating operations into China are not yet finalized. The timing will be the during the first three quarters of 2009. This will result in the rest of the savings.

One-time savings, bonuses, and salary structure - The company will shutdown operations for a week during the year end. Non-executive BOD will not take their cash retainers for 2008, executives (VP level/up) will not take cash bonuses for 2008, and certain salary througout the company will be frozen (no increases).

Impact on cash balance and cash flows for 2009 - After announcing the 15-20% opex target reduction during the last earnings call, I estimated some numbers based on previous bookings, gross margins, etc. Here is an exerpt of what I estimated:

2009 projections - It will be imprecise to estimate 2009 revenues based on bookings because of the timing issues but that is all we can go on at this stage. I will use the book to bill ratios for the core portion and estimate around $140m for the handset division. That yields (0.8*246m + 155m + 184m + 1.2*146m) + $140m = $711m in core bookings + $140m in handsets for around $850m. Again, each quarter could yield new contracts and ramping of iptv but this is my best guestimate for now. 2008 revenues (using the midpt of Q4 2008 guidance) will come in around $836m so 2009 will see little if any revenue growth. At 25% GMs, gross profits will only be $213m. This quarter's GMs of 32% was due to NGN performance and projections for Q4 are down to low 20s. The revenue for 2009 could be higher if internal handsets does better but then GMs will be lower so for now, I will go with $213m in gross profits and OPEX of $320m. That scenario could be highly optimistic if OPEX is higher or revenue lower due to CSBU divestiture. So, that is an loss of $107m. Add in $20m for taxes/options and another $23m for contingencies (higher opex/lower revenue/margins) and it can add up quickly to a $150m cash burn for 2009 (ouch!).

The company will end 2008 with about $291m + $24m in escrow in cash/short term securities. At the end of 2009, that could easily be down to $165m in net cash heading into 2010 (or about $1.32/share).

In light of new information, here is my current best guesstimate: My overall revenue estimate for the company (not including the Korean handset business) was $711m. Half a year of handset sales is around $70m (since the division will be shut down by mid 2009). I will assign 27% GMs to the core business and 5% GMs to the handset part. That will yield gross profits of $711m*.27 + $70m*.05 = $195m. Expenses for the 2nd half of 2009 will be down to $70m/quarter. However, expenses in Q1/Q2 may still be around $80m and $75m respectively. So, opex for 2009 could still be $295m for a loss of $100m (not including taxes and the usual other GAAP charges). Of course, this may be conservative since the handset sales may be larger since it is being wound down and I didn't add sales in the 2nd half of the year for the Chinese market.

Based on previous Q4 cash burn, we expected the company to have $291m+24m in net cash reamining ($315m). There is a $14m cash charge in Q4 so net cash will be around $301m by the end of 2008. If we subtract $100m in losses for 2009 + $20m taxes/options + $20m (China consolidation charges), the company will be left with $161m by the end of 2009. That is $4m less than what I estimated previously.

After reading the PR and listening to the call, my initial reaction is slightly positive. By the end of 2009, the quarterly opex will be less than $70m/quarter (compared to the initial 15-20% cuts announced). However, the positives were outweighed by the fact there is still no signs of revenue ramp that will close the gap to profitability. I'm hoping this time, my guesstimates are conservative and that there is material revenue ramp and margin improvements. Some people are more positive thinking profitability may be in Q2/Q3 of 2009 and cash flows much better than I have laid out. However, after four years in the stock and watching the company be behind the curve and throwing out bad surprises very often, I'd like to see good results and trends before getting even slightly optimistic.

Here is a quick note from BWS:

UTStarcom (UTSI- Buy Rating) provided details on the restructuring plan that the Company has already started to implement. The Company will discontinue manufacturing handsets out of South Korea for the North American market, which will lead to closing the operations by the middle of 2009. UTSI would also reduce their headcount throughout the Company and start to relocate some jobs from their headquarters in California to their operations in China. The process will cost UTSI $18 million, $14 million of which is in cash, but would allow the Company to save approximately $100 million annually in operating expense. The removal of the handset business from the income statement would reduce revenues by approximately $160 million annually, but the revenues were being generated at an operating loss. Our new model continues to reflect UTSI achieving profitability in second quarter 2009, but the losses until that time would be significantly smaller. Cash preservation could provide a lift to UTSI shares after the Company announces fourth quarter results in February. The restructuring makes UTSI a simple story to understand: a company providing equipment for IPTV, broadband, and next generation networks. The Company did not provide an update to guidance. We are keeping our revenue assumptions for the rest of the Company unchanged by only removing the revenues associated to South Korea’s operations.

Meeting with management - I am hoping to schedule a meeting with management next year to discuss outlooks and just do a general Q&A like the one we had in March. I am still very much invested in the company as are a lot of fund managers I have talked to recently. So, I am hoping the recent opex cuts will lead to the elusive sustainable profitability that we have been waiting for although there are a lot of questions that I have (as you can imagine).

I am off for the rest of the year (its been a good work year but terrible year in the markets and UT) and off to Disneyland next week! Hoping that everyone can take some time off and enjoy the holidays safely.

Sunday, December 7, 2008

Weekly Recap - Near Lows

The stock closed at $1.46, off 44 cents or 23% for the week. The markets recovered from the last week's early 7-9% drubbing to end the week down 2-3%. However, UT set a new all-time weekly low. The volume last week was above 1m shares every day so the stock clearly underperformed despite the announcement of the OPEX reduction conference call (on Dec. 18). Specific news was light so the big news was again the shareprice. The main discussion on the message boards was what is UT really worth and can management turn this around.

With morale already low for over a year (when the stock dropped below $5 and then $3), things turned even worse the last few months as the stock is now under $1.5. While the recent credit crunch is deeper than most could have forseen, UT's poor operational performance has been going on for years. The company has been targetting "near term profitability" for atleast 4 years with every management change and company strategic decision.

During the last year, there were glimmers of hope as the "new" management team cut expenses, disposed of none-core assets, paid the convertible, filed all the late financials, raised cash, and laid out the future technology/path of the company. Lets take a look at the balance sheet and see the tangible impact of those actions and see if the company can survive (at $1.46 share price, lower than even the car makers and other "insolvent" companies, its constructive to look at the numbers for survivability).

Balance Sheet - Net cash increased to $331m this quarter due to the sale of the PCD. Inventory was reduced from $570m to just $195m. Other current liabilities was reduced from $440m to around $290m. Inventory plus accounts receivables is close to payables. Tangible assets went down $50m from last quarter to $534m.

As noted in the past, the sale of the PCD brought liquidity, reduced inventory risk, and improve focus to the company. The inventory level is down to under $200m (and this includes the build up for the Phase II India contract). With the current market environment, the importance of being lean is even more important and I have to give management credit for executing the sale. There is a lot of work in the OPEX side that hopefully will be addressed in the December 18 call. Management underestimated the urgency of additional expense cuts even during the last year expecting revenue growth to get to their expense metrics targets (which I haven't heard anymore about). The market doesn't seem to be confident that the company can cut expenses enough and after years, its not surprising. However, the company is getting leaner (based on inventory/cash levels/expenses) and bookings for core businesses and target markets still provide plenty of hope/upside.

Have a good week to everyone.

Sunday, November 30, 2008

Weekly Update - Rally?

The stock closed the week at $1.90, up 43 cents of 29%. The markets were significantly higher with the DOW, S&P, and Nasdaq rising 9.7%, 12%, and 11% respectively. Other telecom/equipment providers rose as well. Sonus was up to $1.55 from $1.46. Alcatel-Lucent up to $2.14 from $1.86. Ericsson up to $7.12 from $5.82. 3com up to $2.01 from $1.53 (nice move) and Nortel up to 0.57 from 0.42. While the market is up nicely from late last week's bottoms, the situation has just gone from really ugly to slightly ugly :-) As a side note, my 401k peaked at about $150k early this year and now is not even six figures. Of course, I'll probably be working another 30 years so it has some time to recover :-) At the current price of $1.9, UT is down 85 cents or 31% for the year. While that is not too unusual in this market, UT had been up over 100% as late as July this year and down about 80% from early last year.

Asia IPTV - From eganameten, here is an article on iptv in Asia. Even at this juncture, there are signs of a "slowdown" in worldwide iptv as Europe and places like Hong Kong have had a few years of very good growth. Sigma designs recently warned of slowing in iptv but in general, there should be very good growth for UT markets.

"In numerical terms, China is already a major IPTV player, with 2.2 million subscribers at the end of Q3 (China Telecom had 1.51 million, China Netcom 690,000), but content and licensing requirements so far prevent it becoming mass market. (So too, does the political capital previously expended on building major cable networks.)

IPTV licenses are not issued directly to telecom operators, which control the infrastructure, but rather to joint operations between telecom carriers and IPTV broadcasters. Further, they require three separate licenses from the Ministry of Industry and Information Technology and a fourth, an Internet culture business license, from the Ministry of Culture. And local telecom operators are only allowed to offer IPTV in cooperation with national IPTV license holders -- a China Telecom branch in Hubei Province was recently fined for breaching this rule."

China Telecom completes iptv upgrade in Shanghai - I got the text from an institutional holder....China Telecom completes upgrade to support 900,000 IPTV users in Shanghai Shanghai. November 26. INTERFAX-CHINA - China Telecom recently finished upgrading its IPTV (Internet Protocol Television) network in Shanghai to support up to 900,000 simultaneous users, domestic media reported onNov. 26. ZTE Corp., UTStarcom Inc. and Huawei Technologies won the tender to upgrade the network in different districts of Shanghai, Chinese IPTV industry portal reported. The three companies were also selected to supply IPTV set-top boxes, along with two other domestic set-top box suppliers, namely Shenzhen Coship Electronics Co. Ltd. and Chengdu USEE Digital Technology Co. Ltd., the report said. "It is very likely that China Telecom will kick off a new round of IPTV network upgrades next year because the IPTV user base is expanding much faster than expected," Zhang Yanhong, an industry analyst and founder, told Interfax. The IPTV user base in Shanghai is expanding more rapidly than in any other Chinese city. As of Nov. 25, Shanghai had more than 700,000 IPTVusers, more than triple that recorded at the end of 2007. IPTV in Shanghai is jointly operated by China Telecom and Shanghai Media Group, the largest media group in the region.

Upcoming Conference Call - The cc to discuss OPEX reduction in December should help UT stock back to the $2+ level. At the current market cap of $240m, it assumes UT will lose an additional $60m in cash flow, the building/property are not worth anything, and technology which they have invested hundreds of millions + all client relationships are worth nothing. If nothing else, the rally we have shows there are tremendous values at the appropriate times.

Again, the rally was significant but looking at equity prices, it sure didn't feel "significant" after all the losses. One thing is certain. The equity markets will continue to be volatile and economic recovery projections (the ones I've read over the weekend) are still about a year away at the earliest. After over 4 years in this stock, it is depressing to see the current state of the stock even in this market. UT just failed to participate in the bull markets the last few years despite operating in the highest growth markets, having visionary CEOs/founders, and the contacts/relationships in Japan/China (Softbank/Son, Alibaba/Ma, etc). I continue to hold out hope that someone in that management/BOD can salvage/utilize the remaining resources to create a profitable/growing company that will yield good results for shareholders still remaining. If it doesn't happen, then hopefully, some shareholders will find the share price low enough to force management/BOD to act.

Have a good rest of the Thanksgiving weekend.

Sunday, November 23, 2008

Weekly Recap - Really Ugly

The stock closed at $1.47, down from $1.98 the last two weeks. I didn't post a weekly recap last week so this I'll reflect the last two week's declines. The stock was down 51 cents or 26%. The markets were significantly lower as well with declines of 16%, 10%, and 14% for the Nasdaq, DOW, and S&P respectively. Those numbers even reflected the last minute rebound late Friday of 5 to 6% for the markets. It is really ugly. UT stock hit an all-time low of $1.35 on Thursday and Friday and at the current price of $1.47 has a market cap less than $180m. So, what do I do this week.....Yup, buy more UT at $1.65, $1.51, $1.46, and $1.35 (about 15k shares total). Obviously, I consider this a good bargain but in this market, it can go down some more.

NGN webinar - Nothing significantly new that I could tell but they did mention some overall numbers. Bookings growth for the core was 25% in 2008. Thats definitely good growth but off a low base from 2007. As we've seen, the declines in PAS and handsets in 2008 were too much for core revenue to absorb. Revenues from a geographical standpoint is as follows 50% China, 20% India, 15% US (handsets), and 15% others. As my last post indicated, I was really surprised/disappointed about the non-PAS handset sales declining by about half in revenue from early 2007. Again in the last earnings call, Peter did mention introducing a bunch of new CDMA handsets into the China markets. That could really help revenue going forward. The handset margins are not great but better than some broadband margins. With the telecom consolidation in China, UT handset sales (non-PAS) might finally do well. I reviewed the transcript from last quarter and they did mention 10%+ bookings growth in 2009. On top of the growth in bookings for the core in 2008, the drastically reduced PAS bookings in 2008 and declines/or lack of PAS bookings in 2009, this number may be very good. One last note on NGN, Blackmore/Casky did a good job in explaining the benefits of NGN to the carriers in terms of the savings and competitive positions the customers would have. In this environment, I think this will encourage more carriers to implement UT systems for Class 5 replacements. Again, nothing really new but the recent wins/progress in NGN is encouraging.

OPEX cuts/cash flow - The 15 to 20% target for opex cuts for "early 2009" is definitely needed and welcome news. There is serious concern about UT's cash burn so I hope this can be implemented ASAP. There will be a December call to update us on this issue. Cash flow for 2008 was also impacted significantly by the Phase 2 broadband contract. In order for India to come anywhere close to their 2010 broadband target of 20m users, there should be more contracts coming in 2009 and based on lessons learn from Phase I, it should be much better for UT in terms of GMs and cash flow.

Inida IPTV update - Looks like Aksh is accelerating roll out to additional cities in the next few weeks. They are targetting 70k users by the end of the financial year (not sure when that is). Also, they are going to target the 4m broadband users of MTNL and the 6m broadband users for BSNL in 20 cities.

IPTV estimates - Updated estimates for worldwide iptv users. China iptv users are projected to reach over 10m by 2013, which is lower than earlier projections. Growth for 2008 worldwide is about 100% which bodes well for lagging regions/areas (most of UTs target markets such as India, China, Latin America, etc). Also, UT has ancillary revenue from iptv advertising unit, surveilance etc. I'm not sure if they are including cable/iptv in the estimates.

Market valuations - Just some stock price of companies in the sector....Sonus $1.46, Alcatel-Lucent $1.86, Ericsson $5.82, 3com $1.53, and Nortel $0.42. Transmetta was recently bought for around $300m (slightly above their cash value). Some shareholders are suing due to the low share price. In this market, I would think there would be more consolidation but it hasn't happened so far. This could really help in pricing, market valuations, etc.

Have a good rest of the weekend and new week to everyone. It doesn't look like the market has found the bottom yet and year-end tax selling may just be starting. Did I mention...really ugly.

Saturday, November 15, 2008

2009 Outlook

The company will discuss additional OPEX cuts later this quarter (in about a month) but I looked into the non-GAAP revenue provided by the company that separated out the PCD division sold and included the revenue sale into the PCD (basically the Korean designed CDMA handsets sold outside of China). I also noted the book to bill ratios provided during the last 4 quarters to generate some preliminary estimates for 2009.

Q1 2007 to Q3 2007 - Just for historical perspective, the non-PCD/non-Korean handset revenue for those 3 quarters were $188, 180, and 188m. The Korean handset division had revenues of $77, 70, and 60m. For this posting, I will designate the non-PCD/non-Korean handset as "core" and the Korean handset division as "handset".

Q4 2007 - This was a huge revenue quarter for PCD having generated revenue of $560m from Q3 of $458m. Overall book to bill only came in at 0.8. The core did have revenue of $246m while the handset continued to decline to $53m.

Q1 2008 - While book to bill came in at 1.2, PCD book to bill was 1.3 while non-PCD was only 1.0. Core revenue was down significantly to $155m and the handset revenue declined again to $35m.

Q2 2008 - Excluding PCD, book to bill was again 1.0. Core revenue did jump back to $184m and handsets back to $56m. Note however that some Q3 revenue was able to be recognized in Q2.

Q3 2008 - Core revenue came in at $146m while handsets at $35m. Note also that PAS (and other handsets in China) was $37m. That means infrastructure sales (iptv, ngn, broadband, PAS infra) was only $109m. Book to bill did increase to 1.2.

So, lets list the overall trends (some were apparent/some not so): The internal design handset division has been declining as well as PAS infra/handsets by around 50% from Q1 2007. So, the PCD performance was carried by the resale part. The current Korean handset portion is currently not cash flow positive and all the improvements we keep hearing about (they are in the 3rd or 4th generation of developing their internal handsets, etc) have not hit the bottom line and is basically pie in the sky. The "hope" is this will improve as they can penetrate the China markets and make up some PAS sales. However, the numbers don't give me confidence.

Core revenue (despite some improvements in iptv/ngn) has not quite closed the gap to the $180m+ range.

Bookings have not really grown yet. This quarter's 1.2 was a start but this was the lowest revenue of the core+handset group.

Next quarter's expected revenue of $225m was way off the analysts already lowered estimates of around $250m and investor expectations in the high $200m/low $300m during the seasonally strong Q4.

OPEX cuts of 15 to 20% is not only mandatory but is insufficient to get the company to profitability. During the Q2 earnings call, Blackmore mentioning divesting or merging the CSBU in 3 to 4 months (definitely by the end of the year). This will probably done prior to the update call discussing OPEX cuts. Fifteen to twenty percent would still yield expenses in the $77-83m range (say $320m yearly runrate IF implemented by Q1).

2009 projections - It will be imprecise to estimate 2009 revenues based on bookings because of the timing issues but that is all we can go on at this stage. I will use the book to bill ratios for the core portion and estimate around $140m for the handset division. That yields (0.8*246m + 155m + 184m + 1.2*146m) + $140m = $711m in core bookings + $140m in handsets for around $850m. Again, each quarter could yield new contracts and ramping of iptv but this is my best guestimate for now. 2008 revenues (using the midpt of Q4 2008 guidance) will come in around $836m so 2009 will see little if any revenue growth. At 25% GMs, gross profits will only be $213m. This quarter's GMs of 32% was due to NGN performance and projections for Q4 are down to low 20s. The revenue for 2009 could be higher if internal handsets does better but then GMs will be lower so for now, I will go with $213m in gross profits and OPEX of $320m. That scenario could be highly optimistic if OPEX is higher or revenue lower due to CSBU divestiture. So, that is an loss of $107m. Add in $20m for taxes/options and another $23m for contingencies (higher opex/lower revenue/margins) and it can add up quickly to a $150m cash burn for 2009 (ouch!).

The company will end 2008 with about $291m + $24m in escrow in cash/short term securities. At the end of 2009, that could easily be down to $165m in net cash heading into 2010 (or about $1.32/share).

Optimistically, I have to say that there are a lot of things that can happen in the next 5 quarters such as bookings growth, even lowered expenses, higher margins, better market environment going into 2010. However, the above shows profitability not only being pushed out (once again after 4 years already) but that management is still behind the curve in their estimates/execution. Back in August 2007, they only had net $150m in cash. The 6 quarters of operational losses (+ 2009 operational losses) will be subsidized by the one time gains in investment sales and sale of the PCD.

The company also has around $200m in real estate, no debt and will generate some interest income. They have time that other companies do not but eventually, they will have to become profitable or sell out and get whatever they can for shareholders. As I said, a lot can change in the next 5 quarters and I will take a company with no debt, net cash of $165m, and profitable for 2010 (if that was the case) but thats a long ways off from here. The share price, current market environment, and years of underperformance should motivate management to have a sense of urgency but the numbers above show that even with the current opex cuts planned, it is not enough. The additional hundreds of millions in bookings/revenue that Peter was projecting that can ramp is nowhere in sight.

Have a good weekend everyone. Its really ugly in the markets and in UT stock but it could easily get worse. So, prepare for the worse and hope for the best.

Sunday, November 9, 2008

Q3 2008 Earnings Recap

Q3 revenues came in at $181m, within the range of guidance provided last quarter. Gross margins were much higer at 32% while OPEX was lower than guided at $92m. Because of the "upside", operating loss was $35m. However, including one time charges, overall loss was a mind boggling $56m.

Q4 guidance is for revenue of $215m-235m, lower than analyst estimate and much lower than what I calculated even with the shortfall announced last quarter. For a perspective of how much revenue (excluding PCD) has missed estimates, lets go back to the preliminary "guidance" for 2008. Initially, overall revenue growth was set to come in at 3 to 6% from 2007. Based on mid range of each business unit projected guidance, I came up with around $833m in "core" revenues (excluding the entire PCD). If you add in the $280m in internal handset revenue (Korean designed/sale to PCD part) that was disclused in the Analyst day meeting in June, that would be overall revenues of $1.113B. But by the June Analyst day meeting, the expected revenue was down to $1.03B, which yielded non-PCD revenues of about $755m. By the August call that discussed Q3 and Q4 cash flows, that overall revenue number (including Korean handsets) was down to around $900m, which led me to calculate around $300m still for Q4. With this latest guidance, it is obviously even lower at around $225m. Adding it all up, 2008 revenues will be around $836m ($190m+$240m+$181m+$225m). This compared to the initial $1.113B figure. While the PCD outperformed, the remaining businesses have clearly been impacted by the world downturn.

The above numbers are ugly and on top of the previous 4 years is enough for investors to pull their hair (if they still have some). In light of those numbers and the current stock market environment, its not surprising to see the stock languish at this range. If you were utterly frustrated at a $3+ shareprice after the last earnings call, at $1 and change.........well... I could end the recap but as usual there are positives to keep the hope going.

Balance Sheet - Mentioned atleast a minumum of 4 to 5 times, the current cash/short term securities balance is at $331m. There is also no debt so amazingly, this is the highest net cash position the company has had (since maybe the ipo days). Operating cash flow through the first 9 months of the year is a negative 32m + another $35 to 45m in negative cash flow in Q4. That would yield an end of the year target of about $291m, which is close to the company's projected net cash position of $300m during the Analyst meeting in New York. There is also an additional $24m in escrow from the PCD sale ($14m closing costs that is likely to be received by end of the year and $10m in one year). So, more than likely, the company will have over $300m by the end of the year. Did I mention that the company will have over $300m by the end of the year? :-) I shouldn't laugh at this since back in the June Analyst Day meeting recap, I said who would be impressed to buy a company losing $130m without PCD? and to just highlight how cheap the company is. Anyway, the company will end the year with around $300m in cash and no debt. Potentially, they could receive another $10m in 2009 and up to $50m in 2010.

Executive hires - Four new hires were announced, one for business strategy/innovation, one for intl. sales/marketing, one for sales executive in China, and one for supply chain management. It is clear that Blackmore is putting his imprint on the company but he is also fully responsible for performance.

Misc buisness unit performance - IPTV subscribers increase from 950k at the end of June to 1.1m at the end of September (15% quarter growth and 57% year growth). The company received a major win in another province similar to the win in Shanghai. The company got an ad win in Hunan province and has 40% of the PDSN market in China (don't know the value or the market potential of these though). Phase II BSNL contract should have atleast positive GMs (compared to negative for the Phase I - I hope so!). This is due to better pricing, reduced shipping costs, and better project management. There were a couple of Tier 1 wins in the Middle East in broadband (Israel and in Yemen, beating out Alcatel Lucent, Huawei among others). This sets the stage for UT to cross sell their other products.

Q3 BU numbers - MMCBU was unchanged year over year at $58m in revenue. PAS infra declined about 15%. GMs was strong at 53% vs 29% that included strong GMs from NGN and a $4m reduction in 3rd party commisions. PAS margins was also better this year. Broadband declined from $31m from $41m last year due to CPE decline associated with an ADSL expansion by Softbank last year. Most of the CC focus is on China and India so there was some let down from Japan as revenues there continue to fall. GMs in the broadband division was 10% compared to negative 12% last year (due to Phase I India contract last year). The handset division now includes the PAS handset and CDMA sales in China as well as the Korean handset sales primarily through PCD. PAS handsets declined "an expected" 40%. I'm not sure I heard or expected 40% decline but that is not good. Blackmore specifically mentioned a couple of CDMA handsets to make up some of the revenue. During the Q&A, we learned that the Korean handset division supplying PCD is not cash flow positive but the China one is .

Share repurchase - Viraj Patel mentioned there will be no share repurchase to maintain strong cash positions. At the current market (both operational markets and the stock markets) this is probably the right move. Even if the stock got a boost from a share buyback, it is still not making money and the move would be temporary. I would like to see insider buys however.

Expense reductions - It was a positive last year when Peter set target expense metrics for the company but the revenue gains never came in the 2nd half of 2008. It is hard as a shareholder to keep hearing the growth in the company's markets and yet it never hits the company. It is good to finally get over the hump of discussing whether revenue growth is going to come soon or further significant cuts will need to be taken. I still believe (or would like to anyway) that Peter's statements of ramping up revenue several hundred million is doable but at least the company has a strong balance sheet and now has faced up to the expense cuts. Peter mentioned the company will have a call later this quarter (in about a month from talking with Barry Hutton) to discuss how they will achieve 15 to 20% in OPEX reductions. Peter mentioned that process is starting already and that Barry reminded me of the sensitive nature whenever cuts are made. (I just wonder how come there is not as significant a sensitivity to shareholders all these years!) Anyway, this is probably the best news. While the cash position is great, it is just a facilitator to a growing/profitable company. On the other hand, these reductions always come with costs such as severance, lost revenue, etc. Timing is not bad as Peter noted that UT is in much better position than other companies (see Nortel for ex., ugly). Peter also noted bookings growth of 10+% in 2009. While this sounds good, it is even down from 25 to 50% mentioned 3 months ago. Bottom line, there are strategic wins and the balance sheet is great. However, visibility even a quarter out is difficult. The multi-year wins and new customers will help and margins are decent for their software offerings but pricing is still competitive.

Misc. comments/info. - This call was definitely better than last quarter, specially the Q&A portion. Paul Wehner from DSL capital (which owns a chunk of UT) did a good job in highlighting the $24m in escrow and the status of the Korean handset division. To achieve 15 to 20% in OPEX reduction (which Peter called very doable), this division plus the CSBU will probably be divested, merged or major cuts will be made in these areas. There was also a strategic iptv cable win in China. This is a small (under $5m) contract but the cable market is 160m in China. The comapny is also bidding on other similar deals.

Overall, the expectations with a sub $2 stock price is quite different than last quarter with the stock at $4.6+. On one side, the company projections for 2008 were off by quite a bit but they have strengthen the balance sheet and secured a bunch of strategic wins. The valuations is even better now than at any time previously but in this market, we've seen the stock can even go lower (although it is quite ridiculous now). There is always the risk that the company keeps burning cash but the net cash position is at the highest in years and expenses are going down. The company continues to provide good information/communication as management has reached out to investors. The management/board have a huge stake in seeing this work out and has many more options than other companies. I expected (hoped) the company would have bottomed out in early/mid 2008 and would start its rise but this was not to be. Further cost cutting is needed and it looks like management is on top of the ball. I am surprisingly upbeat despite the sub $2 stock price (maybe because I'm alreayd numb to the price and relative to other companies/markets, think it has its growth potential intact). In any case, its a wait and see but believe investors will still be rewarded in the following years. Prior to starting my post, I just caught glimpse of China's stimulus package. That should be good news for UT and hope that China "boom 2" won't miss UT.

Have a good rest of the weekend everyone.

Wednesday, November 5, 2008

Q3 Earnings preview

Here are a few thoughts for tomorrow's earnings results/cc.

Q3 earnings estimates are for revenue of $182.5m. Management has guided between $180-190m. Loss estimate is for 54c/share. However, the stock will be driven more with Q4 estimates and outlook for 2009.

Q4 estimates are for revenue of $246m. There are only a couple of analysts providing estimates but the company should be able to beat this number. 2008 revenue (excluding PCD and including the shortfall discussed last quarter) should still be around $900m. That would put Q4 numbers in the high $200m/low $300m range. Book to bill should easily be over 1 due to the India Phase II contract and the fact that Q3 revenue is low due to the shortfall and some revenue recognized earlier in Q2.

The sale of PCD/MSBU also occured in early Q3 so net cash will increase substantially. The company's forecast is to end the year with net $324m in cash. They will still burn about $50m in Q4 so by the end of Q3, they should have about $375m in net cash or a little over $3/share. Enterprise value will be negative but that is not uncommon in this bear market. Aside from the cash, the company has around $200m in real estate/building and other investments/securities that yield a book value significantly higher than the current price. The key to unlocking this value is to get to profitability or atleast maintain neutral cash flows going forward.

Other things to look for are iptv subscriber numbers and new contract wins in Russia, Japan, Brazil, and other Eastern European countries, Latin American countries, etc. Its counter intiuitive to think a company can grow revenues in this environment but then again, a lot of UT traction in iptv, ngn, and broadband has happened recently.

Target expense metrics discussed all year long may also get some input. UT expenses are still way too high and revenue growth has not happened. It seems there is no major cuts in the horizon, which could mean that management is confident that revenues/bookings growth will be robust or that management is out of touch with the concept of profitability. I am not sure what "near term" means to management as well since we have been hearing about their near term revenue growth and profitability goals for the last 4 years.

Anyway, the company has been operationally in the red for the last 12 quarters but amazingly the balance sheet is fairly good. In the last year, there have been strategic wins that give hope that the company is in the right track. Whether the market will assign a large discount or ridiculously large discount to book value remains to be seen the next couple of days.

Some shareholders have become even more pessimistic on the share price predicting $1.5 or lower prices. I guess that is human nature but if it happens, its time to close your eyes, press the buy botton and hang on :-)

Sunday, November 2, 2008

Weekly Recap - Markets rally

The stock closed at $2.38, up 46 cents or about 24% for the week. The markets were up double digits recouping the previous week's loss. Normally, these type of numbers would be huge news but the wild moves (up and down) are more the norm than the exception. The Fed rate was cut by half a point to 1%. In the near term, the governments all around the world are trying to will the market to go up.

UT joins iptv forum - UTStarcom, Inc. (Nasdaq: UTSI - News) was recently accepted into the Open IPTV Forum, a telecommunications industry organization charged with publishing standards-based specifications intended to expedite deployment of Internet Protocol Television (IPTV) services to telecom operators, consumer electronics manufacturers and network infrastructure providers around the world.

UT earnings on Nov. 6 - Q3 earnings to be reported this coming Thursday.

Interview discussing UT strategy/growth in Indian broadband/iptv- Manish Matta, senior director of marketing at UTStarcom (News - Alert), explained that the issue in India is not due to a lack of technology, but a lack of consumer awareness regarding the benefits and applications enabled by broadband. There were some good comments on the article as well from fellow shareholders. We learned from the article that there is about 800k live iptv users in China on UT equipment. Thats up from 538k in April. While the growth rate is good, it actually seems low since it included the additions from the olympics.

Alcatel-Lucent earnings - Restructuring, selling assets, focusing on the client/new technologies, trying to return to profitability...........sound familiar. IF ALU can go up, UT can as well :-)

Comment on stock price - What are the chances that UT will see $3 soon? As long as the markets don't make new lows and nothing seriously bad in the earnings, that should be reasonable. Thats still a 26% gain. What are the chances that UT will get to $5 in the next year? UT has always hit $5/share so thats atleast a decent bet as well. Thats 110% from here.

Have a good week everyone and hope UT's earnings call will be much better and shareholders can recoup the 50% loss since the last earnings call.

Sunday, October 26, 2008

Weekly Recap - All time closing low

The stock closed at $1.92, down 52 cents or 21% for the week. It was another brutal week for the markets with the DOW down 5.35%, Nasdaq down 9.3%, and S&P down 6.8%.

Phase II Multiplay BSNL contract - "During this second phase, UTStarcom will deploy its industry-leading iAN-8000 multiservice access node (MSAN) solution in 962 cities throughout India to enable the addition of 1.1 million new broadband subscriber lines.""UTStarcom also has deployed its NetRing(TM) 10000 optical transport solution in support of this multiplay service for the aggregation of DSL traffic in BSNL's network. UTStarcom's NetRing product suite provides service providers with a high level of network resilience and carrier-grade quality of service for subscribers to help ensure trouble-free delivery of real-time mission critical data and video applications." Announced previously in the Q2 earnings call, this is a $80+ million dollar contract and UT is spending $60m this quarter to prepare for the execution of the contract. This contract doesn't have the 30+% GMs that other Indian contracts they have signed this year but hopefully will be better than the Phase I, which had a lot of issues. I'm also hoping that they execute this quickly and open the doors for improved broadband contracts and iptv contracts with BSNL.

China infrastructure spending - Tigre posted regarding China's intention to spend on railroads and other infrastructure in the coming years. With around $2 Trillion in reserves, China has the capacity to navigate its economy through this world wide financial crisis. The U.S. will also have to focus their spending on infrastructure, health care, etc rather than pure consumption.

Lu Interview - Maybe someone can translate.

Status of PAS - High margin PAS infra and lower margin PAS handsets still account for $350m of UTs revenue so the status of PAS is always a concern. There were discussion of PAS spectrum being turned over for TDSCDMA. It should not happen overnight but will happen over a few years.

Ericsson's Earnings - On the positive side, Ericsson increased revenue, slashed costs and made more money this quarter than last but there are definitely concerns...."CEO Svanberg hardly inspired confidence when he said that while Ericsson's business in the quarter had not been impacted by the financial turmoil, it remains "hard to predict" how operators will act and to what extent consumer telecom spending will be affected. Things are likely to get worse before they get better."

"Of course, if Ericsson can't grow organically, it could keep an eye on acquisitions. Ericsson sits atop a net cash pile of about $4 billion. But investors would be happier if Ericsson coughed up some of that cash in the form in dividends or share buybacks."

General comments - The various topics above gives a glimpse of UT challenges/opportunity in the current environment. UTStarcom's market cap is down to around $241m. This compares with the company projecting a net cash position at the end of the year of $324m. This discrepancy can be attributed to the bear market, uncertainties in PAS and UT revenues going forward. However, the markets that UT targets like China, India, Brazil, Russia (BRIC countries) should all continue to spend on infrastructure and on things like broadband, iptv, and NGN. UTs PAS softswitch/technology is intertwined with iptv so its not easily separated. Lu has spent some time in China during the Wu transition and focused on stabilizing the China operations and pursuing opportunities in IPTV/PAS and more importanly broadband (GEPON/transport network). While PAS is declining, I have to believe/hope that other technologies/contracts will make up for this revenue which has dropped from $2b to $350m. As for Ericsson, there was speculation they could acquire UT. During this tough stock market conditions, one thing that could help is consolidation. The problem is the significant drop that potential targets have sustained and the stubborness of boards/management to look after shareholder value (look at Yahoo and recently Sandisk - $27 offer too about the current $9 stock price!).

UT options and outlook - With the Q3 earnings report around the corner (no date yet...what a surprise), anyone still following the company will key in on strategic wins, impact of current world economy, iptv developments and cash flow for 2009. Rather than just projecting 2009 cash flow which would be difficult, I would suggest to Peter Blackmore to commit to a certain cash flow level and that they will aggresively cut costs (more than they are planning if needed) if revenues don't come in. As for buybacks, people don't expect it to help the share price anymore (in general for most companies) because companies tend to buy "high". Interestingly, I just read that this time, it might actually be effective because it now shows that the company doesn't have a liquidity problem! (even GE needed to raise billions because short term loans for this triple A rated firm became questionable recently). Anyway, with the stock under $2, the company may even just take it private - why leave the retail shareholders with anything.

Tough market even for seems you can only make money by shorting or buying after the market goes down and hope for a bounce. Sadly even in this environment, trading is still much better than watching UT disintegrate. Have a good week everyone..........stay liquid and live to fight another day!

Saturday, October 18, 2008

Weekly recap - above $2

The stock closed at $2.44, up 48 cents or about 25% for the week. The markets started the week strong up about 11% but gave about 2/3 back by the end of the week. The optimists will point to the successful retest on Thursday (probing Oct. 10 lows) and the bears can point to the negative reversal on Friday. In any case, the markets will continue to be volatile and opportunity to make or lose a lot of money abound (traders market). UT itself traded on a wide range from $1.85 - $2.5. Here are some discussion points for the week.

Results of options exchange plan - Originally, there were about 7.25m underwater options. If exercised in the future at strike prices from $6-25, it would dilute existing shareholders by the 7.25m shares. The exchanged program gave employees the option to receive few options but at a lower strike price (closing price on Oct. 1, which happened to be $3.24). The results of the option exchange program was filed this week.

Basically, the original number of options had current value of $4.4m based on a modified Black-Scholes option pricing model. Of the 7.25m shares, about 6.1m were tendered for exchange to about 2m options at $3.24 strike. Its interesting to note that even at Friday's close of $2.44, 2m shares would be worth only about $4.9m. In terms of potential future dilution, it was not as good for shareholders as I thought. Of the original 7.25m shares that could potentially dilute the existing share base, 1.1m was not exchanged, 2m was exchanged, 900k was cancelled BUT 3.2m will be returned to the "treasury" as I call it and available for future grants. It was interesting that about 1m was not exchanged (did they just forget the deadline :-). Back when this was initially discussed in a previous blog posting, I had commented that I hoped the company would not provide negative information that would drop the stock price (mid to high $4s at the time) so that the strike would be lower. Now, with the price in the mid $2s, $3.24 looks high. Thats how bad the stock has fallen. On the bright side, employees (at $3.24 strike), Blackmore (bonus converted at $3.2), board members (got compensation/shares converted at $3.37) may feel just a little remorse with the shareholders who had to buy their shares outright. Just very little......

Nokia earnings report - Earnings drop about 30% and average selling price dropped a bit. Their market share went down from 40 to 38% but expect it to be back above the following quarters. Global handset sales growth forecasts are still in the high single digit range compared to a sold 10-10.5% (per one analyst). I bring this up to keep track of UTs PCD sale (which they still own 2%, have their own handsets unit, and potentially could get up to $50m by end of 2010).

Vendor financing - Nokia/Alcatel Lucent reiterated that tough times does not mean a return to vendor financing.
"Times might be tough, but there's no way that Nokia Corp. (NYSE: NOK - message board) would contemplate reintroducing any vendor financing practices to help out cash-strapped customers, noted the vendor's CFO Rick Simonson during today's third-quarter earnings conference call. (See Nokia Reports Q3 and Nokia Siemens Shrinks in Q3.)
"I am not a bank," he stated, with some pride, in response to analyst questions about potential aid to carrier customers and channel partners."
Based on the last few years, he added that most operators are in pretty good shape (better than the equipment providers).

I bring this up to discuss UT fronting $60m for the BSNL India phase II contract. Its amazing that UT has to front this money but then again, its part of the price to get in the competitive Indian market. I hope it will pay big dividends. UTs cash horde of net $320m by year end should be a powerful resource to gain market share and generate significant revenue growth during these tough conditions.

India still booming - As for India telecom industry slowing down? The entire point of investing in India is due to its future growth. Despite the financial turmoil, investments will continue to happen.

UT 2nd iptv AD network in China - UTStarcom, Inc. (Nasdaq: UTSI - News) today announced it has signed an agreement with Best Tone Information Service Corporation Ltd., a wholly-owned subsidiary of China Telecom Corporation Ltd. (NYSE: CHA; HKG: 0728), with the intent to deploy a video information distribution network in the Hunan province of China. This is the second large-scale interactive advertising system that UTStarcom's end-to-end RollingStream® Internet Protocol TV (IPTV) platform will power in China, both of which are expected to change the way subscribers view advertisements. UTStarcom previously announced the launch of the first interactive advertising network with Guangxi Telecom Company Limited, also a wholly-owned subsidiary of China Telecom Corporation Limited, in July 2008.

Jiangsu Province IPTV - Fellow shareholder Batjack (formerly Bamboozled) has been working overtime since he started posting when the stock was cheap at $4.5 :-) Unfortunately, that was the technical breakdown point for the stock! I do appreciate that there are still some shareholders sticking with the stock. Anyway, back to the news.

October 15, 2008 - The number of IPTV subscribers in China's Jiangsu Province, located on the east coast of the country, rose by 471% in the first nine months of this year, according to Interfax China quoting domestic media, making this the biggest rise in IPTV adoption in the country during the period.
Jiangsu Province had an IPTV subscriber base of over 200,000 by the end of September 2008, compared to 35,000 at the end of last year, according to Chinese website Lmtw. "Jiangsu has overtaken even Shanghai in IPTV use growth this year," said Zhang Yanhong, chief executive officer and industry analyst at Lmtw. "Its speed in IPTV development is incredible."

There is definitely competition between ZTE and UTStarcom on the IPTV front. I had posted previously.

China iptv - Last week, I noted the continued, steady growth in China (about 30% sequential growth). This one is about a week old as well. The headline is "China Telecom has shortlisted 11 companies to supply 574,000 IPTV set-top boxes, comprising 536,000 standard-definition and 38,000 high-definition units." It has ZTE benefitting the most and that "ZTE is thought to currently hold the largest market share of China's IPTV system and terminal market, and has supplied systems and terminals in a number of regions, including the provinces of Shaanxi, Jiangsu and Guangdong, as well as Beijing and Shanghai."

From a previous earnings call, Lu commented: "Moving on to broadband, we’re very pleased to be beating and are breaking through in our GEPON business in China. For example, we’re working with the China Telecom for GEPON contracts in the Jiangsu, Zhejiang, and Fujian provinces. We’re also looking at the expansion contract with the China Telecom for gigabit EPON in Ningxia Province and are planning the trial with the Hunan Province and Jiangxi Province.

Guangdong Province IPTV -
October 17, 2008 - Southern Media Corp. (SMC), the largest media group in China's Guangdong Province, plans to launch a new interactive TV and IPTV platform in the province in 2009, according to Interfax China, quoting an anonymous source.
The source added that SMC is now consulting with equipment suppliers on the deployment of the platform, of which first-phase construction is expected to be completed by the end of the year. The platform is expected to be put into operation at the beginning of next year, covering 50,000 trial users, and at full capacity is is expected to be able to support 700,000 users simultaneously.
There are currently an estimated 130,000 IPTV users in Guangdong Province.

I had summarized a previous earnings call segment: The company maintained 60% market share. As an example of progress in iptv, Lu cited a $7m contract signed in Shanghai and another soon to be signed $3.7m contract also in Shanghai. They also had their first win in Hunan province and are in negotiations in 4 other provinces. They also signed a contract for interactive advertising in Guangdong. There was also a growing ip surveilance business opportunity with 250k retailers in China (must be a lot of theft there :-)

UT is definitely in the thick of things with iptv/broadband in China and India. The major question is when the market will truly ramp. The developments we keep hearing are definitely encouraging.

Mobile IPTV - Thanks to News to Use for this find.

Soon, you could be getting Internet Protocol Television (IPTV) on your mobile phones. UTStarcom, a global provider of IPTV infrastructure, is working on technology at the moment, which will enable its clients to offer IPTV on mobiles.

Speaking to, Vijay Yadav, managing director, UTStarcom - South Asia, says, "This technology will enable IPTV to be used on any of the three platforms - WiFi, Wimax and 3G. We are agnostic to the underlying pipe. For us, IPTV is the future. A large focus of our R&D spend is on IPTV."

Share price - I'd like to end by discussing the share price AGAIN. Despite this brutal bear market, there are companies that will fall apart and there are others that will come out strong. UT technology, capital resource, strategic wins, and focus may actually be at its peak contrary to the current stock price. The current revenue base is still tilted to the PAS/internal handset portion and revenue for the core growth business has not compensated for the existing expense base. Most shareholders and the company itself see more expense cuts but the road to profitability is less clear with the current environment. However, valuation is very cheap as we've noted for the past year. The stock is down 59% from the 52 wk high set as recently in June. While the financial markets have deteriorated in that period, UT should fare much better due to its capital resources and target markets. As the equity market finds its footing, I believe UT should rocket back up the rest of the year. The valuation (50% book) is too compelling at this stage. Take advantage of fund forced selling and gains (percentage wise) should be incredible from this level.

Have a good week everyone. Its time to be aggressively greedy.

Sunday, October 12, 2008

Weekly recap - Under $2

The stock closed at $1.96, down 92 cents or 32%. Yes, thats a $1 handle on the stock and that was even off the low of $1.65. The DOW & S&P lost 18% and the Nasdaq was down 15% for the week. It could have been worse as the market made a dramatic surge late Friday "limiting" losses. Despite the significant declines in the market, UTs decline was particulary severe because of their clean balance sheet and already reduced share price (valuation). Nevertheless, the lack of liquidity and institutional support shows what can happen when certain institutions need to get out of a $2 stock that has an average volume of less than 1 million shares recently. As of this posting, the futures are skyrocketting and will atleast get the market off to a good start.

For the week, here are some discussion points.

Viraj Patel filing - No other PRs from the company except some updates on compensation (what a surprise on the PR front) for the interim CEO Viraj Patel. Basically, Mr. Patel gets a $100k bonus for his added responsibilities and a waive of previous performance clauses tied to 60k RSUs. He also gets another $46k for a turnaround "retentions" bonus contract set in late 2007. Its easy and tempting to make additional smug comments on compensation for management but in this case atleast they are going to save on Barton's future compensation.

Huawei cancels handset sale - "Given the current global market conditions and prevailing economic uncertainty the interests of the company are best served by postponing the sale process," Huawei said in a statement. Morgan Stanley had been advising the firm on the sale, which was expected to raise around US$2 billion for a majority stake in the handset division. According to people who had seen the information memorandum produced by Morgan Stanley, the unit is this year expected to report revenues of $3.5 billion and produce net profits of about $400 million.

Nortel MEN - Nortel's metro ethernet networking division is on the blocks with lukewarm interest. According to a story in the Financial Times, Nortel’s efforts to sell its metro Ethernet network business isn’t going well.
Citing two investment bankers not involved in deal, the sale has “stalled” or it’s “lukewarm”.
Given the volatile capital markets environment, this should not come as a major surprise. As well, you have to believe Nortel is looking to get an attractive price - let’s say $1-billion to $2-billion - for MEN, which will be a challenge.
The FT quoted one of the investment bankers as saying MEN is worth $700-million in a “good” market, and it has attracted 10 bidders with “lukewarm” interest.

The news above regarding Huawei and Nortel shows the difficult environment in selling even profitable business units. There has been consistent discussions with the low share price of UT that it could be on the block but that is very unlikely in this environment. At the very least, it will not get a decent price. UTs board had a chance to sell it back in 2006/early 2007 (atleast some parts of it) but chose not to and the company is hopefully further along in its turnaround than most companies that are just feeling their slowdown. We'll see.

A final note taken from a Nortel blog ( Paul Kedrosky, a venture capitalist and well-known business pundit, believes the telecom equipment market is heading for even more difficult times because many of its customers (e.g. carriers) are going to badly hampered by the credit crisis.
Carriers “can’t afford to build out because the availability of credit isn’t what it once was,” he said during an interview on Yahoo Finance’s TechTicker.
When asked about consolidation within the industry, Kedrosky said it has to happen given the market’s dynamic and that “Nortel doesn’t make it out of this cycle alive”.

So, in terms of speculative play on a sale, Nortel would probably be a higher probability than UT. It seems management/board will always wait until the VERY LAST minute before selling out ensuring maximum pain for shareholders, unfortunately. Lets hope (again) that UT can be an exception. BTW, Yahoo is trading in the $12/share range. Does anyone believe (including the yahoo board/management) that Microsoft's $33/share (or even the $31/share) was not a gift from God at that time? Its unbelievable that it took yahoo's board/management to bail out Steve Balmer and company. Lets "hope" there is someone left to bail out UT shareholders.......

Have a good "trading" week everyone. Keep the powder dry and those fingers quick ;-)

PS... There are a lot of stocks trading that have daily charts that mirror 5 year charts in terms of price range. So, if you really want to "go for it", this is your market :-)

Thursday, October 9, 2008

Shareholder retention program

The shares closed at $2.15, another all-time low closing price after the market fell off the cliff again today. I've talked about a share buyback the last few weeks and have gotten various opinions. Some companies that have done share buybacks have seen their stock tank with the market anyway. Some people mentioned it would only provide a short term boost (if that) and shorts would just use the price uplift to attack the shares more. Some have mentioned that its better to have the cash as a buffer for the uncertain environment. "Cash is king" Really?

The company's "long standing" position is that their "near term" goals are to get back to growth and profitability. Re-read that 10 times and see if it makes sense :-) According to them, this is the major driver of the share price. Really? :-) The problem is that their growth businesses (iptv, ngn, and broadband) only make up 1/3 of their current revenue base and PAS/handsets are not growing/declining. Their expenses are still way too high and they refuse to make substantial cuts. So, despite Peter's repeated expense targets and growing revenues by several hundred million, it doesn't seem probable in the "near term".

As a long-time suffering shareholder, it just hasn't paid to be in the stock. A lot of other shareholders are jumping ship as well. Therefore, it is imperative to have a shareholder retention program that could actually work to stabilize the shareholder base. My proposal is as follows:

1. Announce a special dividend payment of 50 cents/share to shareholders to be paid out one year from now.
2. Announce another special dividend payment equal to the amount to be received from the PCD sale (remaining performance payment up to $50m depending on PCD performance). This will be paid end of 2010, 2 years from now.

Here are the benefits/details of the program:

1. The company will have $325m in net cash by the end of the year. Spending $60m by end of 2009 will not impact cash flows until late 2009, where profitability "should" be closer.
2. Shareholders will have a reason to stick around for dividend payments the next two years and actually get a guaranteed payment equal to about 50% of the current price (unbelievable).
3. Shorts can continue to short or keep their positions but they will have to bring out cash giving them incentive to get out of their positions in the next few months.
4. Insiders who own shares will benefit from the dividend payment. Previously, to benefit, they would have to rely on the shares appreciating and selling shares. They will also be motivated to keep their shares.
5. Employees who had options repriced at $3.24 might have a chance to benefit from a stronger stock price by then and may have incentive to keep the shares.
6. The payment in 2010 will not come from existing cash but from the PCD remaining money (up to $50m).
7. A share buyback doesn't help earnings/share because there is NO earnings. As some have mentioned, the shorts can just keep shorting what the company buys back as well.

I believe the above has real incentives for shareholders and shorts. The company can do something tangible by being creative without impacting short term liquidity. It will highlight their massive cash position, which at this stage is the company's strongest point. Shareholders will have confidence the board/management actually "cares" about shareholder value and will benefit themselves. Imagine some executives getting a nice $500k to $2m bonus dividend!

Anyway, just a thought on an otherwise horrible week for shareholders (on top of the last 4 years).

Wednesday, October 8, 2008

Liquidity, frozen asset, lack of confidence, bailout

Am I talking about the US banks, economy, or the fed actions? No, its the sorry situation with UT stock. The stock closed at an all-time low of $2.25 after hitting an even lower intra-day low of $2.15. I could talk about all the "assets" and value the company has but this situation is all about liquidity. The company understands liquidity (see last year) but here is an example of shareholder liquidity problems TODAY. I was talking with an institutional investor as this was unfolding and we muttered something like, there is definitely a determined seller today that was dumping a lot of shares, dropping the price 10 cents at a time. I then get a call from another institutional investor mentioning one of their clients on margin had to dump 700k shares! With trading volume averaging less than one million, it doesn't take a genius to realize it was going down hard. At some time this morning, at about 800k share volume, I was amazed to see the market cap get clipped by $47m on about $2m worth of trading. Brutal. This is the flip side of the 700k share buy that gapped the stock up to $3.37 a couple of Fridays ago.

The company has touted their $324m net cash position, their growth potential, their great technology, their "near term goal" of getting to proftiability, their goal of enhancing share holder value, and yet the stock makes another all-time low. Its unfortunate that shareholders have no recourse but to unload at these levels while management tinkers around their profitability timing and holds on to shareholder cash. While there is no guarantee the share price will go up with a buyback, it will provide confidence that is as beneficial as the return on cash. Seriously, what is the company waiting for? A $1 handle? You have got to be kidding me....That 2009 forecast coming up better be a good one or else......

One last note: One good thing about the credit crisis and all the failed strategic plans of companies all around. Executives nowadays have so many examples right in front of them on what NOT to do. Maybe the SEC/Fed should "force" UT to sell itself and/or find a merger partner. It can't be much worse than this.

Good luck everyone.

Saturday, October 4, 2008

Weekly recap - deterioration in stock markets

The stock closed at $2.88, down 41 cents or 12.5% this week. The markets hit new lows despite the passing of the "rescue"/"invest in America" plan. The DOW, Nasdaq, and S&P500 were down 7.3%, 10.8%, and 9.4% respectively. I can't remember a worse week for the markets since maybe 2002. I read an article that mentioned 1/3 of the people think its a tremendous buying opportunity, 1/3 think its just the start to further losses, and 1/3 that don't know! I personally think its going to be higher in a few weeks even if its just a bounce from an oversold condition. However, the 10k level on the DOW is very close that its like the $3 "magnet" in UT stock. As for UT, I'm hoping it starts moving up in anticipation of the next earnings report. Here are some discussion points.

Commentary on bailout/more needed - I got this link while checking the Sigma Designs board, "Realizing it is not enough, by Monday morning expect some additional Federal Reserve action, perhaps a rate cut, maybe even a coordinated move between the Fed and European and Asian central banks. Even so, the market is too big, the debt crisis too large, for central banks to control."

Other stocks down - Each company has its own issues but here is a sampling of the losses suffered by other technology companies (with some relation to UT) this year.

Alcatel-Lucent -52%
Nortel -86%
Cisco -21.5%
Ericsson -31%
Motorola -58%
Nokia -54%
UTStarcom +4.7%

This obviously is not meant to soften the blow but it does show that UT had been beaten so bad in 2007 that valuation alone (asset sales) propelled it to over 100% gains by June. The lack of operation follow through and overall bear market has brought the stock down to very attractive levels again. For deep value investors, there are plenty of stocks to pick up that will yield significant gains from this level. This is good and bad for UT as investors have a lot of choices now.

Options pricing/director compensations - The directors received both stock/options for their yearly compensation. Former lead director Thomas Toy got the most with about $200k worth of shares and another 150k options at $3.37. I was somewhat surprise that Toy "only" had around 25k shares previously so this latest batch increased it to around 100k shares. The newest director received $40k worth of stock and around 25k options. I think these are not excessive. The employee options I believe were priced at $3.24. IF this leads to more movitated employees/board/management, then it will be a bargain. Up to now, shareholders have taken a beating.

India developments- "October 1, 2008 - Indian IPTV operator Aksh Optifibre has signed a three-year content deal with Sony Pictures Entertainment under which the latter will provide Hollywood content for Aksh's IPTV service, called 'iControl'."

While BSNL & MTNL have launched their iptv services officially, it looks like Bharti and Reliance have not yet. Hopefully, the regulations passed last month as well as the commercial launch for BSNL will move Bharti to start as well. I haven't seen an update with the GOA project that will use UTs iptv/ngn/broadband products.

BSNL's target is around 150k by March. However, they also have 5 franchisees (one being Aksh) so UT will not get the full pie. Aside from BSNL, UT does have MTNL, Bharti, UTL, and Sri Lanka in the India region to build subrscribers. We've heard how UT has won 5 of 6 commercial iptv contracts in the India region and has 80% market share. It would be helpful if management can discuss the franchise model a little bit more and what the competition really is. Are other franchisee using UT equipment as well?

Awaiting contract announcements - Based on the links provided by other shareholders and what we've been reading, it seems there are going to be "new" contracts in Russia, Israel, Philippines, Hong Kong, Brazil, and Japan. UT has also been in a Latin America countries as well as Mexico that could yield more contracts. Its imperative that we start hearing these wins as some take time for revenue to be booked. Of course, China will have the largest impact on revenues and signs of openning up will be great news.

Low volume/low interest- The trading volume has been low in UT indicating lack of retail interest. Another fact is that blog viewership which normally averages about 2500 views/month was down to around 1500 in September. I guess thats what the consequence of the decline in stock price. The volatility in other stocks have focused attention away from UT as well. All in all, it could be a contrarian indicator that the stock is ready to launch :-)

Have a good weekend. Next week is going to be volatile again for the markets. Get some rest!

Saturday, September 27, 2008

Weekly recap - Awaiting the market bailout

The stock closed at $3.29, down 12 cents or 3.5% for the week. The DOW lost 2.1% while the Nasdaq dropped 4%. The major news of course is the anticipated Paulson bailout plan. While this will move UT stock, UTs faith will come during the next earnings call in about a month, where we will hear about Q4/2008, bookings, and 2009 forecasts. Stock volume for UT was low all week failing to reach even 1m shares in any day after trading over 5m shares the previous Thursday/Friday. Here are some topics/news discussed last week that have some UT relevance.

Short interest - Number of short shares fell to 22.177m from 22.6m at the Sept 15 settlement date. With the stock trading under $3 and a jump in volume/price (week ending 9/19), its probable the short interest has fallen even lower. Its unfortunate to see some longs giving up and the shorts able to cover at under $3/low $3s but thats where the company performance/macro environment has put the market price at. I'm still waiting for the "hold to maturity valuation." As one shareholder I talked with mentions, if the hold to maturity value isn't what we expect it to be, we'll all have to move to China and set up tents in the Hangzhou building.

Sri Lanka IPTV- Scheduled previously for an August launch, it has now lifted off! Woo hoo. "Officials said UTStarcom, Inc. has entered into a multi-million dollar contract recently with Sri Lanka’s Just In Time Holdings Pvt Ltd. to supply its industry-leading RollingStream(R) end-to-end IPTV solution to SLT." Just like Aksh in India, UT is partnering with a local distributor (in this case Just In Time Holdings). In Israel, we saw UT could also go direct. "SLT, a provider of international and domestic voice, Internet, and data services, will use the RollingStream platform to bring IPTV services to its growing customer base throughout Sri Lanka. SLT, with more than 87 percent market share and a wireline subscriber base of more than 1,300,000 customers, expects to grow its residential and commercial business through its increased triple play capabilities now available with this IPTV deployment. It is designed to support approximately 100,000 subscribers in the next two years and will enable the company to provide video services to future subscribers over copper lines in the next three to four years." "SLT engineers have rectified the defect and they also upgraded its ADSL system to ADSL 2+, to facilitate the launch of the IPTV service." These types of news show UTs strategic position but the challenges that are an inherent in providing a complex product such as IPTV. After over a year of UT reporting iptv subscriber numbers, it is still very difficult to project numbers going forward. In China, growth is "controlled" so it could explode or stop on a dime. In India, Taiwan, Brazil, and Sri Lanka, it seems the launch has occured literally the last few weeks. The broadband requirements seem to be more intense as well offering negatives of unsuitable speeds and positives of UT doing more broadband/ngn business.

ZTE not interested in Motorola handset - Chinese telecoms equipment maker ZTE “isn’t interested” in Motorola’s handset operations, and will focus instead on organic growth, Chairman Hou Weigui told Dow Jones Newswires. Chou said that acquiring Moto’s struggling handset business didn’t “make sense” as the “synergies won’t be big enough to cover the costs.” Plus, ZTE doesn’t actually have the money to buy out a large company like Motorola (NYSE: MOT). In February, Samsung, LG (SEO: 066570), and Sony (NYSE: SNE) Ericsson (NSDQ: ERIC) have all said they wouldn’t make a bid for Motorola either.

ZTE recently sold its 100 millionth handset and is hoping to crack the “big five” mobile handset makers. It’s not an unrealistic goal, especially as ZTE is currently in sixth position, and number three Motorola and fifth placed Sony Ericsson are struggling. The company, which started selling handsets in 2002 in its domestic market of China, made its name in low-end phones for emerging markets, but recently said it intended to enter the smartphone market.

The handset/smartphone business is simply very competitive (seem RIMM expectations as well) and while growing would not make sense for UT to compete in (atleast not heavily with the limited resources they have). While I know some shareholders were disappointed with the sale and profitability push back, it was simply the right thing to do.

Q3 quarter end - As September comes to a close, UT closes the books on its Q3. I was hoping for the sale of the customs solutions business unit (CSBU) prior to Q3 ending. This business unit was projected to double sales this year and be profitable. Not sure if this is still the case but its gross margins was fairly high and Blackmore was upbeat on. In this tough market environment, not sure if they could get a good price but unlike the MSBU, I hope they just as well keep it than sell it for a song (nothing). The sale of PCD happened in July so it will be included in the quarter's report and I recall Blackmore wanting to wrap up all the none-core business issues by end of the year so its something to watch for. The employee option pricing is coming next week as well so I'm hoping for a higher price and maybe something the management will strive to build on going forward.

Tough market environment - UT shareholders have been in a bear market for so long that this current environment is nothing new to them. Some have even been satisfied with the $3 stock price range. However, I see it as the time for UT to excel in this environment. During the past years, they have always talked about the value they give to customers with building great business models for their products (for the clients that is) and how much it will save them. The Tiscali NGN project was a good example of the provider getting cost advantages and maybe forcing the leader Telecom Italia to pour more money into NGN to improve efficiencies. The declining revenue for fixed line carriers has always been UTs main charge for improving sales of iptv and new technologies (transport network product?). This is the time for a smaller company like UT to use its advantages to be more nimble, flexible, focus and penetrate/expand their markets. We'll see........

Blackmore - As a shareholder, I have pinned my hopes on management. That didn't work out too well with Barton as he is a major poster child of excessive pay for disastrous performance. I think he made a great move in retiring before there were laws that actually mandated pay for performance (actual and good performance). We know the board didn't have the intelligence or the concern about the Barton situation and we shareholders got a train wreck. Anyway, as a shareholder, I support good compensation for good performance (imagine that). These aren't just "salaried" employees but executives of a public corporation. Back to Blackmore. He came in at an opportune time when the company was in a free fall but still had enough resources to turn it around. He obviously got a great pay package (I remember his salary can never go down). He did convert his bonus to stock and has focused the company like we've not seen the previous four years. Over the last year, there have been a tremendous amount of strategic wins, sale of none-core assets, no further filings/investigations, and definitely better shareholder communication. The major black mark was the 2008 revenue shortfall and his expense metrics not being reached yet. Going forward, Blackmore's grade is yet incomplete but there is atleast credible hope of achieving profitability due to the lowered expenses and strategic wins. I had posted on expenses and that needs more work as well. In terms of "experience", I hope Blackmore has had the time to hear shareholder views as well as digest all the issues/opportunities the company has. Just like the current bailout, the strategy/plan going forward has to be done right and will determine whether the market/UT stock start a new bull run or continue to deteriorate.

PS. I am disappointed to hear of some shareholders giving up but obviously do not blame them. I wish they got out at higher prices but more than anything wish this blog/group could have done more to enhance/unlock shareholder value. We'll keep plugging along to see what that hold to maturity value turns out to be.

Have a good weekend everyone.

Thursday, September 25, 2008


From the Q1 earnings call early this year,

Robert Galtman - Jeffries & Co.
Looking at the targets a little bit, I know with the OpEx target in particular, you mentioned that would look to bring OpEx down to $110 during the second half. I think last quarter you had maybe mentioned below $110 each quarter in the second half. Can you just give us some clarification around that? Is that $110 maybe later in Q4? Or would that be both in Q3, Q4 as well?

Fran Barton
Well, we’ll target it for Q3. I think Q4 we should certainly be there. We’re not stopping at $110, and so the language we may have used was at $110 or just under $110 or whatever, so it’s not intended to be over $110. Its $110 or under. But we will hold the expectation for now at $110. As we get a couple of these one-timers behind us, we can start operating at that level shortly. So we will try for Q3, but we will certainly be there for Q4.

The sale of PCD/MSBU added savings of $15m/quarter so that by Q4, expenses should be around $95m/quarter. Management has been saying that they will get to profitability with revenue growth with slight decrease in expenses. A fellow shareholder Tigre brought up a good point that expenses should go up as revenue ramp. Because the company is protecting R&D at around $40m/quarter, most of the expense discussion will center on SG&A. Lets look at some factors that indicate it should continue to go down even with the revenue ramp.

1. Fixed costs? - The company's $130m or so revenue shortfall for 2008 announced a few weeks ago didn't result in opex reductions. So, the correlation is more with bookings and not revenue. Blackmore had indicated keeping expenses up in the 2nd half to ramp bookings for 2009.

2. PAS/handset slowdown - Shouldn't expenses for PAS go down as revenue go down? Same with internal handsets, specially if they move design operations from Korea to China?

3. Marketing costs/Trials costs- Back in early 2007 when the company was promoting itself, it mentioned 40 or so iptv field trials. I'm sure there were a lot of NGN trials as well. After all of these trials and now commercial wins (with showcase projects), shouldn't this be going down as well? By partnering with local distributors, shouldn't expenses go down as well?

4. Ramp of iptv/ngn with existing networks- With the bugs of the iptv system being configured and other content/regulatory issue being worked out, we are now tracking the number of subscribers for each country/region. As the subscribers ramp/acceptance granted, UT is able to generate revenue with the existing costs in place. I posted early today regarding the small $1m revenue by Sri Lanka Telecom for the initial network. As subscribers get on board, UT will get bench mark payments for the network, and then the STB to follow. Additional capacity/services/maintenance revenue will then follow. In some respects, the ngn and broadband revenues also come after a period of acceptance.

My conclussion is that opex should and could drop significantly more from $95m/quarter even as revenue ramp. Cultivating a smaller number of larger clients that will buy multiple products would also focus expenses more efficiently. This is what we heard in the shareholder meeting as well but have yet to see the synergies and impact of outsouring/partnering and focusing on smaller base of clients as of yet. The bulk of the expense savings have been with the divestitures, elimination of legacy costs, the initial headcount reduction.

Blackmore's target expense metrics are nowhere close to being achieved. The revenue potential is there but there is also questions with timing. I do see potential to cut more of the $55m SG&A costs. Cutting expense is really the way to protect against the uncertainties in this market and NOT by inefficiently relying on cash at hand.

Cash generation was a big theme earlier this year. Gross margins have yet to improve. Asset sales have helped but expenses are just too high. A restructuring would burn more cash and save "only" $5m/quarter. Why are they still spending $55m/quarter for SG&A anyway?

One final thought - on their building that was appraised at $180m. Now that they have all of this cash, there doesn't seem to be any progress/urgency on the building except some small tennants.

I continue to hope for the revenue and bookings ramp but there seems to be too much expenses and inefficiencies in resource use. They did save on Barton retiring (forgot about that savings :-) but Blackmore needs to address the expenses well during the next call. Each dollar saved is $4 in revenue it doesn't have to account for. What kinds of returns are they looking for their $324m in net cash??? They also seem to have a ton of advisors that have not yielded overall shareholder value or good returns on their resources.

I'd like to end in a nicer note that atleast its not like AIG or Washington Mutual and that atleast the company is in good shape balance sheet wise (I have to give them credit that as fast as they can spend the money the last 3+ money losing years, they also find a way to generate cash). If they just improve operational performance, they would stand out in this market specially going into 2009. Can you imagine if this thing actually works out.

Have a good night.

Sunday, September 21, 2008

Weekly recap - Stock bounce

After nine straight weeks of stock price decline, UT stock closed at $3.41, up 54 cents or 18.8% for the week. In a very volatile week of trading where the DOW was down as much as 8% late in the week, UT recoverd all loses for the last 6 weeks. It is still down around 27% previous to earnings in early August. The DOW ended the week with a monster two day rally but still closed slightly down for the week.

BWS upgrade - From my Schwab alerts: BWS Financial upgraded UTStarcom (Nasdaq: UTSI) from Hold to Buy and maintains their $4.50 price target, citing valuation. The firm notes UTStarcom "shares have been battered since the Company announced second quarter results to a point where the stock is trading under projected cash value at the end of 2008. UTSI had $2.20 per share in cash at the end of the second quarter. The sale of the PCD business and the cash burn for the second half of 2008 should translate into UTSI having approximately $2.65 per share in cash at the end of the year."

NGN trials in Israel - Sep. 14--Taldor Group (TASE: TALD) has decided not to delay the trial of Bezeq The Israeli Telecommunication Co. Ltd.'s (TASE: BEZQ) next-generation network (NGN) at this time. Taldor is the representative of UT Starcom Inc. (Nasdaq: UTSI), whose equipment Bezeq will use for its NGN.
Hopefully, this will result in actual contract(s) and revenue and not just wasted expenses.

India broadband/iptv - The discussions mainly between Shadow & Tigre regarding iptv in India continued this week with Shadow defending his 400k iptv subscriber target for UT in India in 2009 and Tigre saying its impossible. UT has basically said it has won 5 of 6 commercial contracts in India and has over 80% market share. It has 75% of wireline broadband and 34% of the broadband market (whatever that means). Anyway, India is critical for UT to showcase their core products much like Japan was a few years ago. If you have time to read this interesting back and forth, here is the link

ZTE iptv market share in Shanghai - The article cited by Tigre indicates ZTE has a higher market share than UT. UT has indicated it has 62% of the iptv market in China, twice the number of any competitor. Market share will remain a hot issue during the next few years but the question is really when China iptv will ramp quickly. Recent iptv set top box orders indicate the market growth continues at a steady/slightly increasing pace. The Sigma Design earnings call also show iptv worldwide growth remains robust.

Nortel - I wrote a little bit about Nortel's 2008 revenue shortfall in my mid-week blog posting. There are no less than 4 articles in lightreading discussing the shortfall, asset sales, restructuring, and other outlook for Nortel. Nortel is trying to sell its growing carrier ethernet and optical networking division, part of its core businesses. Here is an excerpt: "Hubbard estimates that Nortel had a 3 percent share of a $533 million Carrier Ethernet Switch and Router (CESR) market for the quarter ending in June. The CESR market is likely to be about $2.1 billion in 2008, compared to $1.9 billion in 2007. So it's a growing area, but also very competitive, with 21 equipment vendors in the space, he notes. " I just wanted to highlight its market share and the heavy competition. Nortel overall company gross margins are in the 42-43% while UT is in the 25-27%. Without internal handsets, UT gross margins are in the 30s with some businesses in the 40s. While UT has to compete with ZTE and Huawei, it does maintain some good market share (see above) in certain areas and can stay competitive with their lower gross margins. They just have to pick their spots and control expenses.

Stock price, relative views - During the week when the stock was near its lows, I posted "its the stock price, stupid." I wrote, "Each member of management and the board has to ask themselves if they are even aware that a sub $5 stock for this company is unacceptable. You then have shareholders so beaten down that they are second guessing themselves if they should sell a $5 bill for $2.5. Unbelievable! Then, you have management/board PAY their consultants to decide whethere it is better to put the cash under the mattress or buy the stock at half book. I know they are "constantly" evaluating the market and the situation but this is just stupid."

First, I understand we are in a bear market but each individual/entity looks at the stock price differently. Some people will look at their cost basis like the world revolves around them and measure company performance base on that basis. The board back in 2006 decided to do a strategic study because they felt the stock (at $6/7) was undervalued. Some people need the cash and no matter what the price will sell. When Peter Blackmore joined the company, the stock was in the mid $5s, but his bonus/shares were granted at $3.2. Some shareholders bought in $30s-40s and think the performance has been terrible every since. The shareholder equity/book value is around $600m or $5/share but the company continues to lose money. The company has been spending more than $40m/quarter in R&D the last 5+ years so that must be worth something? In any case, what is the threshold for UT management/board? I had mentioned the $5/share price in the post just based on book value/shareholder equity as a starting point where there has to be a sense of major urgency. Some will talk about profitability. Period. The problem is the stock/underperformance by the company has been going on for so long that some people start to think its acceptable. The company's investor relations rep Barry Hutton joined the company when the stock was at its all-time lows $2.2-2.3 so how in the world is he going to feel what shareholders "feel". He probably thinks the stock is a star performer. Has he paid $30, 20, 10, or even $4 for the stock with his hard earned money and based on company projections and talk? Its gotten so bad this week that people were jumping from UT to AIG or maybe Lehman the previous week as a "chance"/lottery ticket to get their money back quickly.

I could never get a price from the board that they were thinking of back in 2006. They had offers for the core business but obviously it was not good enough for them. However, now that they have cash and they are "excited" in the future outlook, they also don't seem to want to defend the stock. A few years ago, they posted the great revenue growth year after year. Now, they are proud of the head count reductions and expenses going down. Revenue growth/profitability? Those are "near term" goals. What is near term?

I "believe" the stock is a bargain under $5 but am warry the company/board has gotten used to subperformance of the company/stock. Fixing legacy problems have become "accomplishments". Lowering costs and reduced losses have become good performance. This week, Merrill Lynch sold itself to Bank Of America. Fellow shareholder techbroker wrote, is UT going to be a ML or a Lehman. I cling to the hope its going to be much much more but if the board let go in late 2006/early 2007, it would have been much better for shareholders. Instead, we continue to wait for profitability and dealing with the management/board who have set such a low performance bar for themselves (and they still can't clear it!).

Have a good rest of the week and hope the stock can make it two in a row this week.