Sunday, February 24, 2008

Expenses and mandate of the exploratory group

The last profitable quarter was in early 2005 but that was due to recognizing the huge $290m Japan Telecom contract. The last profitable year was way back in 2004. It will be late 2008 or even early 2009 before the company can even get back to profitability and may take up to 2010 for full year profitability according to some analysts and projections.

One of the main obstacles getting to profitability is expense control during the last few years. While there is no question the PAS downturn and lag in other products have contributed significantly to losses, expenses have not come close into being in line with the revenue losses. During the last earnings call, Peter Blackmore put up some target expense ratios to return the company to profitability. He based this on the core revenues, which investors have been hoping the company would do for a while.

From the earnings transcripts which I encourage people to read before the next call,

"The model for our R&D is between 10-11% of our revenue, excluding PCD. We believe this is a reasonable ratio for an infrastructure business. The SG&A model is between 13-14%, excluding PCD. Excluding PCD revenues is the right way of looking at our cost base, as PCD is a stand alone business."

Peter adds: "They will all get to benchmark by end of 2008."

http://seekingalpha.com/article/53890-utstarcom-q3-2007-earnings-call-transcript?source=yahoo&page=2

If that was the case, and the company returns to profitability by end of 2008/start of 2009, the share price today should be at the minimum $5/share or a $600m market cap (an amount close to shareholder equity at the end of 2008). But, the stock is still under $3 and target prices for the next 6-12 months are $3-3.5. Why? The street simply does not believe the company can get to these benchmarks.

Lets look at the previous years expenses/revenues and an estimated expense/revenue based on CSFB report.

http://tim94305.googlepages.com/Ratios.pdf

The last time that the company had expense ratios that are what Peter is targetting is back in 2004, the last profitable year (and a very profitable year to boot). Ever since then, the ratios have ballooned to 42% and 23% for SG&A and R&D respectively at the end of 2007. Even if I factored in revenue from 30% of the PCD, the ratios stand at 26 & 14%. Now, this does not include the cost cut benefits and other expenses that will not be incurred in 2008. With the higher revenue projections/lower costs, the expense ratios will still be 22 and 12% for 2008, far higher than the 13.5 and 11.5% target expense ratios. Of course, Peter could be targetting the traditionally higher Q4 2008 to reach his metrics but obviously, this needs to be sustainable as well.

Lets go back to the PCD. If they are truly an infrastructure company, and I still include PAS handsets but completely exclude PCD revs, then core revenue based on SG&A (at 13.5%) would be over $2b, which is almost 3x projected revs in 2008. Core revenues based on R&D (at 11.5%) would be $1.36b., which is more reasonably attained. What this shows is that SG&A is simply too much. I don't have as much of a problem with R&D expenses as I believe the core revs from broadband and iptv will significantly ramp in 2009 (book to bill in 2008 should confirm this). Anyway, management has to signficantly continue to slash SG&A in 2008. It should not be a moderate cut but a signficant cut.

Some additional comments and conclusions.

1. Management should break down book to bill for PCD and non-PCD going forward.
2. The PCD is a huge asset right now but the company needs to reduce expenses and not play around with the ratios as part of the PCD. Barton mentioned that there is minimal R&D/SG&A related to the PCD in the terminals business unit. This highlights that SG&A is WAY too much.
3. Most of the core revenue growth will come from iptv/India broadband for now.
4. What has the R&D over the last few years yielded? Most of the core revenue still comes from PAS, and some iptv/wireless, which were mostly paid for 5 years ago. Lu mentioned he is working on "broadband access products, GEPON and Optical transport" in China. There has been mention of wimax, ip surveilance, base stations in the US, submarine/emergency applications, fixed mobile convergence, etc. However, has someone done an evaluation of the revenues/profits these new technologies are bringing in compared to the $1b they have probably spent in the last 5 years?

These are fundamental questions that need to be answered by management and the BOD.
Even if there is an explosion in iptv in 2008 and beyond, there has to be an accounting on research and SG&A going forward. The PCD has performed very well but it should not be counted on for running an infrastructure business. Without the PCD in 2008, the company would lose $200m. There is no liquidity problems even with the upcoming CB because of their signficant inventory (over $600m) and cash/short term securities ($600m). The question in the future is whether the next surge (in iptv) will make the company just breakeven/slightly profitable or VERY profitable, which is what I hope this company has been spending for the last 5 years.

For some people, this continues to be a long term proposition which they expect to be a huge winner. However, there has to be a thorough evaluation of shareholder value here at this stage, which the group is trying to address with management.

If the company cannot control and slash their expenses and get to very profitable status, and if management feels they have to spend so much to compete and maintain their technology, then it may be time to plan for strategic alternatives during the next upturn and not wait until the next downturn.

I have listened to both longtime shareholders and their wish to give the company time and I have listed to the shareholders who want immediate change. I hope both sides can see that it is not an easy black/white situation here but one thing is for sure, the current shareprice and performance is not acceptable. Management has been saying this for years as well but have been unable/unwilling to get the job done. This is where shareholders and this group has come in and thats why it will need to be a sustainable effort on our part as well.

Saturday, February 23, 2008

Rethinking UTs strategy going forward

As we prepare to meet with management in March, one of the major issues that will be discussed is the overall strategy and strategic options the company has and will try to implement. It has been mentioned that UTs unique situation of being a US company with China manufacturing and roots give it a great advantage. However, as we've seen, the problems and disadvantages outweigh the benefits the last few years. As a long time shareholder that is very much vested in the company, I am constantly rethinking their options and strategy going forward. The management and the board of directors have worked on expanding the business away from PAS roots and dependence on the China market. This venture has been costly and has plunged the shareprice from the $30-40 range to sub $3. Lets look back at some of the strategic steps the management has taken in the past few years.

UT acquired select assets of 3coms' commworks business for $100m (an amount that is equivalent to UTs enterprise value on some trading days).

http://www.3com.com/corpinfo/en_US/pressbox/press_release.jsp?INFO_ID=142360

I encourage people to read the article and all the nuisances in it - interesting to read the old articles and the thoughts behind the purchase such as...

"CommWorks is the worldwide market leader in Code Division Multiple Access (CDMA) 2000 Packet Data Serving Nodes (PDSN); and has deployed softswitches, media gateways, remote access servers (RAS), and applications around the world."

That acquisition has no doubt brought technologies that led to some revenue and customer contacts but have probably also led to MORE spending and expenses in WCDMA, PCD, IPTV as UT went on to try to develop a full suite of products in the wireless, broadmand, multimedia and fix line (and FMC) space.

"The financial rationale for purchasing CommWorks' assets is compelling. "One of our strategic goals is to increase our global sales and support infrastructure," continued Lu. "Integrating CommWorks into our organization will diversify our sources of revenue, increasing our pro forma non-China revenues from approximately 25 percent to approximately 30 to 35 percent in calendar year 2003. Moreover we believe CommWorks' large customer support and professional services organization, which represents between 40 and 50 percent of its total sales, provides an excellent source of recurring and stable revenue." "

The resulting company has more replicated the New York Knick basketball team, a collection of overpriced talent (technology analogy) with very poor results (no profits-heavy losses-literally on both accounts). As you can see, for the last 5 years and probably earlier, the company has tried to increase their footprint in terms of technology, products, markets, etc at the expense of deteriorating financials and collapse in shareprice.

The company went into a strategic alternative study in 2006 but their collection of assets/businesses have not produced consistent growing profits and stable markets. They had issues with the options investigations, filings, and China investigations (which we didn't even know about). It was not surprising that buyers were hesitant in tendering an offer for the entire company. Also, it goes back to their "unique" situation being a US company with deep Chinese roots. Should they list in China, sell to a Chinese competitor or sell to a "foreign" company (outside of China).

On the news the past week or so is the sale of 3com to Bain Capital Partner and Huawei for $2.2 billion. Was it rejected because of Huawei's China military/political ties or was it because the price offered was simply too high in this environment. I would think its buyers remorse since the stock has fallen to $1.2 billion.

As mentioned previously, we would like to stick to Plan A to turn the company around but we need to discuss Plan B with management as I believe they are open to selling out as well (with their recent golden parachutes in place). I believe the company was "hoping" for $12-15/share range last year as the stock already hit $11. With a full turnaround, the company may be able to achieve that on their own but the question is WHEN? Also, the competition will only get worse so consolidation is inevitable for UT and their size. Aside from the multiple acquisitions, the company has spent hundreds of millions in R&D year after year for the last ? years.

My personal preference is a Cisco acquisition only because I'd rather get Cisco stock than other company stock. An acquisition by PE may happen but they would turn around and break the pieces because its worth more than the complete company right now. A Chinese acquisition will not have as tough a hurdle to overcome but there is a question to whether the Chinese would deal with UT at this stage base on their battles the last few years and the shareholder makeup of the Chineses companies (had some discussions with Charlie Yang on this although he has not been in touch with ZTE for a while). Cisco on the other hand is on a never ending acquisition spree for technology and markets in the emerging countries (BRIC anyone). Cisco is interested like everyone with IP and IPTV. They are going into the consumer space, local base stations, broadband (obviously), and are spending money on R&D in India ($2billion committement? etc). They are headquartered within driving distance and would not have regulatory hurdles. I would not have a problem with getting Cisco currency rather than cash as I think the stock would actually move up with the acquisition (on the cost savings on their own R&D, acquiring tech/markets on the cheap). So, a 1 UT share to .6 Cisco share may do it :-)

Another neverending news is Motorola's goal of enhancing shaerholder value by dealing with its own handset division (see Friday's WSJ). Icahn has taken a 5 percent position in Moto and want them to sell the division for around 1x revenue or $19B. The problem is Moto's handset division lost $1.2 billion. ZTE was quoted as being interested but now may have some issues as well with regulatory approval, not to mention the steep price. I wanted to bring this up because Moto hired a CFO recently,Paul Liska. This guy worked at several PE firms and worked at Sears as finance chief which sold their credit card division to Citigroup. We need the company to show tangible evidence of constantly looking at strategic options to unleash the value. Someone with experience in finance and the techs pace and their sole purpose is to look at strategic options and is accountable to shareholders.

Anyway, back to the shareholder meeting. I have sent an email to the shareholders and will need to do further planning to prepare for the meeting.

Saturday, February 16, 2008

What Shareholders Can Do?

Now that we have started and established this exploratory group, the real work begins. I started this group because I wanted to harness the resources of the shareholder base in order to enact changes in the company and lead to maximing shareholder value.

I have received numerous emails from the members (both retail/institution) on what can be done and how they can help. Some have recently mentioned writing to Wu or Icahn. Some have suggested filing a lawsuit against the BOD. Some have suggested going to potential suitors now. Some are focused on the shorts. Some have suggested going to Merrill Lynch to explore strategic options for the company. Some have suggested to file a 13D to get better representation from serious investors. Some have suggested to just wait and see the results of the upcoming quarters. Outside the group, other shareholders are reluctant to join because they feel that selling out at this stage is a tremendous waste and loss of opportunity in a unique franchise/position.

Over the last week, there has been a common theme that it is now a wait and see attitude. Wait for the results and then have the shareholder meeting with management. However, there is a lot of work that needs to be done. While I appreciate the suggestions above, the stated goal of this group for now is to work with management (plan A) and "encourage" them to do their jobs in turning the company around, defend the stock price, and enable the company to be in position to reap the benefits of the growths in their products/markets.

What can we do now? In my letter to management and to other institutions, I have listed down the issues that need to be resolved such as compensation, bloated expense, defense of the stock price, resolution of the CB, debt/captial management, monetization of assets/cash flow, board accountability, etc. As I have stated in the past, I am a retail shareholder with limited resources (I have a day job and just this week had to consult on another project). The large institutions as well have other stocks to follow and may only have one or two financial analysts/portfolio managers. So, this is really the time to tap into our resource base (all shareholders that are frustrated and want change). We need you to research information on the issues I noted above or that you are concerned with. We cannot go in the shareholder meeting unprepared like we were last November when it was an un-organized group of shareholders. For ex. compensation, this has been discussed in the past. We need concrete examples of other executive compensations (similar situations, etc). Share buyback- how much. Expense ratios/cuts - how much. If you are concerned with the building situation in China, do some legwork and research what can be done (how much is it worth, what options to get financing, etc). If you want to involve a particular organization, contact them or have them contact me. You can pour over the company SEC filings and look for inefficiencies. If you want to change the makeup of the board, do some research - get the legal issues/procedures, dates.

Send me this information and I can collate it for the group. Just like the shareholder meeting, I set out the agenda, selected the speakers etc but not everyone is going to be happy with it, specially if you don't give me input.

Finally, we have gained good momentum (35 participants in the shareholder meeting and 150 downloads of the call in the following couple of days) but the group's level of success going forward will directly be correlated to the level of interest and effort by the members. We have an incredible opportunity to enact change and release tremendous value but only if we act. I will continue to push for more support and go through the core issues that management/BOD has to resolve. Again, it will be more effective the more information/research we have. So, send me articles, quotes, facts, linkes, examples, etc.

Once the company releases the date of the earnings call, I will email Peter Blackmore to follow up with the shareholder meeting.

Saturday, February 9, 2008

Draft Letter to Institutions

This is a letter I will be sending to other institutions to get more active with their shareholding. Please send me any comments you have. I plan to send the letter starting on Monday (there are a ton of holders so it will be as many I can get emails on).

Dear Sir or Madam,

I am a shareholder in UTStarcom and have been following the company for about four years now. I am writing to you and the institution/shareholders that you represent to inquire about your interest in joining the exploratory group I have recently formed to address shareholder value in the company. Let me give a background of the company and my motivation for starting this exploratory group.

I was interested in the company because it had tremendous growth in emerging markets such as China, had their manufacturing base in China, and yet was a US company (with US listing), which I believed provided better governance and regulations. Over the years, the growth in their Personal Handy Phone (PAS) was tremendous from basically zero users to almost 100 million users. This type of disruptive technology changed the landscape in China and allowed the masses to own/use a mobile phone. With this base technology and incredible revenue/resources, the hope was the company could develop other disruptive products, take advantage of their user base/clients in China, and transport the growth to other emerging markets.

The company, through its US listing, was able to raise almost half a billion dollars, and had revenues that topped over $2 billion in China alone. However, it was common knowledge that the company had to develop other products and diversify away from China and PAS. Back in 2004, the company had a quarterly shortfall that signaled the seriousness of the PAS decline and started a slide in the stock price that has shaved about 90% in the last three and a half years. During that time, the company has undertaken some restructuring but has not been able to right size the company. Because it had continued PAS revenue, it allowed the company time to develop new products and turn the company around. However, they have not been able to do it. While it is not uncommon for companies to take 6 months to 1 or even 2 years to develop new products and have it impact the bottom line, it is also not acceptable to risk the company’s financial condition to the extent that it is in.

More concerning however is the actions that management and the board of directors have taken over the last 2 years with respect to the following issues.

Management control – Hong Lu, one of the founders of the company had decided in 2006 to cede control to Ying Wu, the China CEO. However, in late 2006, it was announced that Wu would not take over as CEO and instead lead a strategic alternative study for the company. In late May of 2007, the strategic alternative study was concluded with no actions and instead led to the firing of Wu for differences in opinion regarding the direction of the company. In late June, Peter Blackmore was hired as COO and eventual successor to be CEO. At this time, Lu went to China to fill in for Wu. Up till now, there have been no updates on the CEO position in China and for the entire company.

Strategic Alternative Study – In late 2006, the company hired Merrill Lynch to perform a strategic alternative study. In May of 2007, the company concluded the study without any action except the firing of Ying Wu, the China CEO who is the main proponent of PAS and IPTV. The management’s only conclusion was that it was better to stay the course to realize the best shareholder value.

In the November shareholder meeting which I attended, we learned that there were offers for part of the company but nothing that the board considered worthwhile. The management/board mentioned they considered a wide range of options and even taking it private. However, none of the options were put to the shareholders for consideration. During the call, I asked what price range they were looking for to sell the company or what their objectives were. Obviously, you have to have an idea of what you are worth to make an adequate decision. Once again, there was no concrete response from management or the board. In the meantime the stock has gone down about 70% from the time the strategic alternative was announced. The only conclusion from the collapse in the share price is that this is another major management misstep. They have admitted that this caused management time and offered this as a reason for the company’s lack of focus.

Internal control/profitability - The company guided for $4 billion in revenues and $2 per share profits in 2005. In late 2005, the company significantly lowered expectations to getting back to profitability to early 2007. In a August 2007 call, management predicted cash flow and GAAP profitability in early 2008. Now, they are committed to profitability in early 2009 (maybe late 2008). The last profitable quarter was in early 2005 so even if the company hit their targets this time, it would be four years for this management to right size the business. Then, there are the options/China investigations that caused them to use 20000 man hours, risk bond default/Nasdaq delisting, and pay $22 million in additional bond interest.

Convertible bond – The company has used its PAS revenue over the last few years to pay down part of the debt and raise cash. However, there are a lot of questions of why the company chose to keep $400-500 million in China earning less than 2% and yet having to pay the interest on the convertible bond and another $22m in 2007 alone. The company has mentioned transfer restrictions from China but was able to transfer $150m in 2007 alone. It mentioned having to satisfy China laws of keeping a certain amount of funds for the business. It is difficult as a shareholder to imagine they have exhausted all options to transfer their own funds when it is most needed. After all of this, shareholders have yet to have final resolution when it is due in less than a month.

Management Compensation – Despite the continued losses and issued outlined above, the compensation committee of the board of directors has continued to pay bonuses. The CFO Fran Barton alone received huge bonuses for his role in filing the long delayed financials. Isn’t this the job he was paid to do. Does any reasonable person think they did this in a fast track or exceptional time frame that warranted an extra bonus? After the shareholder meeting, they announced new retention bonuses for management paying Barton alone $2 million per year just for staying with the company. There seems to be more PRs about compensation than progress.

Expenses – Despite continued losses for the past 3 years and the expectations of more losses, the company has only minimally cut expenses. The company’s expense ratios are about twice the industry average. For the last couple of years, they have justified their expense ratios and their compensation by including the Personal Communication Division (PCD), which include a significant resale component not standard in the industry.

Most of the investors that I have talked with share my belief that the company is significantly undervalued based on their assets alone. There is still hope that the company can turn it around and the fact they are making inroads in broadband/iptv in various countries is encouraging. However, there is a major concern regarding management and the board of directors, which could prevent any shareholder value being unlocked despite all of their current resources and potential.

Over the last few years, I have posted on the yahoo message boards to discuss the company’s prospects. More recently, I have started a blog on the company.

http://utstarcom-stocknews.blogspot.com/

Due to the all time low share price and continued management lack of performance in performing their duties to the shareholders, I have started an “exploratory group” to enhance shareholder value. There are two basic plans or phases to achieve this goal.

“Plan A”: Pro-actively “support” and monitor the management during this turnaround phase. This involves:
· Organizing and maintaining retail/institutional shareholder base to discuss the progress of the company.
· Communicating as a group with management through emails.· Meeting with management (as needed) to discuss various issues such as compensation, operating expenses, profitability and other strategic initiatives.
· Using the resources of the group to disseminate information to the group’s members and other (existing/potential) shareholders. (via blog/email base, letter campaign to other news organizations such as Businessweek, Lightreading, gathering of information in China/other parts of the world)
· Reinforce sense of urgency to management/BOD by being prepared to implement “Plan B” quickly.

“Plan B”: Seek change in management and/or a sale of the company. This involves:· Meeting with management/BOD to discuss sale of company.
· Letter campaign to other institutional shareholders to join this group (activist group at this point)
· Proposing management changes and putting up slate of directors that will make significant operational changes or seek a sale of the company.
· Court potential suitors for the company.

So far, I have only solicited support for the group from the message board/blog. Even with this limited effort, we have already had inquiries from shareholders representing over 22 million shares or 18.5% of the total shareholder base. We recently held our first shareholder meeting/conference call. You can access the conference call recording from this link:
http://www.sharebigfile.com/en/file/6535/UT-CC-2-2-08-wav.html

Last Wednesday (February 6, 2008), I sent out the group’s first letter to management seeking a shareholder meeting after the upcoming Q4 earnings call. On Thursday, Peter Blackmore, UTStarcom’s President and COO, sent an email reply and agreed to meet with the group (email chain available in the blog).

At this time, the exploratory group is operating under “Plan A” and just gathering inquiries and support from shareholders. I am asking for your group’s support in helping us enhance the share value of this company. If interested, please send me an email reply and we can further discuss this matter.

Thursday, February 7, 2008

Response by Peter Blackmore

This was an email I received from Peter Blackmore, UTStarcom President and COO.

Tim

Thank you for your thoughtful e-mail.

We clearly appreciate your interest in the company. We are working very actively to address many of the issues you raise regarding UTStarcom with respect to shareholder value as we discussed at the last shareholder meeting.

We would be pleased to speak with you to discuss your thoughts on the Company after we report our Q4 earnings and file our 10K.

Obviously we need to have our discussions in line with Regulation FD so all shareholders benefit from the same knowledge from the company.

Regards
Peter

Here is my response:

Peter,

Thank you for your prompt reply. From the time stamp on your email, you are either overseas working hard to secure contracts for the company or have no idea your computer clock is off. Hopefully, it is the former.

The shareholders are very much looking forward to the upcoming earnings call and hope many of the issues that have been brought up can be resolved with the shareholder's best interest.

For the meeting after the earnings call, the group would like to have atleast one of the independent board members and a representative of the compensation committee to be present for the discussions.

I understand the need to follow regulations regarding disclosure and will work with your management team and the stakeholders to ensure that is met.

I will be posting your email and my response in the blog so that it is available to the group's members and interested stakeholders.

Once again, I thank you for your response and look forward to the upcoming earnings call and shareholder meeting.

Tim

Wednesday, February 6, 2008

Shareholder exploratory group letter to management and the board of directors

This is the letter I sent to management and the board of directors tonight.

Dear Sirs,

Being a long time shareholder, I have seen the tremendous potential of the technology and markets that UTStarcom is involved with. The success that the company had with its Personal Handy Phone (PAS) in China is a tribute to the disruptive technology and growth potential of the company. While the growth in PAS was spectacular, it was well-known that the growth would level off and had to be replaced with other revenue sources/markets. From the first quarterly shortfall in mid 2004 up to now, management has been trying to reorganize and layout plans for replacing/supplementing PAS. Not only has the company failed to replace PAS revenue/profits, it has not posted a profitable quarter since early 2005. In addition, over the last year and half, the company has had multiple proposed management changes, strategic alternative study, options/China investigations, delayed filings, potential for debt default/securities delisting and generally lack of communication with their shareholders. This has led to a collapse in share price to all-time lows.

Recently, I have formed an exploratory group to discuss ways to unlock and enhance shareholder value. I realize that this is also the stated goal of management and the Board of Directors. While management has outlined specific turnaround targets and a commitment to profitability by late 2008/early 2009, there are too many unresolved issues and no major results as of yet. From discussions with fellow shareholders (both retail/institution), there are numerous items to be concerned with such as:

-Viability of sustainable profitability in light of the current bloated expense structure.
-The company has not taken concrete steps to defend the stock price.
-Management has continued to increase their compensation during this time.
-Management has ignored investor suggestions in meeting with shareholders/discussion of alternatives to resolve the convertible bond.
-The company has not given updates on important issues such as the sale of investments, resolution of the convertible bond, information on OEMs, and other cash saving/generating measures that it has discussed over two months ago.

The shareholders appreciate the information provided in the last earnings call but need tangible results. Based on the company’s history of underperformance, weak internal controls, miscellaneous write downs, missing estimates wildly and other catastrophic bad news, it has become necessary to form this exploratory group in order to track management’s progress, to instill a sense of urgency to management and enhance shareholder value.

Currently, the exploratory group has received inquiries from people representing about 20.7 million shares or 18.7% of the total outstanding shares. The fact that a significant number of shareholders have shown interest in a very short period shows the frustration of the shareholders and their demand for management/company to perform. On Saturday, Feb. 2, 2008, we held the group’s first exploratory shareholder meeting. The results of the meeting were to develop the group’s initiatives and plan a path forward. I have included here the link to the group’s first conference call and a blog that I maintain to give management and the Board of Directors the sense of urgency and concern that shareholders have.

(http://www.sharebigfile.com/en/file/6535/UT-CC-2-2-08-wav.html)
(http://utstarcom-stocknews.blogspot.com/)

Let me be very clear that the shareholders believe that there is substantial value and potential with the company and want to work with management at this stage. However, there simply has been a lack of communication/direction from the company from the management shuffles to the details of the strategic study to the current roadmap to profitability.

For the upcoming earnings call, the group expects the management to resolve the convertible bond in a way that benefits the existing shareholders (no dilution) as it has mentioned previously, impose strict expense controls/discipline, significantly improve cash generation/reduce cash burn, and accelerate the timeframe for profitability. More importantly, management has to address the low stock price by showing confidence and defending the stock price (by a stock buyback or other concrete steps).

While certain issues may be resolved in the upcoming earnings call, we would like to meet with management and the BOD to discuss specific issues that will lead to enhanced shareholder value. It is time for management and the board to do their job and earn back the trust of the shareholders that have supported the stock for so long and have had very little information from a public company.

We look forward to hearing from management/BOD and meeting with them in Alameda after the earnings call and quarterly filings are completed.

Tuesday, February 5, 2008

Potential UT suitors and reach of UT technology

There has been no shortage of potential suitors for UTStarcom over the last few years. While known for its PAS business, UT has amassed a collection of technology and business units in emerging markets from handsets to next generation networks to multimedia/iptv. Whenever I read the WSJ or business articles, UT seems to come to mind because of their wide reach. This is not a case for selling the company. Rather, it is meant to show the wide reach of the company. The low enterprise value only makes it a viable acquisition for a lot of companies here in the US and abroad. I am not a techy so this will be from strategic/business point of view.

This topic will be covered in a series of posts, with different companies. If you would like to write about a company that is a good match for UT, let me know and I will post it. Rather than start with the usual suspects, I will start with Echostar Communications. This satellite company is the competitor of DirectTV. Last year, it acquired Sling Media, the maker of the Sling Box, for $300m. The Sling Box is a device that allows people to watch their premium cable/satellite programming over the internet. It has had an ongoing patent case against Tivo for years. Last Friday, the judgement against Echostar was upheld and it may have to pay $94 million to Tivo and halt DVR sales. http://www.marketwatch.com/news/story/tivo-shares-soar-29-court/story.aspx?guid=%7BF9BA4F2A%2D165E%2D4FE8%2D8850%2D22536A859FF9%7D&siteid=yhoof

Normally, I would not link EchoStar with UTSTarcom but UTs recent announcement of a contract win in Taiwan with cable provider Markwell Industrial Co was an incredible development and I believe has not been discussed enough. In the PR,

http://biz.yahoo.com/prnews/071220/aqth130.html?.v=25

"We are currently in discussions with a number of cable operators in Taiwan who are interested in complementing their existing offering with IPTV-enabled services, and we anticipate surpassing more than one million IPTV subscribers in the country by 2009."

UT had initially won an iptv contract with a CLEC in Florida a couple of years ago but then the regulations turned against UT and it moved away from the US markets but vowed to come back in a couple of years. The opportunity to get back in the US with cable/satellite providers would be tremendous for UTStarcom. We already know that their system is cost efficient and can work in emerging countries. It can definitely be used with cable companies. If AT&T's U-verse and iptv in general pick up steam in the US, UT can slide right in and offer either a scaled down or full version of their end to end iptv system.

If Echostar buys UT, they could even turn around and sue Tivo. I'm sure they can find something in UTs thousands of patents to hit Tivo with. Anyway, whether an acquisition or just backdoor entry into the US iptv market, the value of UT's iptv system can be unleashed. What would that do to UTs stock price if UT landed a deal with a major US cable/satellite provider?

Sunday, February 3, 2008

Exploratory group shareholder meeting, Feb. 2, 2008

Thank you to all the shareholders that took time on Saturday to participate in the conference call, specially the scheduled speakers. Going forward, I will modify the letter to management with your suggestions and send it out to the major stakeholders prior to forwarding to management. If there are other suggestions, please email me and we can consider it.

I am attaching a link for the shareholders that did not attend the call and to the others that may consider joining us.

http://www.sharebigfile.com/en/file/6535/UT-CC-2-2-08-wav.html

It is a 40MB file so it takes a few minutes to download or to play. My apologies for the cluttered adds of the "free" hosting service I had to use. The call lasted 90 minutes and had some audio problems during the middle part (someone may be on a speaker phone or something).

I continue to invite people to join this shareholder group. In the future, we may choose to formalize the group and ask for more committments. For now, I will continue to work with the major stakeholders on ways to enhance shareholder value.

I would also caution people on extrapolating any information on the call. It is basically opinions and ideas that various shareholders/groups have expressed. Treat it as entertainment among concerned shareholders.

Once again, I thank the stakeholders for participating and giving as much input as they can. This is just the beginning and a lot of work is ahead of us. However, I am definitely encouraged with the support that we have and that this is something very much worth pursuing.

Enjoy the rest of SuperBowl weekend.