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.


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.

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