Monday, March 3, 2008

New All-time closing low - two new India IPTV wins

UT closed at an all-time low today at $2.49. The Q4 result exceeded expectations on the top and bottom line and so did preliminary 2008 guidance so what happened. The stock started off well last Friday (above $3.1) but reports late in the day surfaced that UT was going to delay their 10k filing (see terminal updates) and there was a reiteration of a hold and lowered price target from $4.25 to $3.

In addition to the "going concern statement" that management discussed in the call, additional items showed up in the terminal of traders this morning such as:

UTStarcom cites material weakness, sees significant change from prior year, and the delayed 10k. Coupled with the weak market this morning, the stock opened at $2.45 and hovered at $2.5 for the rest of the day ending at $2.49 on almost 3 million shares (prior days saw very low volume under 1 million shares on some days).

There was also a note on a Morningstar review but that was positive.

"We're placing UTStarcom UTSI under review while we revisit our valuation, taking into account the firm's newly released fourth-quarter and full-year results and 2008 guidance. We expect an increase in our fair value estimate."

During the day, I sent an email to Chesha Kamieniecki (UT Director of IR) to hopefully have Peter Blackmore or Fran Barton addressed the filings issue and material weakness/internal control issues during their conference in San Francisco (Merriman Curhan Ford & Co. Annual IP Video Conference at the St. Regis Hotel in San Francisco, CA.).

During the end of the call, Peter addressed the filings and liquidity issue saying that the filing will be done later today or the next day (10k was subsequently filed in the afternoon). Peter also wanted to squash "rumors" regarding the company's liquidity situation and said they had enough funds and do not intend to go to the markets at this time.

Interestingly, Peter Blackmore also disclosed not only a 3rd win in India but also a 4th win! Also, Chesha mentioned:

"Thanks for the note. We will address the filing on the call today. With respect to the internal controls issue; these are not new and have been fully disclosed in our 2006 filing. In fact we reduced the number of material weaknesses from 9 to 3 in 2007."

It does seem like there is an over-reaction by the market to negative headline news but the damage has been done. Rather than the stock being at $3.2 or higher as it was in the premarket on Friday, it is at $2.49 at the close on Monday.

There is no doubt the communication could have been better. The company could have even pre-announced the quarter (20% revenue upside), announce contract wins in Italy, iptv wins in Sri Lanka, full payment of the CB and other positive news. There were also negatives in the report such as the $8m loss in India and the $23m non-cash writedown. However, overall, Q4 was very solid and the outlook for 2008 coupled with strategic wins were very positive. I just wish the good news would be circulated and communicated as well as the rumors or the "bad" headlines news.

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