Friday, April 4, 2008

Weekly recap - close above $3

I did not get a chance to post on the blog during the week but did have a few postings on the yahoo message boards regarding various issues. There were a few informative posts from Shadow, Tigre, Techbroker and others that people may want to check out. Here are a few random bullet items for the week.

  • The stock closed at $3.01, which just happens to be the price when I started the blog back in November 12, 2007. During the past 5 months, the stock has traded from a low of $2.23 to a high of $3.42. Since Aug, 2007, the company has not reported operational improvements as reflected in the financials but the company's assets and other developments were enough to balance the bear market that has developed since then. As a comparison, Nortel was $18 and now $8; Sigma Designs was $54 and now $23.5; Motorola was $16 and now under $10.
  • Hong Lus 300k shares - Another reminder that the sacrifices from management/BOD and the shareholders are NOT equal. As Flipocrat (another suffering shareholder for years) has mentioned repeatedly, management/BOD keep getting their compensation (and at the reduced prices, higher share count) while shareholders are faced with bad options. This is VERY depressing whenever I think about this and one of the major reasons that shareholders must demand performance and a true sense of urgency.
  • IPTV update in Brazil - http://www.iptv-news.com/content/view/1781/66/ "We are using NEC as the systems integrator over a UTStarcom platform – pretty much everything was supplied by UTStarcom, including the set-top boxes. In Brasilia the service is working well, with no major technical issues." "We do have extension plans beyond Brasilia and also for linear broadcasting, but we would like an indication from the regulatory body that we can provide a full service before we commit tens of millions of dollars. In Brasilia it is working well and our subscribers are very excited about it." I think this sums up the state of IPTV in a lot of UT deployments in terms of expansion issues and potential if the issues are resolved.
  • PCD products/comments from analyst - A good friend and fellow Shareholder Bien had dinner this week with Hamed Khorsand (BWS Financial), one of the remaining analysts that follow UTStarcom. During the week, UT introduced some PCD products and Hamed put out the following note on UT. "UTStarcom (UTSI- Buy Rating) has introduced two new handsets at the CTIA 2008 conference. The handsets allow for wider bandwidth use compared to previous models putting the handsets in compliance with 3G requirements. The CDMA phones would be able to operate on the 800MHz, 1900MHz, and advanced wireless spectrum bands. UTSI has been making a bigger push into the US handset market over the past two years. The market share gains have been noticeable in the revenues UTSI is reporting. The fourth quarter results were higher than expected for UTSI due to the handset business. We are anticipating revenues from their IPTV solution to provide earnings growth in 2008 while revenues get a boost from the handset business. The market seems to be in wait and see mode with the Company, as UTSI tries to improve operating margins. A hint of progress could provide the shares with the necessary support in moving above the $3 level." It is worth noting Hamed has a $6 price target (due to the current environment) but believes the business is worth $10. During the discussion, Hamed was upbeat regarding the PCD business and has it valued at greater than $500m. He was less upbeat with the value of the current NGN wins but believes there is tremendous growth in iptv later this year.
  • Update on my board nomination - About two weeks ago, I was nominated to the board and we filed the initial paperwork. I then sent an email to Peter Blackmore informing him of our intentions and asked for feedback. Since this was a board issue, he would have to get back to me. The corporate by-laws allow shareholders to nominate people to the board but there is a lengthy process to even be deemed qualified to be put on the proxy. The existing board can disqualify my nomination even before shaerholders have a say in this. Anyway, this week, I talked with Susan Marsch, UT corporate secretary. I wanted to discuss the entire process and various scenarios (if put on the ballot or not). If put on the ballot, I wanted to find out what it would take to get elected. At this time, she is not even sure if it takes a majority or a plurality. However, the first step is for me to get interviewed by an executive search firm. I had a one-hour discussion with the same executive search firm that brought them Peter Blackmore. I was not excited by the prospect of defending my credentials to the same board that has overseen a 90% loss on the shareprice over the last few years. Nevertheless, this is just a step in the process and obviously, they don't want an ex-con being on the ballot either. Some background on myself. While I am proud of my educational (PhD in engineering from Stanford and author of numerous technical papers) and professional accomplishments (registered engineer in the State of Washington and California), I have never been a corporate officer of a company or served as CEO, CFO or been a board member. During the discussion, the "only" things I can bring to the board are the following (a) relentless pursuit of shareholder value with shareholders in mind with every decision/discussion I will have, (b) support and trust of the shareholder community and the fact I have paid for every single share I have, (c) the mindset that a board member serves shareholders, and (d) frustration and disappointments on every mis-step/bad news /lack of communication that other shareholders have felt. I think I can also communicate and provide leadership when needed but all of these are "soft" intangibles unlike the "solid, experience" track record of the current board members and other traditional candidates. As I told the interviewer, I would not be interested in any other board position but UTStarcom and only because of this unique situation. Anyway, I believe the recruiter is unbiased to all of this and sees my passion. As part of the background check, I will have to provide 6 references and sign release forms for the background checks. At the end of the process, it may lead to a rejection by the board and we will need to pursue other alternatives then. Other alternatives would include nominating other more qualified candidate(s), support/withdrawing support for current board members, challenging the disqualification, meeting with management/BOD to discuss other demands/alternatives. As you can see, it is not a simple process and everything we've done so far has not resulted in an increase in the share price. I do think there has been some positives such as better communication with management, better understanding of the company (strengths/weaknesses/potential/challenges), and more information to shareholders. Personally, I would like to serve on the board because it would be a tremendous opportunity to work from inside to watch over our investments. It is truly a frustrating experience hoping they will do the right things. Anyway, it is still a long process and I wanted to point out that just because I don't post doesn't mean I and other shareholders are not doing what they can or thinking about this 24/7.
  • Blog posting - If somehow given the chance to go on the ballot and be elected or if the board is "forced" to accept me :-), will I be able to continue to post? This week, I found out that Nortel CTO John Roese actually has his own blog. I guess with the proper disclaimers, it is possible. http://blogs.nortel.com/ctoblog/2008/03/28/the-transformation-of-rd-at-nortel/ On a side note, what I have found out in life is if you are performing at a high level and proud of your accomplishments you would be very happy and welcome people to question your work. I sensed that with Peter Blackmore from the very beginning. He just seems confident and the right operational person to turn this around.
  • Better off? - Tigre (a well respected and very informed poster/shareholder) commented that since I thought things are better now compared to 2006, I would not have a sense of urgency and that if shareholders thought this was the case, then management would be happy and not have a sense of urgency. This could NOT be further from the truth. While some things are better, I also believe the management/BOD are not operating under a sense of urgency. While some companies have a hiccup of a quarter here or there, it will take this company up to 4 years to get back to profitability and get their cost base right. The stock is at $3 so I am not sure why shareholders would be happy (unless you bought at $2.5). No, this is a nightmare for a lot of shareholders and I have read most of the posts for the past few years and some very heartfelt ones that shareholders have emailed me directly. While I see the huge potential, there is a long road ahead we must remain vigilant.
  • Buy - All I can say is if I am elected, you better buy all you can :-)

Have a good weekend everyone. I'm sure I'll post some more in the weekend.

1 comment:

sanxia said...

Tim,

I whole hearted support your seeking a board position at UTSI. No need to worry about future communication with share holders. The CEO of Sun Microsystems, Jonathan Schwartz, has been doing this for a while, and I might add, quite effectively.

http://blogs.sun.com/jonathan/

Jonathan is pushing towards Web based information disclosure. The SEC chairman Christopher Cox seems to be cozy with that idea.

http://blogs.sun.com/jonathan/entry/regfd_and_the_odf_tidal

Good luck, Tim!

sanxia