Saturday, April 12, 2008

Weekly recap - Corporate Governance

The stock price closed at $2.92 for the week losing .09 or about 3%. However, I considered this week to be very positive for the news flow and "technical" action of the stock, which reached a 4 month high of $3.19 several times during the week. Here are the main news items and discussion points during the week.

  • UT NGN leadership - On Monday, UT PR on the company exceeding a key NGN milestone of 5 billion minutes. "UTStarcom is one of the leading vendors for next generation voice networks as evidenced by its continued leadership for Class 5 and Local traffic on IP networks," noted Jahangir Raina, Director of Research, iLocus. "In the past 11 consecutive quarters where UTStarcom has dominated the Class 5 and Local VoIP market, UTStarcom has established its leadership with a cumulative 45 percent share of global Class 5 IP voice traffic. Recent deployment contracts for UTStarcom including PLDT in Asia and Jersey Telecom in Europe continue to demonstrate UTStarcom's commitment to Class 5 replacement." One takeaway from this is that this "leadership" position has not brought the revenue/profit dollars to bring the company anywhere close to profitability. However, during the last earnings call, further wins in NGN in Brazil, Argentina, Italy, Taiwan, and Thailand show the momentum in this core area is just gaining strength. During last week's recap, I commented that the BWS analyst was less upbeat on NGN. This was a poor choice of words on my part as he is upbeat on NGN but more upbeat on iptv.
  • India macro situation - IPTV India 2008 provided more info on the growth of broadband and iptv. Here is an article posted by fellow shareholder mason, "The entire communication is set to move from voice base to video base giving the masses the power of the button. Soon the consumer will get the power of choice including creation of his or her own content for uploading," said Vijay Yadav, managing director, India and South Asia, UTStarcom." Over the last few years, UT has been trying to diversify out of PAS and China. Even with the potential success of iptv in China, the NGN wins and iptv wins outside China could ultimately be the determinant on what UT is worth to another company. Here is another article regarding iptv "heating up" (from rm516)..
  • Short position - Short position went up over 5% the last 2 weeks.
  • Wimax in Taiwan - Here is the Motorola PR on UTs wimax contract in Taiwan (Thanks to Kiwi/Kr_khous) Another shaerholder M.A. emailed the new UT Director of IR Barry Hutton regarding details of this contract. Here is Barry's response: "In relation to Motorola’s announcement I will add that Motorola was selected for the WiMAX base stations – there is other third party equipment as well. UTStarcom was awarded the systems integration responsibility in this contract. Our relationship with Motorola is typical for a systems integrator to a supplier. We partner with them in other situations as well. We cannot divulge the monetary value without authority from the customer." The wimax business is not one of UTs core businesses but it is good they are getting some traction in it.
  • Stock technicals - As some pointed out, the stock has moved up an "impressive" 43% from the lows on March 17. I think it was impressive it could go from the all-time lows to almost 4 to 5 month highs but at the end of the day, its around the prices for the last 8 months or so. Some technicians I've talked to (and Hangman had some good posts on this) say they are very encouraged by the technical indicators. If you are a trader, you definitely have to follow the technicals. For long term holders, it is good to see the negativity and the "wash out" of shareholders that has occured (which is also in the technicals).
  • UT IPTV Webinar - "The 60-minute presentation will include an overview of UTStarcom's RollingStream end-to-end IPTV solution and an update on the company's momentum and customer deployments in the Asia-Pacific, Europe and Latin America regions, as well as a closing Q&A session." It is interesting that they will have this maybe 2 weeks before the earnings call for Q1. They must have a lot to say if it will be one hour! :-) Hangman commented "Seems like Tim's efforts are finally paying off (better communication)..." My response: I'd like to think so Hang but the fact is the business is probably getting better. When a company has around $2.5b in revenue such as UT, they COULD put out a lot of information anytime. However, if they put out a lot of info last year, then it may IMPLY things are atleast decent and not the $200m loss that we saw. Look at Barton's explanation in Q4 on why they DIDN'T preannounce. He said it was on low margin revenue upside and does not impact the bottom line much. What??? I think the problem is the continued losses in Q4. Period! If they preannounced a 20% upside in revenue and the stock goes up and then come in with the losses that they had and the stock goes down, that may lead to law suits. I may be overthinking this but the more PRs they release (roadshows, etc) shows more confidence in the business going forward, which at this point BETTER start happening if their guidance for year end/early 2009 profitability is doable. PS. Companies will find a way to get Good news out while they can hide behind lack of financials when there is BAD news. With the stock tanking last year and they were studying financing options, you know they would put out good news if they HAD good news. The failed strategic study, roadshow to China, paid articles, leak of China "profitability" and all the stuff that went on in late 2006/early 2007 did not paint a picture of what was the actual performance because they were trying to sell the company. That really hurt shareholders when it did not happen. Just my two cents.
  • Shareholder Meeting - The company announced the date for the shareholder meeting as June 27, 2008. This is once again "interesting" as it will be right when Q2 closes. This date is also earlier than July 24, 2008 as stated on the 10k. Why have the shareholder meeting so early? The company by-laws state that board nomination and shareholder proposals will have to be submitted 120 days before the meeting or 10 days after the public announcement of the date of the shareholder meeting. So, it seems the board is anxious to see what board nomination or shareholder proposals they will be facing this coming season. I doubt they will have the shareholder meeting on june 27, 2008 (on a Friday no less).
  • By-law Amendments - "The Board is pleased to take this action today as it is consistent with governance trends at other public companies as well as our commitment to high standards of corporate governance. In addition, we believe this will enhance our accountability to our stockholders," said Thomas J. Toy, UTStarcom's Chairman of the Board." For now, No comments :-)

Have a good weekend everyone!

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