Saturday, April 26, 2008

Weekly Recap

The stock closed right at the "Medoza" line at $3 even, losing 4 cents for the week. On Monday, the stock traded 317300 shares, which could be the lowest volume day ever. This reflects the wait and see attitude of investors/traders as UT works on their turnaround plan. On Monday (April 28, 2008), UTStarcom will have a 1-hr webinar at 11AM Pacific (during market hours). I'll post a preview on that topic separately but wanted to touch upon this weeks light activity.

Hiring of Frankie Sum - "Sum will oversee all the country managers in Asia Pacific except China, India and Japan" "Prior to joining UTStarcom, Sum served as head of Asia sales for EDS and held a variety of senior positions over a nine-year period at Cisco Systems, including Hong Kong managing director responsible for the company's operations in Hong Kong, China, Taiwan, and the Philippines at various periods. Previously, he held several managerial roles for global technology leaders including Software AG, Informix Software, Concurrent Computer Corporation and IBM." I like the hire due to his background (but one has to wonder why he moves around so much) with many different companies but don't think its too signficant as it excludes the China, India, and Japan markets.

Increased job postings at UT - There is a signficant increase in the amount of job postings from UT in April specifically in India (Guragaon/Haryana) and Hong Kong.

Bharti Airtel is deploying UTs iptv system in Guragaon ( and has a facility there. In HK, we had news of an iptv win so the increased job postings for network engineers (iptv) is a good sign/confirmation.

PCD division borrowing of $50million - UT tapped $50million of the $75million of the secured revolving credit facility from Wells Fargo. The funds could be used for "working capital, capital expenditures, or investments." Some shareholders have speculated this could be a prelude to selling part of the PCD, or for a share buyback, etc. Back in the Merriman conference call a month ago, the company quelled another "rumor" of credit concerns by saying they have enough funds and will not tap "equity" markets. Since the company paid off the entire CB+interest+other short term debt close to $380-400m recently, it is expected that the company would tap some other short term debt to increase working capital. This could simply be used to pay suppliers offering volume discounts or early payment discounts. At reasonable interest rates, this falls under the "good" debt side.

Motorola earnings report - Ugly report from Motorola showing their handset division lost $418m, revs down 39% and market share down from 12.5% to 9.5% (ouch!) despite growing volume shipments worldwide for mobile phones. The analysts still value the entire company at $15-18/share. The takeaway is competitors (including UT) are gaining huge market share in North America. I also read about a company that Motorola bought a year or two ago from a WSJ article on Thursday but can't recall the name of the company (I was trying to correlate the price to UTs PCD...maybe in the future when I come across it again).

Rumor/post of the week - From shareholder techbroker, "This is the opportunity, if not the biggest opportunity, for UTSI in near term. At recent SARFT's digital tv show (CCBN), UT's 'digital tv version of RollingStream' is viewed as the best solution to add/improve the service of digital tv ( Basically, UT's solution can make digital tv have the same service as IPTV does. This is the exactly what SARFT needs now! Rumor is that UT and SARFT in close discussion in implementing's UT's solution." Best post goes to Shadow on a variety of topics...

There are a lot of good points made by Shadow, but let me address this one point specifically.

"Wish Tim got more information about products and strategies when he met with management, instead of wasting time advising them how to run the business." First and foremost, I am a shareholder and we have to address the share price with the management/board. You cannot have the shareprice go from $10 to $2.5 (let alone from $40/50 to $2.5) and continuously focus on specific products and how great it is. The company has expenses of $115m-120m for this quarter and more importantly had about $40-50m or more of R&D for the past 3, 4, 5 years! I am not a techy either so if they win a small wimax or ngn contract, I have to fall back on contract amounts and not be swayed by having a "win" since they are burning a lot of money. As for the wimax win, I already posted what UT IR could disclose on it. My feeling is it is not a major win because Motorola provided most of the equipment and UT probably provided some management/software/services only due to their PAS relationship with Fitel.

"Interview" with Hamed Khorsand, BWS financial - I posted on this a couple of days ago. Being in the Bay Area myself, I had also tried to get a hold of Qiang Li, UTs former chief scientist who is now a professor in the Santa Clara School of Engineering. (Link/post provided by Shadow... While I am primarily concerned with the shareprice, UTs iptv technology is a major key tied to the shareprice and having an unrelated doctorate from Stanford myself, I wanted to chat with Qiang Li and get his insights. Unfortunately, when I called the number, another professor answered and mentioned he had only seen/met Dr. Li once in the last year and was on leave/sabatical. Anyway, I am not sure how serious Dr. Li's focus toward academia and may even be back in industry (who knows?). Anyway, If opportunities present itself to gather more information on UT, I will try to post the info on the blog to the benefit of shareholders.

Short Interest - Short interest went down about 8% to around 21m shares (posted by RM516).

General Comments - During the bull market, with minor pullbacks, subsequent new highs, and then the recent bear market/recession, I have seen/followed many companies that have gone through one or even two or more cycles of recovery/reinventing themselves. Even Ford Motors had a profitable quarter, although they are not expected to return to sustained profitability until 2009. UT has had 12 consecutive unprofitable quarters and are not projected to return to sustained profitability until 2009. A fellow shareholder Tigre commented (per the BWS interview) that atleast he is not the only one predicting earnings will not come until 2009. On the contrary, MOST if not ALL analyts/institutions are predicting that UT will not get back to breakeven until 2009 or 2010. Management's last guidance was to be back in the black in 2009 and maybe late 2008. I think investors are realistic but Tigre may be correlating my and other's optimism on the stock price to getting back in the black. That is not accurate as I believe the stock market is forward thinking and the stock will recover way before the company breaks even (just as the stock will show weakness way before the earnings break down). A lot of catalysts such as opening up of the China iptv markets, divestitures, share buy back, new products, improved macro environments, more expense cuts, leasing of the China building, new contracts (increased book to bill), etc can lead to increased share price going forward.

Good results as oppose to good excuses - As Tigre mentioned, the shareprice will ultimately be deterimined by positive fundamental changes. I have followed the company for years and increased my activity in the last 8-12 months. When I talk with fellow shareholders, I emphasize that we cannot continue to sit back and "hope". The blog/group has become a platform where shareholders can share information, communicate with the company, demand performance/accountability, and maybe organize for structural change in the future. In the next few weeks, we will be discussing the upcoming re-election of board members, etc. During my communications with IR and face to face meetings with management/board, a recurring theme has emerged. For all the resources and decisions over the years, the results have been bad. The management/board atleast have tried to explain some of the bad results but at the end of the day, it is still bad results. The management/board has portrayed every bad result as not in their control. It seems the management/board has not been capable of managing their resources and have not been creative in coming up with good solutions. There is always a legal reason or an unfortunate circumstance to their bad results. Well, if that is the case, then why should they deserve outsize compensation? If current management (and that includes Peter Blackmore now) cannot be creative or come up with great solutions/plans and have to just resort to "cook-book" solutions, then what are they being paid for? If Barton can't navigate this company back in a reasonable timeframe, then what is the point of his plans? If he has to consistently blame others for his missed estimates, then what does that say of their controls/accounting? As a manager at any level, if you see there is a problem, you aggresively fix it (not in 3 or 4 years but in a quarter or two at the most). Does Imelt get 3 years or even a third chance?

Going back to management/board, a concern is their energy and age. It is a fair question on how much they are willing to devote/sacrifice at this stage of their careers. We'll see going forward but if each of them have to start looking at the mirror and honestly assess their own situations on whether they are capable of doing the job or not.

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