Thursday, May 15, 2008

Preliminary thoughts on the Earnings CC

I've been talking to a few shareholders and taking my notes from the earnings call but don't think I'll have time to do a full recap tonight so here are some initial thoughts.

One of the highlights of the call was Hong Lu's discussion on UTs role in the relief efforts in China. I was actually proud to be a UT shareholder because of the company's role in providing PAS equipment/24-hour tech support during this catastrophe.

The other highlight of the call for me was simply the consistent nature of the earnings call. There is "certainty" in the earnings call and an overall feeling that things are turning around. The management is also showing a lot of confidence that the turn around is working (they actually have a analyst meeting planned in June) but yet know there is a lot of work ahead. Here are some detailed items to be positive about:

1. Management reaffirmed 2008 cash flow (breakeven), GMs, revenues for each of the business units. Upside to guidance was discussed by one of the analysts but management would like to get through Q2 first before making any calls.
2. PCD is doing exceptional with a record 7.6% gross margins. The book to bill for PCD is also at 1.3 and overall margins of 6-6.5% should be met for the year.
3. Still in active discussions to divest none-core assets. Analysts did a good job in trying to get information from management about divestitures and Peter reiterated their focus is on the "core" businesses. There are also those external professional service expenses that may be due to all the "active discussions" :-)
4. Patents brought in $2m.
5. Second half expenses will be $110m or lower per quarter. Headcount reduced by 16% (up from initial 11%).
6. Hardly any iptv revenues were recognized, setting the stage for the 2nd half of the year.
7. IPTV at 850k (100k or 13% increase sequentially). Margins are healthy. China subs increased to 583k
8. Strategic contract with SARAFT.
9. PAS, packet data doing well. There was even a 50k handset order from Beijing for the olympics and packet data being implemented in Beijing (100k+ users).
10. Book to bill of 1.2.

The one major negative is Q2 will still be "bad" as expected but Q3 & Q4 will definitely be closer to breakeven as OPEX significantly goes down.

I don't have a crystal ball for tomorrow and its close to the $5 max pain on options expirations day so thats probably where it will settle in. I do believe the stock should continue to trend up for the rest of the year as the company continues its progress. Have a good Friday to everyone.

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