Tuesday, May 13, 2008

Q1 2008 Earnings Call Preview

Credibility. Once lost, its hard to get back. Its been 12 consecutive quarters in the red and even with the upside preannouncement, it will be another quarter of operational losses. However, there are clear, steady, and material progress that the street can no longer ignore and thus the rally in the stock lately. I re-read the Q3 and Q4 earnings call transcripts to review the progress on the turnaround and to preview the upcoming Q1 call. Unlike the earnings call in 2005 and 2006, management seems to have a unified turnaround plan, communicating it with the investment community, and more importantly benchmarking their progress. Credibility will only be gained through better performance and will take several good quarters but I could not be happier with the share price and progress at this stage of the turnaround. There is a lot of work still to be done but I give management and the employees much credit for the recent turnaround.

Overall, Peter Blackmore, Fran Barton, and Hong Lu have communicated well during the last couple of conference calls and I'm sure they will provide a wealth of information this coming Thursday. I've come up with a list of items that hopefully they will address in the coming call.

OEM Agreement - Peter talked about using both local and worldwide OEM partners and having signed 1 global Asian partner. Improvements in supply chain and inventory control were to be implemented by Q1. This is essential in improving cash flow, lowering expenses and increasing margins.

FMC - Brazil Telecom was mentioned as starting to use UTs fixed mobile convergence product for their 3.7m GSM subs. We have not seen much progress/contracts for FMC for the last few years.

Russia - Russia was briefly mentioned in the Q3 call but no details/contracts have been mentioned. Russia is part of the BRIC countries that major institutional investors are focused on and progress in Russia would be very attractive to round out the successes in Brazil, India, and China.

BSNL IPTV - UT has had a lot of success in India and have BSNL as a major customer for broadband equipment. We know they have been trialing iptv for over a year.

Progress in China - Hong Lu has been in China for almost a year and aside from stabilizing the situation when Ying Wu left, his goal was to increase revenue from sources outside of PAS and iptv. However, aside from a couple of ip surveilance contracts, there have not been concrete news. Broadband/gepon/optical etc were supposed to be getting traction. Also, Hong mentioned extending PAS via the 128k packet data and selling associated equipment with it. However, there has been no concrete details.

Patent Program - Fran Barton mentioned this in the Q3 earnings cc and part of the cash generation plan.

Building Lease - Management has talked about leasing extra space in the Hangzhou building to generate some income from this asset.

Sale of None-core Assets - From the time the business units were separated to core and none-core, expectations of divestitures have been high and mentioned several times during the last earnings call, where the management mentioned it was in "active" discussions.

Stock Buyback - Have I talked about this before?? :-)

On a side "trading" note, the stock has had a good run and you all know how I feel about the valuation but certain traders have bought $5 calls for this Friday. Seems like a stretch but good luck to them :-) If Google can go from $450 to $545 in a day, why not UT?

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