Tuesday, May 6, 2008

UTStarcom preannounces - stock up 19% AH

I checked my yahoo email this afternoon and saw there was another email alert from UTStarcom. More option grants? More details on management/board compensation? Delayed quarterly filings? Someone else being investigated by the SEC or justice department? Nope, it was a preannouncement that the company exceeded their previous guidance for Q1. Instead of revenues of $500m to $520m, it will come in between $580m to $590m. Gross margins are going to be 15-16% instead of the 13% estimated previously.

I then proceeded to read through the PR for the REAL negative news. There has to be negative news. Almost every quarter that the company has exceeded (since 2004) has come with very poor guidance. In May 2005, the company reported 29 cents/share due to the Japan contract being recognized and then poor guidance followed. They exceeded in Q1 2006 but again guidance was not good. Is there more China investigations? Well, they did have higher than estimated expenses due to "unanticipated professional services expenses". Its actually pretty bad when you give guidance 1 month before the quarter ends (end of Feb) and then say its unanticipated.

The upside in revenue was partially expected as Fran Barton has been very conservative but the 300 basis point upside in GMs is significant showing the non-PCD businesses are also doing well. Another big positive surprise is the liquidity position. Back in the end of February, Barton updated the cash position at $228m with $48m in debt. At the end of the quarter (one month later), the cash/short term investments has become $305m and the debt down to $36m. The company attributed the "strong cash flow from operations generated primarily by management of working capital." So, the "cash" went from a net $180m to $269m in one month! We'll still need to see the balance sheet (payables/inventory) but this is clearly good news and that their cash generation plan is working.

The company is still implementing a new ERP system and had to delay the filings. Looking at the glass half empty, I still wonder why they would release preliminary numbers now and they didn't in late 2006 to most of 2007. Maybe their legal department has no issues with releasing good news :-) Anyway, looking at the glass half full, its good to know that they actually listened to some of the items we talked about during the shareholder meeting (communication, preannounce when you have good news, etc).

PS. Its funny how the yahoo board/management is now under the gun because they DIDN'T listen to their shareholders. It may be a good idea to actually listen to shareholders once in a while :-) Again, I am not a braniac like some people on the boards (specially those that bash me) but I think the stock is on an uptrend.

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