Sunday, May 4, 2008

Weekly recap - 6 month high

The stock closed at $3.32 for the week, up almost 11%. Although there were some "fundamental" news during the week, the highlight was the stock price action. During the previous week (on Monday), we saw the lowest volume ever (April 21, 2008 - 317k shares). I am not a stock technician but the price action was really bullish this week. On Monday morning, the stock took a "dip" to $2.96 at the open where the market (or MM) tried to fake off the bullish sentiment growing in anticipation of the iptv webinar. The stock then closed the month at $3.25, a nice 14% increase that I'm sure fund managers (long & short) had to take note of. The stock broke through the $3.19 (triple top price action of the last couple of months) and then proceeded to take out 6 month high of $3.42 and then having succesive day highs of $3.43 and $3.44 before some profit taking late Friday. Overall, I'm not a braniac like a lot of people on the message boards but I think the stock is going higher :-)

I could end the weekly recap with the stock price but there were some interesting developments that I'd like to touch upon for recrod keeping purposes.

IPTV Webinar - I still want to do a seperate posting but my initial impression was positive due to the 3 million overall subscriber capacity already booked (compared to very little 3 years ago when Bill Huang held a similar iptv webinar). I like the fact that Brian Caskey mentioned the 3 million as not a lot yet, offering an insight that they have only scratched the surface. For comparison, Merrill Lynch estimated that UT could have a "base" subscriber number of 4 million in China over 5 years (with an upside of 2 to 4x). The number of wins that have been announced (specially in India) show that the potential of iptv is real and UT has material traction. I was happy with the 1 million number with MTNL (it was only 500k on the November call) but had questions with the 800k live users since it was already 750k two months ago (and supposedely had 40k STBs being shipped/month in China alone). Also, why wasn't the India/Sri Lanka contracts discussed in more detail. Also, what "new developments" were discussed in the webinar. I was hoping for information on Hong Kong or other new wins but the company is probably saving this for the earnings call. Anyway, I posed those questions to Barry Hutton, UTs director of IR and he gave the following response.

"Hi Tim,

Thanks for the question. I see where you are pulling certain numbers from the February 28th earnings call and then trying to approximate future results and metrics. However, estimating these future results may not be as straight forward of a process as it might appear. So doing that simple math might lead to some misleading estimates.

Unfortunately, Reg FD somewhat limits my ability to give you adefinitive updated number or a detailed explanation in a closed forum such as this e-mail or even a phone call. But we want to be sensitive to your question. So on the upcoming earnings call we will not only give you updated subscriber numbers but also try to provide clarity on how best to think about the growth of the business going forward. In regards to our not mentioning certain customer or geographic wins, I remind you of the conversation you had with management in mid March. Recall that our ability to discuss certain wins is often limited by certain factors like customer approval requirements etc. Even if thedeal is discussed by other parties or in other forums we are sometimes limited in our ability to issue a release. Again, on our upcoming earnings call we hope to provide a more complete update as to our progress. I hope this helps and you will hear more shortly"

Here was my response to his response.

"Barry, Thanks for your response. If you have other ways toclarify the growth in the business, that would be welcome as well but STB shipped and live users were provided previously, and only live users were provided yesterday. It would help to have some clarification specially since the only conclusion from the live numbers is STB are not being shipped/ordered at the same rate or that adoption/subscriber uptake has slowed down.

As for the PR, I was NOT asking for a PR on Hong Kong but information/confirmation on the contract. This is not similar to Motorolas wimax announcement because the HK iptv info came directly from a UTStarcom executive (not other parties).

As for the "forum",Y esterday's iptv webinar was suppose to discuss thedevelopments in iptv, wasn't it? Let me make it more clear. Why can a UTStarcom executive in Hong Kong announce they have won a signficant contract in iptv and Peter and Brian Caskey not even mention HK during the "iptv" webinar? BTW, I think these are not "material" disclosures but simply clarification on news that was already provided."

Anyway, I think we will hear much more in the earnings call but I really should have asked those questions during the webinar.

Post of the week - This one goes to a relative unknown rrbassplayer who posted on the "unsurmountable problems UTSI faces".

The poster brings up valid issues in India regarding broadband users and the pace of iptv adoption there. However, it is good that UT has a broadband group in India to help push the countries broadband development (what a coincidence :-) Some shareholders also point to the negative posts at a time when the stock is making new 6 month highs as bullish and somehow this is some short attack (nah, can't be....:-)

SEC Settlement - See my previous post.

Yahoo-Microsoft - Most people have probably heard that Microsoft made a last gasp offer of $33/share but Yahoo rejected it and wanted $37-38. This is very relevant for UT because of what happened as recent as last year. Ultimately we shareholders hope that the board/management think of shareholder value (I know that seems like a hard concept to grasp the last few years). Anyway, when the group met with management on March 17, I wanted to start the discussion with a simple question. Does the management believe it can turn itself around or is it better to go into a strategic option now rather than wasting years again (and hurting its balance sheet even more). Even during my last meeting with Thomas Toy, I mentioned the opportunity costs for shareholders that the board/management has bascially decided on when they went into the strategic option, rejected some offers (for atleast part of the company) and decided it was better to go it alone and do a turnaround (when the stock was even at $7). Back to Yahoo, they rejected a $40 offer for Microsoft over a year ago, and now a $33 offer when the stock was at $19 (before this latest overture by Microsoft). The company is holding out for $3 to $4 more. However, what are the chances it can recover from the beating it will take (probably drop to the low $20s if not the teens) and then recover to $37 to $38 in the next yea? Shareholders did not even get the right to "vote" on the offer.
Back to UT, this is precisely why the board/management took a major responsibilty/risk in this turnaround and investors should keep in mind the opportunity loss by the boards' decisions.

Have a good rest of the weekend to everyone.

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