Sunday, May 18, 2008

Weekly recap - Reverse stock split

What idiot called for a reverse stock split in 2007? Oops, that would be me. It just shows we all go into a state of insanity once in a while and make stupid postings. Anyway, it looks like the stock did do a reverse split and my share count still remains the same :-)

The stock closed at $4.97, a level last seen briefly in October 2007 in anticipation of the filings. Previous to that, you have to go back to July at the onset of the stock breakdown from the $5 level. The stock moved up $1.06 this week or 27%. Aside from the stock rising, the real good news is that the company's turnaround plans are materializing, management is conservative but confident, and the estimates going forward are simply too low. Here are the news/highlights from the week.

Ying Wu - Focus Media Holding Ltd. named former founder and China head Ying Wu to its board of directors. With Hong Lu set to hand over his CEO title to Peter Blackmore and move to the executive director position, it will be interesting who the company hires to head the China operations.

Earthquake relief - The company donates money, equipment, and service engineer time to assist in the earthquake relief efforts.

Post of the week - I personally vote for Tomc368 who writes under the heading "Tim, we owe you" "I have been a long for 3 years and have been a contributor on this board for about a year. I have been out of commission for a while with medical issues, but noticed we have done very well while I have been gone. I am happy and excited for UTSI, and would like to take this time to thank Tim; not only for his blog, but for providing an identity to us common shareholders and a unified voice that management had to contend with. Tim, you kept us informed and focused. I truly believe that we, thru Tim, had an influence on management, and that some of the improvements we have seen may have been as a result of that impact. Tim, on behalf of the rest of us suffering longs, I thank you and feel we owe you a debt of gratitude for your untiring efforts and unselfish representation of all of us. Whether the rest of the board agrees or not, I would like to thank on behalf of all of us for keeping us focused and committed instead of deteriorating into a bickering, bitter board. Thank you , Tim." ok, so that one was a little biased. he he. Thanks for the kind words Tom. The real post of the week should go to Tigre, who posted about selling all his shares at around $4.4. This post generated the most replies. Some people attacked Tigre. Some felt sorry that he did not get to participate more on the upside. But, the value of the post was really the discussion on the prospects of UT, trading in general, the markets, and others. Believe me, Tigre will be OK and knows what he is doing :-) A close second in the posting is Techbroker for posting about PAS' role in the earthquake and hoping UT had a hand in it. Obviously, the earthquake situation is life and death but since this is a blog about UT, I'll put it as a very close second. I would like to commend Techbroker for consistently scouring the China news to bring us the latest and greatest items that impact UT. Tigre and Shadow and others add so much to the discussion as well so please keep it up everyone.

Earnings recap - See previous post.

Q2 guidance - Overall revenue between $580-610m (Non-PCD $120-130m; PCD $460-480m) and gross margins of 14% (Non-PCD 36%; PCD 6.5%). Expenses of $118-123m. That would imply a loss of $37m or 30 cents per share. Cash flow gains for Q1 will also be reversed so Q2 will definitely be the low point for operational performance.

Looking ahead past Q2 - Based on 2008 guidance/targets that the company gave back at the end of February and using midpoint of the range, the company will have Non-PCD revenues of $838m (4.3% gain) and gross margins of 33.3% for the year. For the 1st half of the year, the company will have $155m + $130m (top end) = 285m of non-PCD revenue. That means the 2nd half will have $553m or $277m/quarter of non-PCD revenue. On average, that means an additional $147m ($277m-130m) of non-PCD revenue on top of Q2 numbers. At a conservative GM of 30% (taking into account this quarters 39% GM and the 36% GM for Q2), that is an additional $44m in gross profits. Add in the estimated $11-12m in opex reduction and you get a delta of $55m for the Q3 and Q4 quarters or 45 cents. Q2 will probably exceed the current estimates but I am also using mid-point of guidance for 2008. Non-PCD/Non-PAS handset revs take more time to get recognized but the bookings for both PCD and PAS handsets are good I'm not worried about those holding up for the rest of 2008. The non-PCD bookings are set to increase in Q2 by 25% from $150m to $187.5m (or a book to bill above 1.4 for Q2) so that bodes well for 2009. So, to summarize, either Q2 will blow away current estimates or Q3 and Q4 should be profitable. There is obviously execution risk that could delay revenue recognition for non-PCD even past 2008 but the revenues for non-PCD in the first half are already so low. The margins I used for non-PCD at 30% is low as well. Compared with 2006 when we were expecting 2007 profitability, there was hardly news about contract wins and amounts in iptv, ngn, broadband. This time, the company is updating iptv surbscriber growth, contract amounts ($46m in India alone) and NGN wins. They are even having analyst meetings, road shows, and filing their quarterly reports. There are still a lot of work to be done and Q2 is not going to be pretty but even the quarter is half over. I just see too much upside at this stage and think the institutions see the same thing and thats why the stock is going up. I'm sticking with my year end targets and am fairly confident in year end profitability.

Have a great rest of the weekend everyone.

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