Saturday, June 28, 2008

Weekly recap - Bear Market/Shareholder Meeting

The stock closed the week at $5.55, down 32 cents or about 5.5%. The bigger news, however, was the record price for oil (reaching $143) and the continued decline in the overall markets (over 3 percent). The Dow, Nasdaq, and S&P are all down about 20% from their October 2007 highs and down 12-14% year to date.

News/highlights from the week include the following.

Most trusted in India - UTStarcom, Inc. (Nasdaq: UTSI - News) today announced that it has been named "Most Trusted Company" in India in the areas of Internet Protocol TV (IPTV) and broadband leadership by VARIndia. Commentary: The company has won this two years in a row. My thoughts on this are more cynical due to the major losses the company suffered (and continues to suffer) in India. From the last earnings call, Barton explained the problematic Indian contract as follows: "“Why do you keep having these things happen?” You can imagine a contract which the terms are fixed, and you bid and accept the terms you are given.
And when there are features where it says what amounts to most favored nation pricing type terms. So if anybody comes up with a price for something we’ve got on our delivery list, that’s lower than we’ve been charging or we’re used to charging, we are obligated to honor that. And that type of language happens to us once in a while and we have to adjust, and that means we take an incremental loss." UT continues to pay up while we keep hearing about penalties and corruption charges on Huawei/ZTE in the hundreds of millions but who knows if it will be enforced. So, at the end, UT wins the most trusted company and management has been sensitive to the India situation saying they have learned a lot from it.

India IPTV - I just want to clarify again that UT has won 4 out of 5 India IPTV contracts but this includes Sri Lanka (the other 3 in the India region are MTNL, Bharti Airtel, and UTL). Brian Caskey mentioned at the analyst day that there is an additional win coming. Another clarification. There was an article that noted iptv being provided without broadband. This is simply not the case. The UT system is very robust due to content going over all ip so the UT iptv system will/can work with any end device (STB, cable, mobile, computer, etc) but will need broadband connections.

Interview with Peter Blackmore - For completeness, here is one of Peter's interview at the analyst day meeting.

Q1 2008 transcript -

Sector weakness - Late in the week, sony-ericsson and palm had some negative news that hurt the overall tech space. I will post separately on this after the weekly recap.

Shareholder meeting - With the company providing periodic updates (filing on time), meeting with us shareholders (in March) and the webinars/analyst day events, communication has obviously improved. Coupled with the 100% increase in the stock price year to date, I have to admit I went in with "less than a sense of urgency". Don't get me wrong, I am still down on my UT investment but it is much better than the $2.31 price when we met with management back in March 17. The first thing I mentioned to fellow shareholders is that we keep meeting with the markets in turmoil! Hopefully, last Friday was the worse or close to the worse just like the March 17 date. Ok, on to the details of the meeting which is probably the only thing you care about :-)

I arrived at the meeting hoping to get something to eat since I haven't had lunch yet and so after greeting fellow shareholders, T. Toy, P. Blackmore, F. Barton, and B. Hutton, headed straight to the food spread. Normally, I would be "shy" on these events but with the social atmosphere, I was going for the food (he he). I got a few mushrooms on a stick (delicious), chicken wings, fancy sandwiches on small pita/french breads (don't really know what was in them but heck I was hungry) and took a seat at conference table and munched away during the presentation. There were about 6 shareholders (everyone except 1 I had met before, the new one could have been a short, he he, just kidding..don't really know but if I was short, why not go to the meeting?). There were also other directors (B. Ryan) and other UT executives (D. King) and their accountants/lawyers (about 20 or so other non-shareholders/employees). T. Toy asked why I and another shareholder was wearing "green". I replied that since the stock was up....He responded that hopefully, he doesn't see me in red.

So, basically, there were 3 shareholders in 2006, 11 in 2007, and 6 this year. Its not really like the Walmart or Berkshire Hathaway meetings but there are benefits to being one of the few shareholders who show up. The shareholder meeting was highlighted by the transition of the CEO position from Hong Lu to Peter Blackmore and to the contributions made by Hong Lu to the company he started back in 1991. T. Toy discussed meeting Hong Lu in 1993 in Hangzhou when they had 21 employees in a small room and seeing how it has grown to the company it is today. I applauded with everyone due to Hong Lu's accomplishment (well deserved but as a shareholder, it has not made me any money yet). I did enjoy these types of moments because Lu did spend a lifetime accomplishing something truly remarkable and this could actually still be the start of the company becoming an even bigger success compared to the PAS glory days.

Preliminary results of the proxy voting were given with all three company backed resolutions being approved by shareholders. I'm interested to see the actual numbers when they are published. Peter Blackmore was the only presenter and basically it was a repeat of the analyst day meeting (shortened) as he knew most of the shareholders already heard the presentation. After the presentation, as in the previous shareholder meeting, each shareholder was given an opportunity to ask questions. Since there were fewer of us there, we could ask more questions.

I focused on India iptv and discussing BSNL in particular. I also had a couple of follow up questions on broadband and TVs delivering iptv w/out a STB. David King (SVP of international sales and marketing) answered my questions and some of the questions of fellow shaerholders regarding the international markets. For me, the highlight of the meeting (aside from the mushrooms on a stick) was getting to hear David King and his clear explanations on UT challenges and opportunities. I really had a favorable feeling towards David (as I did the first time I met Peter Blackmore).

My next question was regarding the core business. I mentioned that I was comfortable with the current share price but was trying to project a higher valuation and that can only come with success in the core businesses. However, without PCD, the company is set to lose $130m. This seems to conflict with Blackmore's stated goals of achieving the cost base right by 2009. There were other questions as well and most of the answers were upbeat (as you can imagine, this is a shareholder meeting :-) The formal shareholder meeting ended about 2:30pm (from a 1PM start). The informal session lasted much shorter because there was a board meeting or some other meeting they had to attend to. I would have liked to hang around and ask a lot more questions since this was the shareholder meeting (not sure why they would schedule a meeting right after the shareholder meeting on a Friday?, maybe its the only time they are all together, who knows?). Anyway, its always good to attend these meetings and get a sense of how the company is performing and if its still a good investment.

My final word for the weekly recap is that UT is progressing in its turnaround. There is a ton of work to be done with the core businesses (obviously) but I remain optimistic that shareholders will continue to be rewarded going forward.

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