Saturday, October 4, 2008

Weekly recap - deterioration in stock markets

The stock closed at $2.88, down 41 cents or 12.5% this week. The markets hit new lows despite the passing of the "rescue"/"invest in America" plan. The DOW, Nasdaq, and S&P500 were down 7.3%, 10.8%, and 9.4% respectively. I can't remember a worse week for the markets since maybe 2002. I read an article that mentioned 1/3 of the people think its a tremendous buying opportunity, 1/3 think its just the start to further losses, and 1/3 that don't know! I personally think its going to be higher in a few weeks even if its just a bounce from an oversold condition. However, the 10k level on the DOW is very close that its like the $3 "magnet" in UT stock. As for UT, I'm hoping it starts moving up in anticipation of the next earnings report. Here are some discussion points.

Commentary on bailout/more needed - I got this link while checking the Sigma Designs board, "Realizing it is not enough, by Monday morning expect some additional Federal Reserve action, perhaps a rate cut, maybe even a coordinated move between the Fed and European and Asian central banks. Even so, the market is too big, the debt crisis too large, for central banks to control."

Other stocks down - Each company has its own issues but here is a sampling of the losses suffered by other technology companies (with some relation to UT) this year.

Alcatel-Lucent -52%
Nortel -86%
Cisco -21.5%
Ericsson -31%
Motorola -58%
Nokia -54%
UTStarcom +4.7%

This obviously is not meant to soften the blow but it does show that UT had been beaten so bad in 2007 that valuation alone (asset sales) propelled it to over 100% gains by June. The lack of operation follow through and overall bear market has brought the stock down to very attractive levels again. For deep value investors, there are plenty of stocks to pick up that will yield significant gains from this level. This is good and bad for UT as investors have a lot of choices now.

Options pricing/director compensations - The directors received both stock/options for their yearly compensation. Former lead director Thomas Toy got the most with about $200k worth of shares and another 150k options at $3.37. I was somewhat surprise that Toy "only" had around 25k shares previously so this latest batch increased it to around 100k shares. The newest director received $40k worth of stock and around 25k options. I think these are not excessive. The employee options I believe were priced at $3.24. IF this leads to more movitated employees/board/management, then it will be a bargain. Up to now, shareholders have taken a beating.

India developments- "October 1, 2008 - Indian IPTV operator Aksh Optifibre has signed a three-year content deal with Sony Pictures Entertainment under which the latter will provide Hollywood content for Aksh's IPTV service, called 'iControl'."

While BSNL & MTNL have launched their iptv services officially, it looks like Bharti and Reliance have not yet. Hopefully, the regulations passed last month as well as the commercial launch for BSNL will move Bharti to start as well. I haven't seen an update with the GOA project that will use UTs iptv/ngn/broadband products.

BSNL's target is around 150k by March. However, they also have 5 franchisees (one being Aksh) so UT will not get the full pie. Aside from BSNL, UT does have MTNL, Bharti, UTL, and Sri Lanka in the India region to build subrscribers. We've heard how UT has won 5 of 6 commercial iptv contracts in the India region and has 80% market share. It would be helpful if management can discuss the franchise model a little bit more and what the competition really is. Are other franchisee using UT equipment as well?

Awaiting contract announcements - Based on the links provided by other shareholders and what we've been reading, it seems there are going to be "new" contracts in Russia, Israel, Philippines, Hong Kong, Brazil, and Japan. UT has also been in a Latin America countries as well as Mexico that could yield more contracts. Its imperative that we start hearing these wins as some take time for revenue to be booked. Of course, China will have the largest impact on revenues and signs of openning up will be great news.

Low volume/low interest- The trading volume has been low in UT indicating lack of retail interest. Another fact is that blog viewership which normally averages about 2500 views/month was down to around 1500 in September. I guess thats what the consequence of the decline in stock price. The volatility in other stocks have focused attention away from UT as well. All in all, it could be a contrarian indicator that the stock is ready to launch :-)

Have a good weekend. Next week is going to be volatile again for the markets. Get some rest!

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