Sunday, September 7, 2008

Weekly recap - Stock slide continues

The stock closed at $3.13, down 13 cents or 4% for the week, the eight consecutive week UT stock has declined. The markets were also significantly lower from 3 to 4.7% this week as the markets return to bear market levels. Here are the UT related news for the week.

UT & Aksh power BSNL iptv for 20 Indian cities - This was already widely reported previously but the official PR came out this week.

UT issues documents for employee options exchange - A 159 page document (no I didn't read it all) indicates that the option price will be at the closing on Oct, 1, 2008. There are 7.25m options with strike prices from $6-25+ that can be exchanged. Here is the exchange ratio for various options prices.

$6-10; 1.9 for 1
$10.01-15; 3.8 for 1
$15.01-20; 5.2 for 1
$20.01-25; 8.2 for 1
$25.01+; 9.2 for 1

If all options get exchanged, the number of options will drop to the 2.5-3m range. The options will vest 50% after 1 year and the rest 2 years from Oct. 1, 2008. If each option cost 50 cents for example, that would be worth $1.25-1.5m. I don't believe this is significant considering Barton's retention agreement alone was $2m/year.

Dell selling factories/Nokia revenue shortfall - Not too related but Dell is also trying to outsource their manufacturing to be more efficient while Nokia's shortfall show the competitive nature in the handset/smartphone market. UT's sale of the PCD at the height of their profitability was good timing/management. The sale brought liquidity, lowered working capital requirement, preserved internal handset contracts, and reduces operational risk for that business unit.

Russia conference - Shadow posted that UT was a major sponsor of an iptv conference in Russia. We have heard back in the shareholder meeting that UT was working on a couple of contracts in Russia and Brian Caskey made a trip there so there is some progress for potential contracts.

UT stock non-marginable - Last week, Etrade made UT stock non-marginable and that is before the stock even dropped below $3. If UT goes below $3, then other brokers will enforce margin requirements for UT putting more pressure on the stock. I knew we should have had a reverse stock split (just nasty emails/postings please :-)

Philippine NGN contracts - Top Philippine carrier PLDT plans to spend substantially on a next generation network (NGN) technology for its telephone service nationwide as it expects revenue to reach hundreds million of pesos in five years.
The company will spend 4.3 billion pesos ($93 million), which includes an incremental investment of 3.9 billion pesos ($84.2 million) for over five years, according to documents it filed with the National Telecommunications. Its existing investment in the proposed areas amounted to 464.01 million pesos ($10 million).
The company will finance its fresh investment through internally generated funds.
There is no official PR from UT but this should be their contract (at about 17m/year for 5 years). So far, that first contract was for $10m (if this article is correct). It seems these NGN contracts are in the $10-20m range and have good expansion potential. Almost all UT competitors are also focusing on NGN but UT seems to have a bunch of wins in this area (Argentina, Taiwan, Brazil, Jersey, Philippines, etc).

India Broadband - Just a side note to last week's PR on India broadband. UT indicated it was the top broadband provider in India with 75% market share. Currently, there are only 4.5m broadband lines and the country is targetting 20m by 2010. Even with the Phase II contract with BSNL (around $80m+), there should be signficant contracts ahead in India if the country will come anywhere close to the 20m target. During my last 2 emails with Blackmore the last few weeks, he had just come back from Japan and Brazil respectively. Unless he was there on vacation, there might be some good developments in those two countries.

David King - Joins Acision as COO. David was at the shareholder meeting in June and discussed the Russia/India developments and the company's better focus on efficiencies and drive in new markets. I had a positive impression of David and liked the way he described the iptv markets in India and their better operational practices (cutting excess personnel/partnering, etc) so i didn't see his departure as a firing. However, he did have valid personal reasons for leaving and thats that. The company will find replacements and move on.

China Telecom earnings - Last week, I had notes some information regarding China Netcom's earnings pertaining to UT. This week, here are some notes from China Telecom.

In the first half of 2008, access lines in service decreased by 5.44 million to 214.9 million. PAS subscribers were 51.99 million with a net decrease of 6.06 million.

In the first half of ‘08, broadband subscribers increased 4.3 million to 39.95 million, an increase of 12.1% from the end of last year.

Fourth, to improve cost effectiveness, we implement stringent control on PAS handset subsidies and tilt investment towards profitable business and customer segments.

Fifth, maintenance CapEx on PAS to ensure normal operation declined by 88.4% from last year, accounting for a decrease of 3.4 percentage points of total investment to 0.5%.

Broadband growth in China continues to be impressive and will fuel iptv demand in the future but PAS has fallen off significantly, which is good in a way because its impact will be lessen on UT going forward.

China iptv - Last week, I noted the continued, steady growth in China (about 30% sequential growth). This one is about a week old as well. The headline is "China Telecom has shortlisted 11 companies to supply 574,000 IPTV set-top boxes, comprising 536,000 standard-definition and 38,000 high-definition units." It has ZTE benefitting the most and that "ZTE is thought to currently hold the largest market share of China's IPTV system and terminal market, and has supplied systems and terminals in a number of regions, including the provinces of Shaanxi, Jiangsu and Guangdong, as well as Beijing and Shanghai." At the very least, the iptv deployments remain healthy. UT should get its share.

BSNL iptv over 100 cities - Before the ink on UT's PR for 20 BSNL cities, they are already talking about 100 cities :-) Subscriber target when the 20 BSNL cities was discussed was only about 10k in 9 months. Now, it is up to 100k by March 2009. The website also has a lot of postings on MTNL, Bharti, and other iptv news. It seems like there are a lot of iptv issues that have just been resolved very recently (the last few weeks) and has led to increased deployments. In that article, they talked about bringing iptv to 1/4 of the 82 million cable homes. The cost of iptv is about $4.5/month. Thats less than the cost of a DVR in the U.S. with plenty of added features. Another article in the website talks about 1m India iptv subscribers by 2011 (see section on Bharti iptv). With wins with Bharti, BSNL, MTNL, Goa, and Sri Lanka, the future for UT iptv in India is shaping up. The breakout could be in cable systems and in China but steady growth, which we anticipated since last year, is only beginning right now. Shadow's prediction of 400k in India doesn't look too ridiculous to me. I was looking for 50-100k in India but it might be closer to 200-300k.

IPTV, NGN, Broadband, Russia, India, China, Brazil, etc, etc, etc. - For the last few years, it has been mostly promises, trials, and strategic contract wins. The revenue has yet to come close to their expenses. The company has put in hundreds of millions in R&D the last few years to seed their technology and position. There is still some ways to go but the news I am reading indicate massive adoption/potential is teasingly close. I hate this company!!!!!!!! :-)

Have a good weekend everyone and lets hope UT breaks the 8 week losing streak.