Saturday, September 13, 2008

Weekly recap - Under $3

The stock closed at $2.87, down 26 cents or 8.3%. Early in the week, the markets were focused mainly on the government bailout of Fannie Mae and Freddie Mac. Late in the week, the markets shifted the attention to Lehman, Washington Mutual, and Merrill Lynch. The markets did manage to close the week slightly up.

Brasil Telecom contract - "Brasil Telecom, one of Brazil's leading wireless and fixed-line communications providers and incumbent telecom operators, will utilize UTStarcom's mSwitch solution to enable fixed-line connectivity with GSM platforms for call continuity between the two networks using a single wireless device. The FMC solution enables Brasil Telecom to extend its current cellular coverage area indoors using the new Voice Continuity Call (VCC) handover between cellular and WiFi networks." This seems like a huge technological win with a major carrier that UT has been working on for years. It would have been nice to know the contract amount and what the market potentials are. It does show UT continues to be at the leading edge technologically and the strategic wins continue.

India IPTV market - Shareholders Tigre and Shadow discussed the iptv developments in India. The size of the iptv market in India was projected to be 2 to 3m in 5 years. On the recent presentation slide, UT noted that Aksh alone was targetting 1m in 3 years.

Short interest - The short interest went down by about 1m from 23.6m to 22.6m at the end of August. Average daily volume is down to 832k shares, with the days to cover increasing to 27 days (highest in a year, maybe ever).

September road show presentation - Shareholder Shadow provided a link to the presentation and discussed some of the highlights.

Stock price - The stock has pulled back for 9 straight weeks bringing down the market cap to about $360m, which is around the cash position for the company. I wrote an email to Peter Blackmore and copied the shareholders in the group. It basically outlines more frustration from shareholders and questions the role of the CEO. While the company has resolved previous legacy issues, improved liquidity and won some strategic contracts, shareholders are still faced with all-time low share prices. Management continues to have major credibility issues with failed profitability forecasts year after year. The frustration is even larger when you consider the disproportionate share of the sacrifice shareholders bear. Management continues to get outsized compensation/bonuses (are there any salary cuts or no bonuses?), employees get to reprice their options, executives get more shares and performance is not every tied to the share price or basic profitability.

On the recent presentation slides, shareholders hear the improved performance, financial positions, and guidance for the future. That is all great but year after year, there are more excuses for the missed guidance. The "recent" tenure of Fran Barton showed the company's poor operational performance, outsize compensation, board's failed decision making abilities, and the waste of resources and destruction of shareholder wealth. Unbelievably, the company will have its highest net cash position (around $324m at the end of the year) even after seeding a future contract $60m and burning more cash through the end of the year. All of this with the stock at all time lows. I am by no means a financial guru (I did invest in this company after all) and do not know all the interal forecasts and company operation. However, I believe a stock buyback or other tangible direct actions by the company should be done at this stage (aside from just more guidance). Management/board compensation reduction etc should be implemented. Management relies on consultants and has had plenty of discussions with the board. Could a share buyback or compensation reduction be any worse than years and years of failed strategy/execution that has landed shareholders at this state. I could go on and on but I'll end it here for now. Rather than pour over the recent presentation slides or hope for good "guidance", I believe investors should switch their thinking to planning for significant management scrutiny and board accountability. Final thought on the strength and experience of the management team. Are you kidding me? I have PhD from Stanford but if I don't produce or show results, what good is that?

This recent missed estimates, stock crash, and lack of management intervention can be summed up in one shareholder's (Flipocrat) word: Disgraceful.

Have a good weekend.