Sunday, November 23, 2008

Weekly Recap - Really Ugly

The stock closed at $1.47, down from $1.98 the last two weeks. I didn't post a weekly recap last week so this I'll reflect the last two week's declines. The stock was down 51 cents or 26%. The markets were significantly lower as well with declines of 16%, 10%, and 14% for the Nasdaq, DOW, and S&P respectively. Those numbers even reflected the last minute rebound late Friday of 5 to 6% for the markets. It is really ugly. UT stock hit an all-time low of $1.35 on Thursday and Friday and at the current price of $1.47 has a market cap less than $180m. So, what do I do this week.....Yup, buy more UT at $1.65, $1.51, $1.46, and $1.35 (about 15k shares total). Obviously, I consider this a good bargain but in this market, it can go down some more.

NGN webinar - Nothing significantly new that I could tell but they did mention some overall numbers. Bookings growth for the core was 25% in 2008. Thats definitely good growth but off a low base from 2007. As we've seen, the declines in PAS and handsets in 2008 were too much for core revenue to absorb. Revenues from a geographical standpoint is as follows 50% China, 20% India, 15% US (handsets), and 15% others. As my last post indicated, I was really surprised/disappointed about the non-PAS handset sales declining by about half in revenue from early 2007. Again in the last earnings call, Peter did mention introducing a bunch of new CDMA handsets into the China markets. That could really help revenue going forward. The handset margins are not great but better than some broadband margins. With the telecom consolidation in China, UT handset sales (non-PAS) might finally do well. I reviewed the transcript from last quarter and they did mention 10%+ bookings growth in 2009. On top of the growth in bookings for the core in 2008, the drastically reduced PAS bookings in 2008 and declines/or lack of PAS bookings in 2009, this number may be very good. One last note on NGN, Blackmore/Casky did a good job in explaining the benefits of NGN to the carriers in terms of the savings and competitive positions the customers would have. In this environment, I think this will encourage more carriers to implement UT systems for Class 5 replacements. Again, nothing really new but the recent wins/progress in NGN is encouraging.

OPEX cuts/cash flow - The 15 to 20% target for opex cuts for "early 2009" is definitely needed and welcome news. There is serious concern about UT's cash burn so I hope this can be implemented ASAP. There will be a December call to update us on this issue. Cash flow for 2008 was also impacted significantly by the Phase 2 broadband contract. In order for India to come anywhere close to their 2010 broadband target of 20m users, there should be more contracts coming in 2009 and based on lessons learn from Phase I, it should be much better for UT in terms of GMs and cash flow.

Inida IPTV update - Looks like Aksh is accelerating roll out to additional cities in the next few weeks. They are targetting 70k users by the end of the financial year (not sure when that is). Also, they are going to target the 4m broadband users of MTNL and the 6m broadband users for BSNL in 20 cities.

IPTV estimates - Updated estimates for worldwide iptv users. China iptv users are projected to reach over 10m by 2013, which is lower than earlier projections. Growth for 2008 worldwide is about 100% which bodes well for lagging regions/areas (most of UTs target markets such as India, China, Latin America, etc). Also, UT has ancillary revenue from iptv advertising unit, surveilance etc. I'm not sure if they are including cable/iptv in the estimates.

Market valuations - Just some stock price of companies in the sector....Sonus $1.46, Alcatel-Lucent $1.86, Ericsson $5.82, 3com $1.53, and Nortel $0.42. Transmetta was recently bought for around $300m (slightly above their cash value). Some shareholders are suing due to the low share price. In this market, I would think there would be more consolidation but it hasn't happened so far. This could really help in pricing, market valuations, etc.

Have a good rest of the weekend and new week to everyone. It doesn't look like the market has found the bottom yet and year-end tax selling may just be starting. Did I mention...really ugly.