Sunday, December 7, 2008

Weekly Recap - Near Lows

The stock closed at $1.46, off 44 cents or 23% for the week. The markets recovered from the last week's early 7-9% drubbing to end the week down 2-3%. However, UT set a new all-time weekly low. The volume last week was above 1m shares every day so the stock clearly underperformed despite the announcement of the OPEX reduction conference call (on Dec. 18). Specific news was light so the big news was again the shareprice. The main discussion on the message boards was what is UT really worth and can management turn this around.

With morale already low for over a year (when the stock dropped below $5 and then $3), things turned even worse the last few months as the stock is now under $1.5. While the recent credit crunch is deeper than most could have forseen, UT's poor operational performance has been going on for years. The company has been targetting "near term profitability" for atleast 4 years with every management change and company strategic decision.

During the last year, there were glimmers of hope as the "new" management team cut expenses, disposed of none-core assets, paid the convertible, filed all the late financials, raised cash, and laid out the future technology/path of the company. Lets take a look at the balance sheet and see the tangible impact of those actions and see if the company can survive (at $1.46 share price, lower than even the car makers and other "insolvent" companies, its constructive to look at the numbers for survivability).

Balance Sheet - Net cash increased to $331m this quarter due to the sale of the PCD. Inventory was reduced from $570m to just $195m. Other current liabilities was reduced from $440m to around $290m. Inventory plus accounts receivables is close to payables. Tangible assets went down $50m from last quarter to $534m.

As noted in the past, the sale of the PCD brought liquidity, reduced inventory risk, and improve focus to the company. The inventory level is down to under $200m (and this includes the build up for the Phase II India contract). With the current market environment, the importance of being lean is even more important and I have to give management credit for executing the sale. There is a lot of work in the OPEX side that hopefully will be addressed in the December 18 call. Management underestimated the urgency of additional expense cuts even during the last year expecting revenue growth to get to their expense metrics targets (which I haven't heard anymore about). The market doesn't seem to be confident that the company can cut expenses enough and after years, its not surprising. However, the company is getting leaner (based on inventory/cash levels/expenses) and bookings for core businesses and target markets still provide plenty of hope/upside.

Have a good week to everyone.