Sunday, January 4, 2009

Weekly Recap - 33% loss for 2008

The stock closed 2008 at $1.85, off 90 cents or 33% for the year. While the number was in line with the markets, this was disappointing since the stock has been on a downtrend for years and had been in the $5s as late as July, when it was up over 100% for the year. For those investors left in UT, the hope is that the recent round of opex cuts will finally bring the company to profitability and that its overall revenue has hit an inflection point.

India IPTV - There were some IPTV news from BSNL but related to Smart Digivision. UT management has been upbeat on India iptv hypint their market share but it seems there is also other options out there.

ZTE/Huawei Growth in 2009 - Both ZTE and Huawei are still positive on growth for 2009. Based on 3G licenses being finally issued and continue expansion overseas, it looks like both will acheive revenue growth even in a tough 2009. "The Chinese government estimates that the country's mobile carriers will spend around $29 billion on 3G-related capex next year. " UT will try to make up lost PAS handset sales with some CDMA handset sales in China.

2009 Estimates for UT - Fellow shareholder Shadow puts forth his estimates for 2009, He writes:

So, let's take a look at possible overall sales increase for 2009. Using data from 10Q's and transcribed quarterly conference calls, bookings for non-PCD obtained were $150 million in Q1, $188 million in Q2, $175 million in Q3 and $189 million in Q4 (estimated using book to bill of 1.1 and sales of $172 million obtained by subtracting Korea PCD sales of $53 million from total sales estimate of $225 million given by company). So, total bookings in 2008 should be about $702 million and I assume all of these bookings will be taken as sales in 2008. Many of these bookings represent initial sales for multiyear contracts and that is why Peter Blackmore is confident bookings in 2009 will be an additional 10+%. I assume none of the bookings are for PAS infrastructure which had sales of approximately $210 million in 2008. Assuming a drop of 33% in these sales for 2009 still leaves an additional $140 million of sales for 2009. So total sales estimate for 2009 now would be $702 million + $140 million = $842 million which represents a 28% gain ($185 million) over 2008 core sales. With gross margins of 31% these added sales will result in another $57 million of gross profit, putting the company in a position of becoming profitable depending on taxes and other one time losses, write-offs, etc. I have assumed PAS handset sales for 2009 were included in the booking contracts and they are presumed to decline in 2009 but those sales would be replaced by sales of other core products. Non-PAS handset sales in China are not included in the above data and could be significant. UTSI was one of many companies that was awarded a contract for the recent CMMB handsets bought by SARFT for the initial launch of those mobile TV networks in China.

The core assumptions in Shadow's estimates are the following:

1. Core PAS infra bookings were logged years ago. Only PAS handsets are included in new bookings in 2008.
2. Most bookings in 2008 will result in 2009 revenues.
3. PAS infra sales will drop 1/3 in 2009.
4. Non-PAS handsets not included in his estimates.
5. Gross margins of 31%.

I've already given my "guestimates" so will just comment on Shadow's main assumptions. I generally agree (or atleast hope) that #1 is correct and that most bookings in 2008 does not include PAS infra. However, I don't think most bookings in 2008 will convert to 2009 sales as management has consistently stated the multi-year nature of some of the contracts. I think PAS infra will drop less than 1/3 in 2009. Overall, from #1-3, my estimates are in the $700m+ range rather then Shadow's $840m. I did add non-PAS handset (outside China) to bring revenue in the $800m range but don't know the size of non-PAS handset sales in China (a big wildcard). Also, 31% GMs seems very high to assume. Overall, the two main questions are the PAS infra backlog (and if it is included in 2008 bookings) and how well CDMA sales in China will perform (enough only to make up PAS handset sales loss or much more?).

I have yet to break down 2008 company performance line item by line item (from expectations in 2007) but the stock declined 33% and the company did not reach revenue/expense metrics targetted so obviously it was a disappointment. The question (or hope) is will the divestitures, opex cuts, focus/wins on iptv/ngn/broadband result in the long awaited sustainable profitability/business model or just too little too late (as fellow shareholder Tigre writes below).

Have a good week/year everyone.

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