Saturday, March 14, 2009

Late stage collapse or Early stage recovery?

The monumental collapse of the stock price to 70 cents indicates the company is reaching its final days. It was hard to imagine going lower from the $2 range early last year but a drop to 70 cents is still another significant leg down.

Fellow shareholder Techbroker has been following the company's operations in China closely and posted the culture that led to the company's success and eventual downfall. He writes today:

"Although it was written in 2006, the article possibly gives the best answers in regarding why UT is a failed company, and why Huawei does otherwise. The author did an excellent job in providing objective analysis of UT's culture, management, and history.

In short, UT is the worst managed company (if these is a word 'management' in the company in author's words) in the industry. On the other hand, Huawei spent TWO critical, difficult, and painful years working on its management during the late 1990s. UT realized the problem around the same time (around 2000), but the issue has never got improved, if not worse.

At the end, the author says that it might be a little early to claim that UT is a failed company, although many people in the industry think so then. It might be true that it was a little too early to claim UT is a dead company in 2006. However, it might be a little over due to announce that this company is doom to fail in 2009."

Here is the translation of the article.

My posting last night regarding the balance sheet was a reflection of the street's valuation on the company as it continues to lose money. While it is an explanation of the current valuation of the company, it doesn't paint an accurate picture of the potential valuation of the company to an acquirer. It also doesn't represent an accurate picture of the potential valuation of the company if it can execute like all long term investors had hoped. As a balance to the negative 2006 article, I will repost a October 2008 article documenting an interview with Manish Matta, senior director of marketing at UTStarcom.

"Also, the issue in India is not technology, but lack of consumer awareness of the benefits and applications enabled by broadband. Consumers are increasingly becoming aware of the applications that can be enabled by broadband. At UTStarcom, we are providing leading edge applications via broadband. For instance, UTStarcom was the first to launch IPTV in India and today we have deployed 4 out of the 5 commercial IPTV contracts in India. IPTV is being enabled over broadband network and UTStarcom remains agnostic to the type of access technology that the operator may have deployed. However, we strongly believe that applications like IPTV, which enable personalization, interactive services and social networking for consumers, will drive the demand for broadband. Broadband users in India will exceed 300 million users in the next decade and we are currently at the tipping point of the growth phase."

MM: Our customers work with us primarily for three reasons: our focus on technology innovation, our solution vision and our culture. Let me elaborate a bit on each.

UTStarcom’s DNA is “technology innovation” - our customers, which include various Tier 1 and Tier 2 service providers globally, look upon us to provide cost-effective multimedia solutions and applications that will continually improve how people interact and communicate. Living up to our motto of providing “A World of Better Communication,” UTStarcom has led the market with technology innovations that have revolutionized customer experience. UTStarcom has been the first to market with technologies like IPDSLAM, GEPON and most recently IPTV which have all changed the way people communicate and interact. The focus has been on providing applications that are adapting to the changing needs of the consumers. IPTV has potential to completely change India’s communication landscape as it provides a host of new IP-based value add applications like video calling, digital signage, distance learning, social networking and IP surveillance, amongst others, besides broadcast TV, time-shift TV, VOD (video on demand), etc. UTStarcom was the first to market with IPTV in India and currently provides IPTV solutions to customers like Aksh, MTNL, BSNL (News - Alert), Bharti and UTL in India.

The second reason stated is our solution vision and focus. As a company, we focus on three key areas – Broadband, Next Generation Networks (News - Alert) (NGN) and IPTV. Each of these can be highly complicated and cost intensive for our customers, the service providers. To ease the burden, we have focused our development efforts on ensuring a seamless interworking of all our solutions in Broadband, NGN and IPTV. The network management system (NMS), back end systems (BES) and the operations support systems (OSS) are designed to work together such that we can enable services like remote configuration, integrated billing, etc. for all our customers for all our solutions. So our customers who deploy and provision multiple solutions from UTStarcom inherently benefit from a significant operating cost (OPEX) reduction which is a recurring saving.

The third reason is our culture. “Customer Focus” is one of the integral core values for UTStarcom. Our success inherently lies in the success of our customers. We do not vie for every opportunity in the markets we address – we have a cross functional evaluation team that scrutinizes every opportunity to ensure some key metrics are met before taking on new customers and/or opportunities. Our stated objective is to work with a limited number of significant opportunities in each region so that we are able to satisfy the demands of each of our customers. Once the project is accepted, we work with our customer to deliver the applications and services that can help them differentiate their services in a cost effective manner. This sets us apart from others.

MM: UTStarcom has been a leader in broadband for two years running, and we are now clear leaders in IPTV as well. As industry leaders in BB and IPTV, not only do we have the largest market share, but we consider it our responsibility to help the market grow, and act as a catalyst for growth of both BB and IPTV. We hope to maintain this leadership position, and will work closely with different service providers to drive adoption of both BB and IPTV in the country. Our aim would be to deliver the benefits of IPTV to the country and help bridge the digital divide by making TV as an information and product tool apart from providing superior form of entertainment. We hope to leverage on our global leadership in SoftSwitch and NGN to establish similar position of leadership in India for SoftSwitch.

We are also working to increase India’s contribution to the global operations of UTStarcom. For example we already have extension of our Global R&D team of BB based in Gurgaon, India, and the Escalation Centre for Asia Pacific is also based out of Gurgaon. This year we have established Centre of Excellence for IPTV in Gurgaon, India, and over the coming years we hope to contribute more to the global IPTV product line of UTStarcom from India.

Techbroker's article shows the disarray and inefficiencies that the company has had up to 2006. The company has continued losses the following years and the balance sheet has deteriorated further. PAS sales is down to $19m/quarter and losses in India (despite the market share gains and leadership position) have further reduced confidence in the company. The Indian article does show a small (and I emphasize small) glimmer of hope. The market will eventually decide if this is the late stage of collapse or the early stage of recovery. I am only an individual investor that see substantially more value at this stage seeing the company broken up or sold. I could also see the potential for an even higher valuation if there is a full turnaround. However, at the present time, the company has not defended the stock or provided any tangible reason to think that the current valuation is incorrect.

1 comment:

Anonymous said...

...probably after so many years of hot air now, somebody should tell those bastards, that they should start selling a product now...