Saturday, March 28, 2009

Weekly recap - 85 cents

The stock increased 16 cents or 23% to 85 cents this week. The stock is now down only $1/share or 54% year to date. It has a market cap of $107m. For me, these are numbers that would warrant major sense of urgency from a company that maybe missed earnings for a quarter or two. But for a company that has not posted an operating profit in about 4 years, its business as usual. The company did have this enlightening response to shareholder emails:

Like you we are very unsatisfied with the current stock price and feel that it does not fairly represent the value of the company.

Value? The company has tangible book value of about $3.7/share but will rapidly dwindle as the company continues to post ridiculous operating losses while hoping markets turn around. This is bad enough but does the company realize what being valued at 1/4 of tangible book mean? The street is telling them that they have zero confidence in their prospects or ability to manage the company. That after years and years of failure, the street will not even look 6 months ahead in discounting the company but maybe a full two years of continued business as usual. The UT train wreck would not be so disappointing if not for shareholders watching a "slow motion" disaster for the last 4 years that is projected to last at least two more years. For current shareholders, the only choice is to sell, hold and hope or press for action.

Salary Cuts - "On March 23, 2009, in connection with the Company's overall cost reduction initiative, the Company entered into letter agreements with Hong Liang Lu, Chairman of the Board, and Peter Blackmore, Chief Executive Officer and President, providing for voluntary and temporary base salary reductions of twenty percent (20%) for a one year period."

This would be a good start in most normal situations but this is so long overdue that it again shows they are 3 steps behind. Also, why is Lu still making $700k/year in salary as Chairman of the Board ($560k after the cuts)? If Lu is still running the company, then why is Blackmore drawing CEO pay/compensation? If he is just the operations guy, then he should be the COO. Also, if Lu is managing the China operations, then why have another China CEO?

Looking at it another way, a Chinese company would have one CEO based most likely in China and most likely a Chinese. No interpreters, no flying back and forth from China to the US, positioned closer to customers and in touch with regulators in China and aware of the business climate. It all starts from the top and the current situation at the top with UT is cloudy, disorganized, and wasteful (expensive) at best.

ZTE - A couple of weeks ago, we saw the news about ZTE getting a $15Billion line of credit. They already have $1.6b in cash so they have all the funds to expand overseas and compete against any multinational firm. There are a couple of points with this. Whether or not UT spends $45m or $60m/quarter is not going to make a difference on whether they can compete or not. The second point is why doesn't ZTE just take out UT for the market share? In any "normal" situation, the UT board has to look at the situation and see if there is a realistic chance of UT increasing shareholder value above tangible book and more in the next few years or whether its balance sheet/competitive position will erode even more.

Short Interest - Short interest as of March 10 has increased by over a million to close to 15m shares. This was around the time the company announced Q4 results/Q1 projections. Company insiders also sold shares under $1 for tax purposes. So, even with the market surge the last few weeks, is it any wonder UT shares are still under $1? Its time for the company to get their heads out of their #@%3 and stop wondering why the current stock price not fairly represent the value of the company.

IPTV worldwide subscribers -

“During 2008, IPTV operators showed that TV over IP could be deployed on a large scale," said John Bonsell, a Senior Analyst with Point Topic, who prepared the stats for the Broadband Forum. "Western Europe remains the largest single region for IPTV. As expected, due to the global economic situation, broadband growth slowed, however all countries experienced overall growth during the last year."

IPTV subscribers per region from Q4 2007 to Q4 2008

Western Europe 7,045,860 10,388,000
North America 1,777,671 3,835,544
South/East Asia 1,840,000 3,615,000
Asia Pacific 2,199,828 3,082,182
Eastern Europe 465,223 884,466
Latin America 8991 21,495
Middle East/Africa 10k 10k
Total 13.3m 21.8m

UT grew its iptv subscribers from 600k to about 1.3m. While the numbers show very good growth in this segment, it shows that UT should not rely on hypergrowth from iptv to generate any significant revenue in the next year or two. Its time to get the cost basis right and it should start from the top.

Hong Lu - I'll end the week's post discussing Hong Lu. He is the founder of the company and only Chinese on the board and had been the CEO for years. With all the disadvantages to being a "non-Chinese" company, it would make sense to have a Chinese overall CEO based in China. However, Lu is definitely NOT that person. Between Blackmore and Lu, Blackmore has atleast shown more concern for shareholder value with his bonus conversion to shares, reduction of pay (when his contract called for no reduction ever), and divesting of non-core assets. It hasn't led to shareholder value but he is more in-tune with shareholders than Lu will ever be. His current age, non-attachment as a founder, and operations background make him the best hope for shareholders to salvage tangible value from this failed investment.

Have a good weekend.

1 comment:

Anonymous said...

..."thank you for letting us UTStarcom criminals f*ck you shareholders for such a long time...!"

UTStarcom BoC (Board of Clowns)
The NoContractsCompany