Tuesday, June 9, 2009


In typical company fashion, the anticipated end of May conference call is happening this Thursday, June 11, 2009. After following the company closely for the last 5 years, I can speak for longterm shareholders in expressing concern and doubt that the company can actually execute or release shareholder value. The Chinese articles discussing the potential new Chinese investor and additional significant cost cuts are intriguing and seems very promising. Lets discuss the different components.

Investor Point of View - Some shareholders ask "Why does the company need cash and dilute existing shareholders? The more optimistic take is "Why would an investor take a stake in UT? Will someone invest $50m or $100m because they want to lose money? I'm sure they have done their due diligence and decided the shares are undervalued and see significant upside potential.

Price - During the phone conversation I had with Peter Blackmore, he mentioned the stock is not even trading at cash levels. Cash is at $2.35/share. Tangible book value is around $3.15. Normally, technology companies don't trade under cash/book but then again UT has been unprofitable for so long.

Working Capital - UT's cash position is strong but their working capital is not. While competitors have access to lenders, UTs credit lines are small and most of the cash is in China. An influx of cash will provide more working capital and help in the restructuring.

Chinese handset maker - The benefits go beyond the cash that it will bring in. UT has made CDMA handsets for the China market but so far has limited success. Co-marketing, technology sharing, etc will help both companies. UT may lease out their equipment/building. UT still has a small ownership in PCD and that relationship could be monetized or made more profitable.

Board representation/Local Chinese representation - As the number one UT shareholder, this new investor will have significant input to the success/failure of the company. The company move to bring in a shareholder that will hold them accountable for performance is long over due.

Cost cuts/Profitability - After 5 years of waiting till next year, this latest round of cuts maybe the one that gets the company to profitability. After the company projected quarterly OPEX of around $60m for Q4 and the lowered revenue projections for Q2 (after the Q4 report), shareholders were all over management. Not only were they far from profitability as before but their projections showed they were not serious in getting to profitability.

Core Business - It would be impossible for the company to continue and enhance shareholder value without making significant structural change. With the above steps, the company still maintains its core business. Investors did not invest due to PCD or PAS but on IPTV and the growth in China. The above steps will hopefully get the business right sized and positioned to participate in that growth and be profitable.

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