Monday, June 15, 2009

Q1 Bookings

I talked with Barry Hutton, UTStarcom Senior Director of Investor Relations, today and discussed details of the Q1 bookings.

The total dollar amount for Q1 bookings was $140m (compared to Q1 revenue of $119m). Here is the breakdown:

1. Korean-designed handsets - $40m
2. China handsets - $30m ($10m PAS & $20m CDMA)
3. "Core" infrastructure (including) service - $70m (This amount includes around $5m in PAS infra).

In the Initiatives call last week, Blackmore mentioned focusing on the higher-end CDMA handsets that take advantage/compatible with their other products such as mobile iptv. I was trying to nail Barry down on a good number to use going forward for Chinese handsets and $15m seems to be reasonable (use whatever number you are comfortable with, The $15m is less than $20m because the $20m is more "lower end" right now but when they sell the higher end, then thats more money per unit). It is interesting that the $20m that they booked is equivalent if not more than what they sold for the entire last year in China. Again, they are going to focus on higher end units.

If you take $65m in core bookings (without PAS) and add in CDMA handsets ($15m), then that is only $80m or $320m annualized. The core itself is only $260m, still short of the $350m breakeven point that Blackmore discussed.

There are a few items that could/should boost this figure such as:

1. Core bookings are expected to increase double digits. (I remember them mentioning core bookings last year to grow 50% in 2009 so again there are issues with the rosy projections and credibility of the management).
2. Q1 bookings are normally/seasonally lower.
3. IPTV subscriber growth was only 50k from Q4 to Q1. China alone is projected to add 2m subscribers so the last 3 quarters for UT should be much better. Also, new wins in China, expansion in India and Taiwan going live (I know weird that it just went live in April 1) should help.
4. Potential Phase III contract from BSNL not included.
5. Transport Network product has been highlighted for a year now and is in trial with among others Softbank/China mobile. (I tried to get info on the size of tenders but no info. there. Maybe others can comment).
6. GEPON. On the Initiatives call, Blackmore mentioned one win from the CTC procurement bid, ranked first in 3 of 4 categories leading to being on the short list in 15 provinces.
7. IPTV in cable/digital tv solution, first mobile iptv win, now 8 wins in iptv adverstising show the early cycle of UTs products.

Tradeoffs/Credibility Commentary - Last year at the Analyst Day meeting, the company projected it would lose $130m without PCD. In order to close that gap, Blackmore framed that situation as needing to ramp revenue several hundred million. Is that possible? Yes. Again, there is a credibility issue.

Last March when shareholders met with management, we questioned how they would get to profitability and did they account for PAS in 2009. Barton proudly said yes and he had the game plan in his folder. Again, major credibility problems.

Even the last Q1 earnings call and initiatives call, they again mention that the negatives were known, built in, or expected. Now, bookings and cost cuts are going as planned/according to company projections. But, they never really say what those numbers/metrics are. There ARE major credibility problems that I have highlighted over the postings but been optimistic because of their technology, markets, valuation, and on and on. This might seem contradictory but things are not always black and white and why UT can rally from the $2s to almost $6 last year and then plunge to 63 cents and then rally to $2.43 this year.

In order to get to profitability last year, without PCD, the company would have to raise revenue by several hundred million (about $400m) and NOW have to make up for most of the $350m in PAS sales generated in 2008. That is without the opex cuts announced. So, now that the total breakeven revenue is $350m, I WAS positive in my posts. Is it because I suddenly think management is credible. Of course not. Without the cost cuts at the end of last year and the ones announced last week, where would the company get the additional $700m or so in additional revenues?

Peter was confident in the call in getting to the $350m in revenues for 2010. Based on the above, I can see how he can reach it. Lets say none of the points I mention happen and they miss by $30m on revenue, then they lose $10m for the YEAR (2010). That is a far cry from the $50m or so quarterly losses that investors have been accustomed to. The downside risk for a loss in 2010 is so much lower now. Any breakthrough in contracts or subscriber ramps, or more efficiencies go to the bottom line.

BTW, any point I make above that you feel is positive or too positve, just think how biased I am. Any point that you feel is a negative, then that must be unbiased.

Have a good evening.

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