Thursday, September 10, 2009

DESCA, IPTV, Trading Range, Profitability, and Partner

Reseller Agreement with DESCA -

ALAMEDA, Calif., Sept. 9 /PRNewswire-FirstCall/ -- UTStarcom, Inc. (Nasdaq: UTSI - News) today announced a Reseller Agreement with DESCA, a Miami-based infrastructure and telecommunications networking company and wholly-owned subsidiary of eLandia (OTC Bulletin Board: ELAN - News). The Agreement will help accelerate UTStarcom's expansion into 14 markets in Central and South America with the support from DESCA's team of more than 700 sales, service delivery professionals and customer service agents.

These are a couple of comments from the message boards,

"TTM of revenue for the holdin g company is $211MM. The 3rd and 4th Q are their strongest quarters so don't go by the first 6 months. Also, DESCA is just 1 of 3 or 4 operations of theirs so the total reveue is higher for the entire holding company (ELAN)They have $30mm in cash with no real long-term debt other than a $17MM capital infrastructure project that makes them $$. The receivables are $50MM and CSCO capital is the reason why they have short term debt. CSCO demands payment very quickly. So they have short term debt like any other company would to pay the vendor. The receivables take care of that. Why don't you call the company and ask then about the DESCA deal? It looks like DESCA has a lot of stock coming to them based on performance and that's why they sold the 30% for little cash. They want the stock at low prices where there is far more upside. They stand to make a lot of money by taking future stock considerations. "

"ELAN is the holding company. revenue for TTM is $211MM. DESCA accounts for 80% of the revenue. DESCA's revenue is at least $170MM. It could be more. I had heard that the company was planning on $300MM in revenue in the coming year 2010 and 2011. Also, remember, most companies in the world saw declines in revenue throughout the recession so that is not something to look at. The CEO over there came from Telefonica USA which is a subsidiary of the largest telecom company in the world- telefonica Espana. he went there b/c they have an amazing growth platform ahead of them. UTSI WILL do well with this partnership. Actually, both companies stand to do very well with this partnership. Hope this helps you. DESCA also has very high achievements and is a top CSCO vendor in may categories."

I'd like to add that this agreement does a few things:

1. The company gets to work with a local partner to market their products in 14 countries.
2. They get added revenue while introducing products into small to mid-size projects. Those DESCA clients exposed to UT products (may be better or cheaper) will start building confidence in UT products.
3. They can cut costs/scale back employees in these areas while still maintaining a foothold.
4. They continue to sell their IP besed products (rather than handsets for ex.) and generate revenue from their core products. UT has spent significant money on R&D for their core products over the years so they just need new markets without having to spend a lot for marketing/trials.
5. The company can get a set margin for their products (with agreed pricing) as DESCA orders them and get paid earlier.

IPTV market share - From the same DESCA PR, "UTStarcom is the IPTV market share leader in both China and India. UTStarcom is also the market share leader in India's broadband market."

Blackmore has mentioned that there was a slowdown in IPTV in China due to the carriers focus on 3G this year. While UT will lose some contracts as per the last blog posting shows, UT should still be well positioned (if not better now) for the boom projected for the next few years.

New stock trading range - The stock had traded in the $1.4-1.8 range for the last few months and finally broke out last week. Its interesting to note the $1.88 "high" on the last trading range and the same price it hit this week after coming down from $2.36 last week. While not important for long time holders, traders need to pay attention to these things so they are buying and not selling at the lower end.

Profitability - The sale of non-core assets, the move back to China, the massive cost cuts, outsourcing manufacturing, partnering all point to a focused and aggressive plan by Blackmore and the company to get to profitability despite the world recession, slow ramp of core products, and collapse of PAS and Japanese revenues. While shareholders have still suffered a lot, I like the moves and believe Blackmore can unlock significant shareholder value as they drive towards profitability.

Partner - Blackmore mentioned the US partner in one of the previous conference call and discussed the partner (with investors) as filling in product lines that UT did not have and vice versa (for example GPON). While the DESCA partnership is good, this did not look like the "partner" that Peter was talking about. I asked one institutional investor to check and confirm if there was another partner Peter was talking about and got confirmation that this was not the partner that Peter was talking about. They are also working with multiple potential partners.

Closing comments - I'd like to reiterate that a sale is probably not in the works for various reasons but this is actually a very good thing as the stock is (I believe) tremendously undervalued. My discussions with management with the stock in the $3-$5+ range and more suggest they believe the best way to get to higher share prices is to get to profitability. Of course, shareholders could not have agreed more but it looks like this new path (see above) to profitability has more chances of success (rather than just hoping hundreds of millions in revenue would come in).

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