Saturday, February 21, 2009

Weekly Recap - Another All-time Low Closing

The stock closed at $1.17, down 68 cents or 37% for the year. The stock is down about 90% from the highs the last couple of years and about 97% over the last 5-years.

Here are the related news over the last few weeks. Thanks to Tigre, Shadow, Techbroker and others that have continued to post.

PAS end of the road? - "According to Sina, the government in recent days have also ordered operators of services using the 1900-1920 MHz frequency band (that's PAS) to stop network expansion and adding new subscribers."

Gepon in China - "Chinese telecom equipment manufacturers Huawei and ZTE (763.HK, 000063.SZ) have won first-round equipment bidding for China Telecom's (NYSE:CHA, 728.HK) gigabit passive optical network (GPON) 2300, reports Communications Weekly. Fiberhome Telecommunication Technologies (600498.SH) and Alcatel Shanghai Bell also shared the bidding. The manufacturers will provide the equipment to China Telecom for free, said an unnamed source. China Telecom plans to trial GPON 2300 in Beijing, Shanghai, Wuhan and Hangzhou."

Good discussion on the boards regarding this news.

This is a relatively small trial (hence the free equipment) but nevertheless would like to see UT involved in trials/deployments. UT has previously mentioned winning small contracts in Gepon in China but at this stage it is still small.

Broadband/IPTV in Russia - Fixed-line growth, driven by demand for broadband and IPTV services, will help fuel Russia's telecom services market expansion from $37.2 billion in 2008 to $48.5 billion in 2013, according to a new Pyramid Research report, "Communications Markets in Russia."

Still waiting for UT developments in Russia.

UT iptv win - (translated) The tender was finalized before the Spring Festival, UT Starcom to become the project's platform and terminal equipment provider, and the South together with the media for the city of Canton 800,000 cable provides the platform and equipment. 其互动电视业务将与广东的省网现有单向数字电视业务紧密关联。 Its interactive television business will be with the Guangdong provincial network of existing one-way digital TV business closely related. 互动电视业务建立在单向数字电视业务基础上,依托同一HFC网络进行传输。 Interactive TV business set up in a one-way digital television business, based on relying on the same HFC networks. 而双向机顶盒需同时承载互动电视业务和单向数字电视业务。 And two-way set-top box is required to carry a one-way interactive television services and digital television business.

Tigre's commentary: As Techbroker commented, this is a good strategic win for UTSI but probably not financially very rewarding. It's great that UTSI carve out a share of a tier-one city that was thought to be Huawei's, and likely defeated ZTE in the bidding. It's just as significant to gain an important partner in Southern Media, to expand beyond existing partnership with SMG. And it wins a chance to showcase the relevance of its IPTV technology as applied to cable, going beyond its traditional application in telecom. Even though it is 2-3 years behind the CT/Huawei team in network construction and trials in Guangzhou, and its cable experience is not as rich as in telecom, it can compensate with more expertise in IPTV network itself and home turf advantage of its powerful media and cable partners. Done right, and UTSI will likely be able to count on more future collaborative projects with Southern Media and other cable companies around the country, which is pretty exciting long-term opportunity. However, to win the bidding war for such a choice set of partners in such a major city, UTSI probably had to fight fiercely against local rival ZTE. So it might not make any money to win this deal. Probably even lose money, knowing how competitive ZTE can be in lowballing its rivals. So this win has not been rewarded by a higher stock price for financial reasons. UTSI needs to cut expense elsewhere in order to keep up the battle in IPTV.

Recognition for UT China IPTV Leadership - UTStarcom, Inc. (Nasdaq: UTSI - News) was presented with two awards at the 2008 EXPOCOMM China, October 21-25, 2008, for its long-standing Internet Protocol Television (IPTV) market leadership in China and direct contributions to the country's IPTV commercialization progress. China Electronics News named UTStarcom the "Best Commercial IPTV Vendor" in the country, and China Telecommunication Network gave the company its top "IPTV Industry Contribution Award."

Over the last couple of years, UT has received numerious recognition in China/India which has worked out well for the customers but has not benefited shareholders.

UT executive pay - "Hong Liang Lu, Chairman, $700,000 per year; Peter Blackmore, President and Chief Executive Officer, $800,000 per year; Mark Green, Senior Vice President, Worldwide Human Resources and Real Estate, $367,500 per year; Susan Marsch, Senior Vice President, General Counsel, Secretary and Chief Ethics Officer, $330,000 per year and Viraj Patel, Interim Chief Financial Officer, Vice President, Corporate Controller, and Chief Accounting Officer, $288,750 per year. Susan Marsch was designated an Executive Officer by the Company on February 18, 2009."

There were also the usual stock grants based on "performance" metrics. hmmmmmmmm. Hong's salary should be reduced in the Chairman role. Overall, I think the salary is not excessive but most shareholders would like some commitment to company profitability and the share price.

Q4 2008 Results? - This was posted last week: Here's what Barry Hutton, UTSTARCOM Senior Director for Investor Relations, wrote in response to a similar question: "Our year end call is very likely to occur during the week of Feb. 23rd. That timing is consistent with both the year end reporting and the quarterly reporting during 2008. As always, 1 – 2 weeks in advance of the call we will issue a press release that provides the exact details for the conference call."

Shareprice and shareholder value - Back to the shareprice. According to book value and other metrics, UT is undervalued. The problem is it has been that way for the last few years. The current environment has not helped either. Some shareholders are calling for a sale but at this point, why? The stock was near $6 about 8 months ago and while there has been "permanent" value destruction/businesses in other companies such as the financials (Citigroup at $1.6 !), UT "should" be able to rebound stock wise IF they finally get closer to profitability.

Small caps in the tech sector have shown they can rebound much quicker as long as they have the technology, markets, and management. Palm went from $1 to $9. Starent is still a $1B company. Thats right $1 billion for a company UTStarcom is suing for basically stealing the technology for their main line of products. UT market cap of $150m is a joke. Are institutional holders selling in the $1-2 range. Yes. Look at the holdings of Brandes, State Street, Barclays, etc. Some of these institutions lost hundreds of millions and sometimes Billions in other companies they hold shares in. Their loss in other holdings can buy the entire UT 10x over! So, if they decide the company has turned a corner, the rebound can just be as swift. In the meantime, we small shareholders watch as the share price head to the low $1s and potentially under.

Advice to management during the next CC - While I hope for good 2009 guidance and signs for the timing when the company will break even and be profitable, I hope they take the opporutinity to let all the bad news out. Then address once and for all, what they will do to get back in the black. With the shareprice at this level, they might as well drop whatever bomb they are going to. The street is expecting the worse and if the stock should go lower, so what. For long-time shareholders, looking at a 95% or 96.5% loss is not much different and maybe, we can find the illusive inflection point and start moving up for good.

Have a good weekend.