Thursday, May 7, 2009

Imminent Sale of the Company?

Got off the phone from a major shareholder and his take is the company may finally be for sale.

There are many many reasons why the company is worth more being sold than the company can operationally work itself to at this stage. Peter, the leadership/BOD in Alameda are not really suited to fight it out in China/India and elsewhere. They all still have significant share holdings that would make it worth it for them to sell (even at $5-6. That sale price now compared to 2007 is equivalent to $10 or more in terms of the overall stock markets so its not the worse end result for shareholders.)

The other probabilities. Business is even WORSE than it really is and they have to cut more. So, they will drop another revenue bomb to go along with the cuts.

Another possibility is really to accelerate profitability. Although this is the context/reason for the wait, it seems odd. Is Peter, at his age, willing to fight it out a few more years traveling to China once a month and risking not even getting what they can at this stage? A lot of their compensation is in stock so even with their salary, it makes sense.

On the buyers side, you have Huawei with $30b in revenue so I guess they HAVE to expand. UT building would be valuable to Huawei and ZTE. Patents that they have can be used as leverage against Western competitors and would be very valuable. Ericsson has a yearly R&D of $5B. Cisco is investing a ton in China/India. Even Starent has a $1.4B market cap and R&D in the $30+m/quarter. They NEED to diversify out of North America.

A week or two ago, there was also about 300 hits on the blog mostly from China. That never happens. Maybe there are rumblings of a sale. More job cuts may not be palatable to the Chinese government and they would push for a purchase from ZTE/Huawei. Both have huge resources and could easily buy out UT.

Anyway, its speculation and while the company had internal issues in late 2006, it has resolved those issues and sold other non-core assets. The technology is still very good and the contracts/customers should be appealing to competitors. I posted a couple of years ago that ultimately UT would be sold but I was hoping for double digits. At this stage, with the intense competition, down world markets, and revenue ramp not occuring, this makes too much sense.