Saturday, May 23, 2009

Potential company announcements

The company has built up certain expectations by announcing it will provide additional steps it would take to accelerate the timeline to profitability at the end of the month (next week). Here are a few items that the company could discuss, some of which are from shareholder "wish lists".

Discarding the rest of the handset division - The company has been touting iptv, ngn, and broadband as their future. However, the bulk of their revenues has been from PAS (infra/handsets) and PCD (resale/Korean design/CDMA in China). The company is winding the Korean handset operations and selling remaining inventory. The company has been enamored with handsets for years now and are planning to replace PAS handset sales with CDMA sales in China. However, is this a good idea? Their Hangzhou building was supposed to be used for manufacturing 10s of millions of handsets. The problem now is that competition is very stiff and margins are tight in the handset market. Bidders for handset tenders are more than 10 suppliers so the previous PAS handet success cannot be translated here. We've seen how little gross profits are in handsets and the inventory/working capital headaches. As a side note, here is an article regarding ZTE and their US expansion. ZTE has a solid base of revenues/profits and can "experiment" with new markets. UT cannot afford these anymore. The article highlights the previously mentioned $15b line of credit and ZTEs climb into the elite companies.

Move the rest of US operations to China - There was a time when UT was planning to expand in North America via PCD and selling networking gear to their handset customers but this clearly did not work out. The move to China has started and they should move the rest as soon as possible. The lease committments should also be winding down on properties and the accounting expense (just to outside firm was $11.5m) is too much. A lot more savings can be squeezed out and efficiency will be improved by moving operations to where customers are.

Starent negotiations/Sale of PSDN - The litigation with Starent that has been dragging on for years seems like it might be resolved via the courts early next year (according to Starent). Both sides obviously state they have a good case but both sides are spending money in legal fees and uncertainties (mostly for Starent) don't help either company. UT has recently announced some wins in PSDN in China (grabbing 40% of the last tender beating out Cisco/Starent). Starent is valued at $1.4B and wants to expand into China. It makes sense for a settlement and even for Starent to buy UTs PSDN assets or atleast forge a partnership that will save both companies development/marketing costs and help each other in various markets.

Monetizing the Hangzhou building - A lot of the operational decisions obviously impact this building. UT is using the building as collateral for credit lines and as an asset to transfer their cash out of China (see my previous posting). However, the company can do more by seeking out a buyer and leasing back the part of the building they can use. If UT unloads the handset part of the business to a local Chinese manufacturer, they could also lease out the building/equipment.

Executive/Board changes/being "more Chinese" - The company desparately needs a major change in the makeup of the board and the leadership team. How many companies that primarily get their revenues from China have a non-Chinese board/leadership team? The compensation of individual board members are MORE than a lot of Chinese CEO's that have larger revenue/market caps than UT. The company has to announce steps that show they can compete with other Chinese companies in China.

Listing in Shanghai/Hong Kong markets - A US listing doesn't bring the company additional capital and costs the company in expenses. They need to be able to tap the Chinese markets for a source of capital and get Chinese institutional investors. This in turn will bring added influence in the Chinese markets.

Investing in China - For the hundreds of millions spent over the years in R&D/overseas expansion, we don't hear the company buying startups and smaller companies in China. The company's main investment success was Gemdale, a real estate company in China. The company should use their presence in China to buy startups over the years and integrate them into the company rather than more expansion overseas and internal spending. The China markets went up from 1k to 6k level and UT did not fully participate (in fact selling off an early investment in Softbank that yielded Alibaba, which I think Tigre estimated at half a billion).

The above is just a sampling that I came up with and some of the more technical shareholders can probably add more but the bottom line is the company needs to do something significant. The performance the last few years is beyond shame at this point. As I've mentioned previously, the board should have been completely turned over by now but the same (#@%#$$@) are still in place (pardon the jamming of the keys).

I'll end this posting by again reminding people to vote their shares against the company backed proposals and have a good Memorial Day weekend to everyone.