Saturday, May 30, 2009


During downturns, the strong get stronger and the weak die off. UTs downturn has unfortunately culminated during the worse recession in decades. Peter Blackmore was brought in to buy the company some time, cut the fat and make the company a world-class operating company. Unfortunately, you also need to have a certain base revenue to build off from but instead, their cash cows from previous years (PAS, handsets, and Japan) have run out. The company continues to put a good spin on the viability of the business showing an upturn in core demand (from basically a very low base), strong cash position (from asset sales mainly), and their technology range of their products. However, to be a viable company, you will ultimately need to be profitable and have stable/growing revenues. More importantly, you need to have a strong leadership team/BOD in place that is compatible with the company's base of operations. UT does not. As I've said, I invested in the company because of its potential a few years ago to grow as China grew and more recently due to valuation and their "potential" rewards the technology could bring.

During the last couple of months, I have reversed my position from believing the company can become profitable and then selling itself to just selling itself as the best alternative to enhance shareholder value. The actions (or non-actions) by the board/management over the last couple of years and more recent business prospects have led to this conclussion, which is basically supported by the markets. This has not been an easy change for a lot of shareholders but we need to face reality and the opportunities the next few years may bring.

UT is making significant changes to their operations but at this late stage, it shows once again how behind the curve they are. Time and time again, they do not show the same level of urgency that shareholders or what the market/business situation dictates. The recent rumors of a sale of the entire company or parts of it may have finally been caused by the cost cuts the company has tried to implement. Chinese employees may have reached their breaking point as to seeing the highly compensated Western counterparts drain money from China and seeing how well the other Chinese competitors have done. Whatever the reason, I think the Western management/board have come to the realization that this is an unbearable situation for everyone.

Everywhere you look, companies in distress or disappointed with their stock price are making significant moves to position their company for the future. The wave of capital buildup has been unprecedented, from REITs such as Simon Property/Pro Logis doing secondaries, biotech company Elan selling part of itself to Bristol Myers, to Time Warner finally breaking off from AOL, and of course the financial/auto industry. Companies either grow or die off and unfortunately for UT, its the later.

The number of potential suitors for UT including Cisco, Juniper, Ericsson, Chinese or Indian companies are endless. The challenges UT faces to get to profitability are also endless. Shareholder patience is gone. Assets are intact for re-distribution to stronger entities. Confidence in UT business, management/board is very low and capital markets are shut off (basically). There is no other good reason to keep this entity going except for the benefit of a few people, which I can guarantee will have a tough time getting re-elected if nothing significant happens that benefit shareholders AND remaining employees.

Have a good weekend.