Monday, February 7, 2011

Basic business cycle

UT had sold some significant assets from Gemdale to PCD to the building over the last few years . The problem has been the high expenses, and later the costs of unwinding these bloated infrastructre. Coupled with the collapse of PAS and slow adoption of iptv and even lack of traction in India/Japan, and you have a company on the defense and caught in a downward spiral.

The question now is will UT be able to use the accumulated funds to grow revenue going forward. It has NOT done so up to now (Q3 report) but lets look at some items that prevented it from happening or new developments that can make it doable now.

1. Japan/Softbank - Revenues for Japan had gone as low as $6m/quarters. TN revenue have started to come in last year and revenues have gone up to the $10m/quarter range. Full deployments (after the initial trials/equipment testing) are projected to occur this year.

2. India - The India market's security concern primarily targetting Chinese companies hit UT particularly hard. Additional writedowns had to be taken. The company talked about hiring Indian director(s), manufacturing in India, etc but so far nothing. All we know is that UT is still the iptv leader in India and that broadband needs are significant.

3. China - The network convergence trials for the Tier 1 cities just started mid last year. At the same time, UT has "moved" to China, finalized the investment deal from the local Beijing government and added Chinses board members familiar in the industry/regulatory framework.

4. Expenses - Target of under $100m/year has not been achieved...its about $30+m/quarter still. Recent PR from the company discuss additional reorganization of groups and the CEO taking on certain businesses directly. Full outsourcing has not been completed so further cost cuts should continue to lower expenses.

The above lead us to CASH. They have spent $10m on the StageSmart acquisition and put some $20m more in working capital into the acquisition. Providing telecom/communications equipment (everywhere) and the new platforms for network convergence is going to take some significant working capital and this is a UT advantage. While technology (or adoption) or management might not have been in place previously, this is not the case anymore. The world markets have rebounded but capital is still tight. This gives UT an edge over smaller companies or even larger comapnies that are spread too thin across product cycles or different markets.

At this stage, there has been little change in UT price the last couple of years and operating performance has not improved but with significant liquidity, adoption of UT technology now (TN/iptv), new manaegment/focus, the scenario might just be favoring a real turnaround.