Wednesday, March 2, 2011

Stakes are high

The stakes have always been high for the company getting to profiability and raising revenue. Unfortunately, the management/company has not been able to do it after 7 years.

Another company Sonus just reported a blowout quarter beating analyst estimates by 27% on the top line. Sonus did $227.5m in revenue in 2009 and just did $249m for 2010. It then gave guidance for revenue in the $265m-285m for 2011. Sonus has 60% GM so its not comparable to UT but it did have to get to profitability and increase revenue. By doing so in the last year, the company has now been rewarded with an enterprise value of around $800m compared to negative for UT.

UT's "core revenue" dipped to about $36m in the 3rd quarter and projected to do no better than that in the 4th quarter. OPEX is still in the $30m range and GMs are still in the 20s (I think its even lower than that when taking out the deferred PAS revenue margins and additional writeoffs).

Jack Lu has been with the company almost a year now and officially the CEO for over 6 months so he's had time to evaluate the company and laydown a pathforward. With still around 2k employees and $30m in quarterly expenses, that is way too much for this company. As a longtime shareholder, it is quite baffling to see how incompetent and poorly managed this company is. The stakes are still high and the market will reward performance but it has to start at some point.

I am looking for material booking increases way above $36m, GMs to be in the mid 30s, expenses to come down closer to $20m. Jack Lu doesn't have to be a genuis. He doesn't have to be very knowledgable in business or even in the technology. He just has to look at the bottom line and make the most fundamental changes in running a company (or any budget for that matter). I don't expect the company to reach 60% GMs but revenue growth of 10% like Sonus in China is laughable.

Here's an article on China Telecom on their fiber buildout...

"China Telecom plans to cover every city in China with the fiber broadband service in three years and convert all copper lines to fiber, China Daily reported. Under the Five-Year Plan, the Chinese government will focus on developing the telecommunications infrastructure, with total investments reaching 2 trillion yuan. Broadband development would account for 80 percent.

This plan will provide broadband access, high-definition IPTV, 3D and rich media services that require bandwidth of about 10 megabytes and above."

Like I said, the stakes are high.......does this management have any sense of urgency?

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