It is unfortunate to see the stock hit a new all-time closing low of $2.61 today. The market has been volatile and the year-end selling has pushed UT even lower. I sent an email to management to see if they would be willing to hold an update call or meet with shareholders. The company has done a much better job in communicating with shareholders the last few months but I am taking this "opportunity" now that the stock has hit another low to question management if there are plans to support/defend the stock if it goes any lower. Here is my letter:
Dear Sirs,
Today, the stock closed at $2.61, the lowest closing price in the history of the company and 12% lower compared to 3 weeks ago during the shareholder meeting. While I appreciate the efforts for turning the company around in the long term, I would like to know what (if any) plans does management have to defend the stock price in the short term if it goes lower. Is there any price point that you would consider low enough to prompt a response from management.
I know there are a lot of issues that you have to deal with in the short term such as (1) selling holdings (Gemdale/Infinera), (2) finalizing/implementing cost savings plan, (3) closing the quarter, (4) planning for the convertible bonds, (5) working on/negotiating future contracts, and others. However, the current share price is at a point that I believe deserves your attention, We could all wait for possible further share price deterioration but I think that is unfair to all shareholders and that your responsibility is also to address the share price as it goes lower. I understand your position for focusing on running the business but as I’ve mentioned before, the share price cannot be avoided. I would like to ask if you would be willing to schedule a conference call to update shareholders or to meet with shareholders in Alameda early next year.
Wednesday, December 19, 2007
Sunday, December 16, 2007
Motorola, Palm, and UTs PCD
I was reading the Thursday edition (12/13/07) of the Wall Street Journal and came across a couple of articles regarding Motorola and Palm that were related to UT's PCD and the company in general.
UT has designated the personal communications division (PCD) as none-core and the consensus is this will be sold off/spun off in the future to generate cash and refocus the company to its core networking divisions. During the shareholder meeting, some shareholders asked Hong Lu why it even bought the PCD back in 2004. Hong gave a quick history and mentioned that UT was the biggest handset maker in China previously and that they could leverage the Audiovox division and their own division. A fellow shareholder Nawar has given a good historical perspective on the PCD performance the last few years: http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=147623&mid=147657&tof=1&rt=2&frt=2&off=1
Anyway, how much can the company get for this division if it were to sell it? Here is a base reference from their 2004 purchase: http://utstarcom-stocknews.blogspot.com/2007/11/link-to-uts-audiovox-buy-in-jue-2004.html Based on rev/margin improvements, people are speculating that it could bring in $200-300m or more.
Here is where the Motorola article comes in. Carl Icahn has amassed a 3.3% holding in Motorola and wants to sell Motorola's handset division to release shareholder value (sound familiar :-). Based on Icahn's estimates, the handset division is being valued at $0 right now but should fetch one times yearly revenue of $20billion. Nokia is trading at about 2x yearly revenue. Analysts actually agree with Icahn but notes they have to fix certain problems before it can yield the desired value. The valuations (1x-2x revenue) are not applicable to UTs case because the majority of its handsets are resale/distribution and they don't have anywhere near the margins or brand recognition of Motorola or Nokia. In any case, the takeaway is even Motorola's handset division may be for sale.
There is also the confusion about UTs PCD because it has its own internally designed phones with higher margin and expenses plus the distribution part with higher rev/low expenses. Based on conversations with Barton/Blackmore, my impression is there is no immediate sale and that if any sales comes about, it will only be the distribution part. Let me say that this is just my feeling and I could be way off. Other knowledgable posters may shed more info if this makes sense or not. Anyway, even with the Motorola sale, there is the added problem of the current credit markets. The good thing for UT is that they are the smaller sized handset provider so it is more affordable and anyone that picks up the Motorola handset may just make a clean sweep to eliminate competition. Also, other smaller players that produce generic handsets can decide they only want UTs distribution portion.
What about the Palm article? Palm recently hired Apple's "podfather" Jon Rubinstein to revamp their own operations. Ruinstein has been on the job since July and has been putting in 70-hour weeks (Blackmore came in at the same time). I believe Palm is even in worse situation than UTStarcom. They have less share in their markets, as strong competition as any (heard of Apple and Research in Motion), and have declining revs/demand for their own products (their share of the smartphone market has gone down from 5.4% to 3.6% ouch!). It will also take them 18 months to develop new phones from scratch! UT on the other hand is incresing revs in India, iptv, and other lines of businesses.
One positive about Rubinstein is that 1 million of his stock options are tied to the company's stock hitting 50 to 200% above their grant date. This sounds good from a shareholder perspective but it didn't say how many OTHER options/shares/compensation he got. Anyway, both are turnaround stories but it seems to me UT has a larger chance to turn it around just based on their more diverse businesses, explosive growing and target markets. They have a larger expense ratio so there is that risk but that can be cut anytime as things change.
Another final take away is that other companies are not doing well also. This doesn't fully excuse management's performance but it is a tough environment that they have to navigate through. I feel UTs chances are very good for a turnaround given that they have been doing this for years now and have maintained or increasing their market share even now. A lot of UTs competitiors are also pulling back from certain markets while Nokia, Apple, and Research in Motion continue to assault Motorola and Palms markets. Anyway, its some consolation and things to think about.
UT has designated the personal communications division (PCD) as none-core and the consensus is this will be sold off/spun off in the future to generate cash and refocus the company to its core networking divisions. During the shareholder meeting, some shareholders asked Hong Lu why it even bought the PCD back in 2004. Hong gave a quick history and mentioned that UT was the biggest handset maker in China previously and that they could leverage the Audiovox division and their own division. A fellow shareholder Nawar has given a good historical perspective on the PCD performance the last few years: http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=147623&mid=147657&tof=1&rt=2&frt=2&off=1
Anyway, how much can the company get for this division if it were to sell it? Here is a base reference from their 2004 purchase: http://utstarcom-stocknews.blogspot.com/2007/11/link-to-uts-audiovox-buy-in-jue-2004.html Based on rev/margin improvements, people are speculating that it could bring in $200-300m or more.
Here is where the Motorola article comes in. Carl Icahn has amassed a 3.3% holding in Motorola and wants to sell Motorola's handset division to release shareholder value (sound familiar :-). Based on Icahn's estimates, the handset division is being valued at $0 right now but should fetch one times yearly revenue of $20billion. Nokia is trading at about 2x yearly revenue. Analysts actually agree with Icahn but notes they have to fix certain problems before it can yield the desired value. The valuations (1x-2x revenue) are not applicable to UTs case because the majority of its handsets are resale/distribution and they don't have anywhere near the margins or brand recognition of Motorola or Nokia. In any case, the takeaway is even Motorola's handset division may be for sale.
There is also the confusion about UTs PCD because it has its own internally designed phones with higher margin and expenses plus the distribution part with higher rev/low expenses. Based on conversations with Barton/Blackmore, my impression is there is no immediate sale and that if any sales comes about, it will only be the distribution part. Let me say that this is just my feeling and I could be way off. Other knowledgable posters may shed more info if this makes sense or not. Anyway, even with the Motorola sale, there is the added problem of the current credit markets. The good thing for UT is that they are the smaller sized handset provider so it is more affordable and anyone that picks up the Motorola handset may just make a clean sweep to eliminate competition. Also, other smaller players that produce generic handsets can decide they only want UTs distribution portion.
What about the Palm article? Palm recently hired Apple's "podfather" Jon Rubinstein to revamp their own operations. Ruinstein has been on the job since July and has been putting in 70-hour weeks (Blackmore came in at the same time). I believe Palm is even in worse situation than UTStarcom. They have less share in their markets, as strong competition as any (heard of Apple and Research in Motion), and have declining revs/demand for their own products (their share of the smartphone market has gone down from 5.4% to 3.6% ouch!). It will also take them 18 months to develop new phones from scratch! UT on the other hand is incresing revs in India, iptv, and other lines of businesses.
One positive about Rubinstein is that 1 million of his stock options are tied to the company's stock hitting 50 to 200% above their grant date. This sounds good from a shareholder perspective but it didn't say how many OTHER options/shares/compensation he got. Anyway, both are turnaround stories but it seems to me UT has a larger chance to turn it around just based on their more diverse businesses, explosive growing and target markets. They have a larger expense ratio so there is that risk but that can be cut anytime as things change.
Another final take away is that other companies are not doing well also. This doesn't fully excuse management's performance but it is a tough environment that they have to navigate through. I feel UTs chances are very good for a turnaround given that they have been doing this for years now and have maintained or increasing their market share even now. A lot of UTs competitiors are also pulling back from certain markets while Nokia, Apple, and Research in Motion continue to assault Motorola and Palms markets. Anyway, its some consolation and things to think about.
Thursday, December 13, 2007
The Convertible Bond - A Perspective
With the coming $275m convertible bond due in March 2008 and the stock languishing below $3, this has become a central point of discussion. The shorts are betting management is going to fall flat on its face and beg to refinace and resolve this issue by diluting and killing the stock. The longs are hoping the company's assets are sufficient to hammer a sufficient deal to avoid a large dilution and make good on their promise to think of the best interest of shareholders.
Back in late 2005, the company had a net $250m of debt but still had signficiant cash flows/backlog from PAS. The company took in $1b in Q4 2005 and began to accumulate cash, reduce debt and to be in position to pay off the rest of the convertible bond. In early 2006, quarterly results were still decent with minor losses. Lu decided to step down and the decision to sell the company was hatched up. We don't know the reasons for selling. Maybe it was due to the slow growth in their end markets. In any case, management spent time focusing on the exit strategy. At this stage, the convertible bond was still almost 2 years away. The acquirer would obviously be on the hook to deal with this and $275m may be "small" to them.
At the end of 2006, the company had amassed a NET cash position of $300m. That seems almost incredible compared to the current market cap of just over $300m. With PAS/Japan revenues falling dramatically now and still little improvements from iptv/broadband, the company started losing signficant amounts. Then, there was the added interest and costs to the investigations. To be fair, the company bought some PCD inventory, paid off suppliers early for discounts, and had some writedowns (hopefully for future contract wins), etc. We found out in July that the cash balance was now down to net $150m and continued losses would mount (we had thought the company would be profitable sometime in 2007).
At about this time, the surprising increase in Gemdale/Infinera holdings brought a windfall of over $100m. This was significant as they could use this to pay some of the debt off and have better leverage for refinancing. The problem was the stock was close to $3 and funds started having their own problems and the liquidity in the market was drying up. Now, things are looking a little better with the rate cuts, the company's own cost cuts/better cash flows. So, things change all the time but there is no doubt that it is much harder to refinance/raise cash with the stock under $3 (as Barton mentioned during our conversation). Nevertheless, I don't think the company has been negligent with the bond debt. It just happened that their main long term debt is coming due at precisely the worse credibt crunch for some time and with the operating performance of the company at all time lows. This is why we shareholders were banking on being profitable sometime on 2007 and hoping they would have cut costs much earlier.
The Gemdale/Infinera sale is a windfall that improves options. Obviously, this has to be discussed. Is the company in very bad shape. It depends on your perspective. I have often cited the worse conditions for the financial and other companies. Countrywide, Citicorp, Lennar, and even JetBlue had to sell assets to maintaintheir operations. Their outlook is even worse while UT performance is going to be much better. Another example is Hoku which is getting over $500m in financing to build a plant and won't be delivering any products until 2009! Financing is the lifeblood of a lot of companies. You can be the stock won't be at $2 and change if the debt was not due in March.
Management has said all options are on the table but with their assets/liquidity, management, S&P and other analysts do not see a liquidity crisis. What remains is uncertainty and how this will play out. Today's JetBlue announcement brought an initial 25% gain. Others (Citicorp, Etrade, Lennar, Countrwide) have had mix reactions depending on the structure. In any case, my view is for a full turnaround and that is only through operational performance. Of course, I would rather see a much higher shareprice once the CB is resolved. We'll see how it plays out.
Back in late 2005, the company had a net $250m of debt but still had signficiant cash flows/backlog from PAS. The company took in $1b in Q4 2005 and began to accumulate cash, reduce debt and to be in position to pay off the rest of the convertible bond. In early 2006, quarterly results were still decent with minor losses. Lu decided to step down and the decision to sell the company was hatched up. We don't know the reasons for selling. Maybe it was due to the slow growth in their end markets. In any case, management spent time focusing on the exit strategy. At this stage, the convertible bond was still almost 2 years away. The acquirer would obviously be on the hook to deal with this and $275m may be "small" to them.
At the end of 2006, the company had amassed a NET cash position of $300m. That seems almost incredible compared to the current market cap of just over $300m. With PAS/Japan revenues falling dramatically now and still little improvements from iptv/broadband, the company started losing signficant amounts. Then, there was the added interest and costs to the investigations. To be fair, the company bought some PCD inventory, paid off suppliers early for discounts, and had some writedowns (hopefully for future contract wins), etc. We found out in July that the cash balance was now down to net $150m and continued losses would mount (we had thought the company would be profitable sometime in 2007).
At about this time, the surprising increase in Gemdale/Infinera holdings brought a windfall of over $100m. This was significant as they could use this to pay some of the debt off and have better leverage for refinancing. The problem was the stock was close to $3 and funds started having their own problems and the liquidity in the market was drying up. Now, things are looking a little better with the rate cuts, the company's own cost cuts/better cash flows. So, things change all the time but there is no doubt that it is much harder to refinance/raise cash with the stock under $3 (as Barton mentioned during our conversation). Nevertheless, I don't think the company has been negligent with the bond debt. It just happened that their main long term debt is coming due at precisely the worse credibt crunch for some time and with the operating performance of the company at all time lows. This is why we shareholders were banking on being profitable sometime on 2007 and hoping they would have cut costs much earlier.
The Gemdale/Infinera sale is a windfall that improves options. Obviously, this has to be discussed. Is the company in very bad shape. It depends on your perspective. I have often cited the worse conditions for the financial and other companies. Countrywide, Citicorp, Lennar, and even JetBlue had to sell assets to maintaintheir operations. Their outlook is even worse while UT performance is going to be much better. Another example is Hoku which is getting over $500m in financing to build a plant and won't be delivering any products until 2009! Financing is the lifeblood of a lot of companies. You can be the stock won't be at $2 and change if the debt was not due in March.
Management has said all options are on the table but with their assets/liquidity, management, S&P and other analysts do not see a liquidity crisis. What remains is uncertainty and how this will play out. Today's JetBlue announcement brought an initial 25% gain. Others (Citicorp, Etrade, Lennar, Countrwide) have had mix reactions depending on the structure. In any case, my view is for a full turnaround and that is only through operational performance. Of course, I would rather see a much higher shareprice once the CB is resolved. We'll see how it plays out.
Wednesday, December 12, 2007
Sigma Designs and growth of IPTV
Tonight, Mad Money's Jim Cramer picked Sigma Designs as his featured stock. Sigma Designs makes the chips that go into the iptv STB and Blue Ray players. Cramer highlighted yesterday's PR by AT&T and their plans to spend $4.5-5B in their U-verse program suggesting iptv is at the beginning of the growth phase and Sigma Design will be a major beneficiary. He mentioned a target price of $100. I posted yesterday about some of the iptv spending and the U-verse program in particular.
Obviously, I am writing about Sigma Designs because of its link to iptv and UtStarcom. Sigma Designs is a supplier of UtStarcom. Some have wondered why Sigma has such a high market cap compared to UT while having much smaller revenues. Here are some numbers. Sigma currently has a $1.7B market cap compared to UTs $327m market cap. Sigma's GMs are 50% compared to UTs 10-15% (UTs iptv GMs not including STB is over 40%). Sigma grew revs at 50% from last quarter and 164% from last year. UT revs are flat. And finally, Sigma makes $2.5/share while UT is losing $1-2/share/year.
While the financial metrics are like night and day, UT is progressing in iptv winning contracts in Japan, China, India, Brazil, and a yet to be named Asian country. GMs in UTs iptv (not including STB) is over 40% and subscriber growth (while "lumpy") is significant and has reached over 600k subscribers. UT is definitely in a position to benefit from iptv growth as well as Sigma Designs.
Sigma currently has a much better model in that it supplies other providers, has much less operating expenses, and very high overall GMs. While Sigma benefits from providing others, they will get major competition starting in January when Broadcom and others introduce their products. I believe UT's benefits will come later on as they established their foothold in various regions. Thats why its essential that UT get their footprint right now even and why I support current expenses. The critical battles are being waged now. Equipment are being tested and contracts are being awarded now.
I talked with Fran Barton and Peter Blackmore about Sigma Designs and their high market cap compared with UT. As shown above, there are major differences but there is no denying UT's main growth driver going forward will be iptv. What I tried to get at is the higher operational costs and the slow growth/margin of the other businesses. So, I was atleast content on sharing my views on discarding the PCD and other none-core business and lowering expenses when prudent to do so. I believe management knows this anyway but the key to higher shareprices is having the street appreciate the growth in iptv without it being diluted by other slow growth/low margin businesses and obviously the losses.
Unfortunately, UT is still known as a PAS company or a PCD company with huge losses and debt issues coming up. Its painful to see a company like Sigma doing so well when they are UTs supplier. Hopefully, the company will take necessary steps to get to profitability, focus the company on their core businesses and then the street will see the company for its positives. Maybe one day, UT will be mentioned by Cramer in a positive light after all these years. He has gone from hating the company (he doesn't trust those guys) to pitying it the last time saying how much it has hurt shareholders and alluding to all the potential and missteps.
The potential is still there. There is still time and UT has the technology and the market is at the very beginning. It is up to management to manage resources well to get the company back to its glory days of growth and profitability.
Obviously, I am writing about Sigma Designs because of its link to iptv and UtStarcom. Sigma Designs is a supplier of UtStarcom. Some have wondered why Sigma has such a high market cap compared to UT while having much smaller revenues. Here are some numbers. Sigma currently has a $1.7B market cap compared to UTs $327m market cap. Sigma's GMs are 50% compared to UTs 10-15% (UTs iptv GMs not including STB is over 40%). Sigma grew revs at 50% from last quarter and 164% from last year. UT revs are flat. And finally, Sigma makes $2.5/share while UT is losing $1-2/share/year.
While the financial metrics are like night and day, UT is progressing in iptv winning contracts in Japan, China, India, Brazil, and a yet to be named Asian country. GMs in UTs iptv (not including STB) is over 40% and subscriber growth (while "lumpy") is significant and has reached over 600k subscribers. UT is definitely in a position to benefit from iptv growth as well as Sigma Designs.
Sigma currently has a much better model in that it supplies other providers, has much less operating expenses, and very high overall GMs. While Sigma benefits from providing others, they will get major competition starting in January when Broadcom and others introduce their products. I believe UT's benefits will come later on as they established their foothold in various regions. Thats why its essential that UT get their footprint right now even and why I support current expenses. The critical battles are being waged now. Equipment are being tested and contracts are being awarded now.
I talked with Fran Barton and Peter Blackmore about Sigma Designs and their high market cap compared with UT. As shown above, there are major differences but there is no denying UT's main growth driver going forward will be iptv. What I tried to get at is the higher operational costs and the slow growth/margin of the other businesses. So, I was atleast content on sharing my views on discarding the PCD and other none-core business and lowering expenses when prudent to do so. I believe management knows this anyway but the key to higher shareprices is having the street appreciate the growth in iptv without it being diluted by other slow growth/low margin businesses and obviously the losses.
Unfortunately, UT is still known as a PAS company or a PCD company with huge losses and debt issues coming up. Its painful to see a company like Sigma doing so well when they are UTs supplier. Hopefully, the company will take necessary steps to get to profitability, focus the company on their core businesses and then the street will see the company for its positives. Maybe one day, UT will be mentioned by Cramer in a positive light after all these years. He has gone from hating the company (he doesn't trust those guys) to pitying it the last time saying how much it has hurt shareholders and alluding to all the potential and missteps.
The potential is still there. There is still time and UT has the technology and the market is at the very beginning. It is up to management to manage resources well to get the company back to its glory days of growth and profitability.
Tuesday, December 11, 2007
IPTV Spending
"AT&T expects to spend between $4.5 billion and $5 billion on U-verse through 2008. The deployment is expected to reduce 2008 earnings by 12 to 14 cents a share."
http://biz.yahoo.com/ap/071211/at_t_analysts.html
"Bharti would be investing Rs 150 crore in the initial phase."
http://timesofindia.indiatimes.com/Airtel_to_venture_into_IPTV_DTH/articleshow/2478365.cms
Here is the well known $500m Reliance-Microsoft pact...
http://www.foxnews.com/wires/2007Nov05/0,4670,IndiaRelianceMicrosoftTV,00.html
UT has won Bharti but probably not Reliance. The spending above definitely is not only for the iptv equipment but overall buildouts but the fact that amounts are huge shows the committment of suppliers and operators to iptv.
AT&T only has 126k subscribers at the end of Sept compared to UTs over 600k subscribers right now. AT&T is targetting 1 million by end of 2008. UT could have 2-3 million by end of 2008. The figure from Bharti is about $35 million for their "initial phase". We are not sure what this figure consists of or if this is for the 150k initial subscriber target. Reliance's $500m for the software is staggering. How can they recoup this? In any case, UT will get their share and the trend is growth in iptv will be huge. Also, if the iptv equipment by others do not work or do not scale, UT may have a shot at taking over. The high cost by other systems and the fact that UTs can scale and has been tested worldwide and been around shows this is very possible and would be a major development.
http://biz.yahoo.com/ap/071211/at_t_analysts.html
"Bharti would be investing Rs 150 crore in the initial phase."
http://timesofindia.indiatimes.com/Airtel_to_venture_into_IPTV_DTH/articleshow/2478365.cms
Here is the well known $500m Reliance-Microsoft pact...
http://www.foxnews.com/wires/2007Nov05/0,4670,IndiaRelianceMicrosoftTV,00.html
UT has won Bharti but probably not Reliance. The spending above definitely is not only for the iptv equipment but overall buildouts but the fact that amounts are huge shows the committment of suppliers and operators to iptv.
AT&T only has 126k subscribers at the end of Sept compared to UTs over 600k subscribers right now. AT&T is targetting 1 million by end of 2008. UT could have 2-3 million by end of 2008. The figure from Bharti is about $35 million for their "initial phase". We are not sure what this figure consists of or if this is for the 150k initial subscriber target. Reliance's $500m for the software is staggering. How can they recoup this? In any case, UT will get their share and the trend is growth in iptv will be huge. Also, if the iptv equipment by others do not work or do not scale, UT may have a shot at taking over. The high cost by other systems and the fact that UTs can scale and has been tested worldwide and been around shows this is very possible and would be a major development.
Monday, December 10, 2007
UT deploys in Brazil, 3rd leg of BRIC countries
Today, UT confirmed deployment in Brazil, one of the BRIC (Brazil, Russia, India, and China) countries that the talking heads usually discuss for growth opportunities.
http://biz.yahoo.com/prnews/071210/aqm095.html?.v=32
As with the other countries, it has taken time for actual deployments following tedious regulatory and trial phases.
Back in Aug. 8, 2005, UT provided equipment for a 2000 line system to Telemar.
http://sev.prnewswire.com/computer-electronics/20050808/NYM03908082005-1.html
On June 7 , 2005, UT and Cisco partnered in Brazil.
http://sev.prnewswire.com/computer-electronics/20050607/SFTU07107062005-1.html
The announced contract today was already hinted at from previous press clippings in Brazil (See iptv links).
Going forward, we hope to hear news about the Asian iptv customer that management has discussed in the last CC and during the shareholder meeting. From talking with Peter Blackmore, UT is just waiting until the customer gives approval to release the news. The current speculation is either Korea, Taiwan, or Vietnam.
While the stock stays stagnant, this news in Brazil is yet another data point for the long term turnaround for the company.
http://biz.yahoo.com/prnews/071210/aqm095.html?.v=32
As with the other countries, it has taken time for actual deployments following tedious regulatory and trial phases.
Back in Aug. 8, 2005, UT provided equipment for a 2000 line system to Telemar.
http://sev.prnewswire.com/computer-electronics/20050808/NYM03908082005-1.html
On June 7 , 2005, UT and Cisco partnered in Brazil.
http://sev.prnewswire.com/computer-electronics/20050607/SFTU07107062005-1.html
The announced contract today was already hinted at from previous press clippings in Brazil (See iptv links).
Going forward, we hope to hear news about the Asian iptv customer that management has discussed in the last CC and during the shareholder meeting. From talking with Peter Blackmore, UT is just waiting until the customer gives approval to release the news. The current speculation is either Korea, Taiwan, or Vietnam.
While the stock stays stagnant, this news in Brazil is yet another data point for the long term turnaround for the company.
Thursday, December 6, 2007
Oversold and the $3 mendoza line
There has been a lot of discussion regarding the book value and the discount the market is assigning to UTStarcom. Analysts have lowered price targest to the $3-3.5 range. S&P, which once had a sum of the parts valuation of $11 earlier this year now has a $3.5 target or about 60% of book value.
Explanations for the low price ranged from continued losses into 2008, lack of visibility, poor management, bad internal controls, bloated expenses, stiff competition, bad regulatory environments in their core iptv markets, low margins, shorts piling on, long funds having to force liquidate, lack of near-term catalysts, end of the year tax selling, greedy management, lack of BOD oversight, uncertainty in refinancing CB and short term loans, and others.
Facing all of this, the stock has dipped under the mendoza line and has become unmarginable further increasing selling pressure as margin traders have to liquidate or cannot buy using their holdings. This has made just keeping UT very expensive from the loss of buying power.
Anyway, just wanted to recap the share price history under $3. Despite all of the above selling pressures, UT has held the 52 week low back in August and have managed to sneak above the mendoza line ($3) for the most parts. A "trend" is starting to develop where the stock trades under $3 for about 6-8 days and then starts going up. These are the following dates and number of trading days under $3.
8/7-8/16 (8 days)
8/22-8/31 (8 days)
9/10-9/17 (6 days)
11/1-11/12 (8 days)
11/15- current (14 days)
The number of days show that it takes time for the margin players to get washed out and some time for longs to get confidence back and see if the lows will hold. I believe the stock is definitely in oversold territory even in the very short term (14 days under $3). The lack of news and low volume means the stock can continue to stay under $3 towards the end of the year but at some point will break above $3 and hopefully won't look back. What the data does say is don't go on margin but definitely buy under $3.
Explanations for the low price ranged from continued losses into 2008, lack of visibility, poor management, bad internal controls, bloated expenses, stiff competition, bad regulatory environments in their core iptv markets, low margins, shorts piling on, long funds having to force liquidate, lack of near-term catalysts, end of the year tax selling, greedy management, lack of BOD oversight, uncertainty in refinancing CB and short term loans, and others.
Facing all of this, the stock has dipped under the mendoza line and has become unmarginable further increasing selling pressure as margin traders have to liquidate or cannot buy using their holdings. This has made just keeping UT very expensive from the loss of buying power.
Anyway, just wanted to recap the share price history under $3. Despite all of the above selling pressures, UT has held the 52 week low back in August and have managed to sneak above the mendoza line ($3) for the most parts. A "trend" is starting to develop where the stock trades under $3 for about 6-8 days and then starts going up. These are the following dates and number of trading days under $3.
8/7-8/16 (8 days)
8/22-8/31 (8 days)
9/10-9/17 (6 days)
11/1-11/12 (8 days)
11/15- current (14 days)
The number of days show that it takes time for the margin players to get washed out and some time for longs to get confidence back and see if the lows will hold. I believe the stock is definitely in oversold territory even in the very short term (14 days under $3). The lack of news and low volume means the stock can continue to stay under $3 towards the end of the year but at some point will break above $3 and hopefully won't look back. What the data does say is don't go on margin but definitely buy under $3.
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