Potential UT suitors and reach of UT technology

There has been no shortage of potential suitors for UTStarcom over the last few years. While known for its PAS business, UT has amassed a collection of technology and business units in emerging markets from handsets to next generation networks to multimedia/iptv. Whenever I read the WSJ or business articles, UT seems to come to mind because of their wide reach. This is not a case for selling the company. Rather, it is meant to show the wide reach of the company. The low enterprise value only makes it a viable acquisition for a lot of companies here in the US and abroad. I am not a techy so this will be from strategic/business point of view.

This topic will be covered in a series of posts, with different companies. If you would like to write about a company that is a good match for UT, let me know and I will post it. Rather than start with the usual suspects, I will start with Echostar Communications. This satellite company is the competitor of DirectTV. Last year, it acquired Sling Media, the maker of the Sling Box, for $300m. The Sling Box is a device that allows people to watch their premium cable/satellite programming over the internet. It has had an ongoing patent case against Tivo for years. Last Friday, the judgement against Echostar was upheld and it may have to pay $94 million to Tivo and halt DVR sales. http://www.marketwatch.com/news/story/tivo-shares-soar-29-court/story.aspx?guid=%7BF9BA4F2A%2D165E%2D4FE8%2D8850%2D22536A859FF9%7D&siteid=yhoof

Normally, I would not link EchoStar with UTSTarcom but UTs recent announcement of a contract win in Taiwan with cable provider Markwell Industrial Co was an incredible development and I believe has not been discussed enough. In the PR,

http://biz.yahoo.com/prnews/071220/aqth130.html?.v=25

"We are currently in discussions with a number of cable operators in Taiwan who are interested in complementing their existing offering with IPTV-enabled services, and we anticipate surpassing more than one million IPTV subscribers in the country by 2009."

UT had initially won an iptv contract with a CLEC in Florida a couple of years ago but then the regulations turned against UT and it moved away from the US markets but vowed to come back in a couple of years. The opportunity to get back in the US with cable/satellite providers would be tremendous for UTStarcom. We already know that their system is cost efficient and can work in emerging countries. It can definitely be used with cable companies. If AT&T's U-verse and iptv in general pick up steam in the US, UT can slide right in and offer either a scaled down or full version of their end to end iptv system.

If Echostar buys UT, they could even turn around and sue Tivo. I'm sure they can find something in UTs thousands of patents to hit Tivo with. Anyway, whether an acquisition or just backdoor entry into the US iptv market, the value of UT's iptv system can be unleashed. What would that do to UTs stock price if UT landed a deal with a major US cable/satellite provider?

Exploratory group shareholder meeting, Feb. 2, 2008

Thank you to all the shareholders that took time on Saturday to participate in the conference call, specially the scheduled speakers. Going forward, I will modify the letter to management with your suggestions and send it out to the major stakeholders prior to forwarding to management. If there are other suggestions, please email me and we can consider it.

I am attaching a link for the shareholders that did not attend the call and to the others that may consider joining us.

http://www.sharebigfile.com/en/file/6535/UT-CC-2-2-08-wav.html

It is a 40MB file so it takes a few minutes to download or to play. My apologies for the cluttered adds of the "free" hosting service I had to use. The call lasted 90 minutes and had some audio problems during the middle part (someone may be on a speaker phone or something).

I continue to invite people to join this shareholder group. In the future, we may choose to formalize the group and ask for more committments. For now, I will continue to work with the major stakeholders on ways to enhance shareholder value.

I would also caution people on extrapolating any information on the call. It is basically opinions and ideas that various shareholders/groups have expressed. Treat it as entertainment among concerned shareholders.

Once again, I thank the stakeholders for participating and giving as much input as they can. This is just the beginning and a lot of work is ahead of us. However, I am definitely encouraged with the support that we have and that this is something very much worth pursuing.

Enjoy the rest of SuperBowl weekend.

DRAFT Letter to Management

During the upcoming shareholder meeting, I would like to discuss the letter I am planning to send on behalf of the group. Please read and comment during the shareholder meeting.

Dear Sirs,

Being a long time shareholder, I have seen the tremendous potential of the technology and markets that UTStarcom is involved with. However, this has not translated into a profitable company and has resulted in a collapse in the share price over the last few years. Recently, I have formed an exploratory group to discuss ways to unlock and enhance shareholder value. I realize that this is also the stated goal of management and the Board of Directors. While management has outlined specific turnaround targets and a commitment to profitability by late 2008/early 2009, there are too many unresolved issues and no major results as of yet. From discussions with fellow shareholders (both retail/institution), there are numerous items to be concerned with such as:

-Viability of sustainable profitability in light of the current bloated expense structure.
-The company has not taken concrete steps to defend the stock price.
-Management has continued to increase their own compensation during this time.
-Management has ignored investor suggestions in meeting with shareholders/discussion of alternatives to resolve the convertible bond.
-The company has not given updates on important issues such as the sale of investments, resolution of the convertible bond, information on OEMs, and other cash saving/generating measures that it has discussed over two months ago.

The shareholders appreciate the information provided in the last earnings call but need tangible results. Based on the company’s history of underperformance, weak internal controls, miscellaneous write downs, missing estimates wildly and other catastrophic bad news, it has become necessary to form this exploratory group in order to track management’s progress, to instill a sense of urgency to management and enhance shareholder value.

Currently, the exploratory group has received inquiries from people representing about 20.5 million shares or 18.5% of the total outstanding shares. The fact that a significant number of shareholders have shown interest in a very short period shows the frustration of the shareholders and their demand for management/company to perform. On Saturday, Feb. 2, 2008, we held the group’s first shareholder meeting. The results of the meeting were to develop the group’s initiatives and plan a path forward.

The goal of this group is to simply to unlock/enhance shareholder value. There are two basic plans or phases to achieve this goal.

“Plan A”: Pro-actively “support” and monitor the management during this turnaround phase. This involves:

· Organizing and maintaining retail/institutional shareholder base to discuss the progress of the company.

· Communicating as a group with management through emails.

· Meeting with management (as needed) to discuss various issues such as compensation, operating expenses, profitability and other strategic initiatives.

· Using the resources of the group to disseminate information to the group’s members and other (existing/potential) shareholders. (via blog/email base, letter campaign to other news organizations such as Businessweek, Lightreading, gathering of information in China/other parts of the world)

· Reinforce sense of urgency to management/BOD by being prepared to implement “Plan B” quickly.

“Plan B”: Seek change in management and/or a sale of the company. This involves:

· Meeting with management/BOD to discuss sale of company.

· Letter campaign to other institutional shareholders to join this group (activist group at this point)

· Proposing management changes and putting up slate of directors that will make significant operational changes or seek a sale of the company.

· Court potential suitors for the company.

The exploratory group is in process of filing paperwork and formalizing the group to be in proper compliance with SEC rules on disclosure. It is also actively courting the other hundred or so institutional shareholders that may wish to join the group.

For the upcoming earnings call, the group expects the management to resolve the convertible bond in a way that benefits the existing shareholders (no dilution) as it has mentioned previously, impose strict expense controls/discipline, significantly improve cash generation/reduce cash burn, and accelerate the timeframe for profitability. The current hope of the exploratory group is that the initiatives under Plan A will be sufficient to achieve its goal. To that end we would like to meet with management after this upcoming earnings call to discuss specific issues that will lead to enhanced shareholder value.

We look forward to hearing from management and meeting with them in Alameda after the earnings call and quarterly filings are completed.

Shareholder Conference Information and Agenda

We will be holding the shareholder conference call this Saturday, Feb. 2, 2008 (10AM Pacific/1PM ET). I have emailed the call-in number to shareholders that have expressed interest in joining the group. If you have not received the number, send me an email so I can put you on the list. Here is the agenda for the conference call.

Log In - As you log in to the call, give your name (first name/screen name is fine). I will check you off so I know who is on the call.

Introduction – I will reiterate and expand on the goal and possible initiatives that the group can take up.

Message to management – I am planning to send an email to management prior to this critical Q4 earnings call to convey the shareholder’s concern and issues we want management to address. I will draft the email and post prior to the shareholder meeting.

Views from larger shareholders/institutions – I will call on shareholders by first name/screen name to discuss their positions on UTStarcom. Shareholders can identify themselves and the institutions they represent and how many shares they own/represent (if they want). They will have the opportunity to discuss why they own the stock, what their major concerns, strengths of the company, what their outlook for the company, what they think the steps this group should take going forward, etc. If you own 100k shares or more, please be prepared to contribute and express your views. If you prefer to just listen, just say pass. I hope I am not slighting the shareholders with less holdings but I want to let the larger shareholders have their say first since they have “earned” it painfully.

Open Q&A from the rest of the shareholders – After the larger shareholders have had a chance to speak, I would like to give all the other shareholders a chance to bring up topics that have not been touched upon or want to discuss further. Just for protocol, please identify yourself by first name/screen name and disclose as much/little as you are comfortable with.

Pathforward – We will conclude the shareholder conference call by listing items that we can do going forward.

I am allocating up to 2 hours for the conference call depending on how the discussions proceed. If there are items that will require more time, you can contact me separately and I will summarize in the blog (as appropriate). As I’ve mentioned previously, all options will be considered. I am just a retail shareholder bringing this group together. The initiatives I have put forward are just a start and I can only take it so far. I expect to get the assistance from the “membership” to take this to the next level (with a more formal structure for example). I look forward to talking with my fellow UTStarcom shareholders this Saturday. We currently have over 22.5m shares that are represented or 18.5% of the total but would definitely welcome more shareholders to join. This is everyone’s opportunity to be heard and participate. If you have not “joined” in and want to listen in or participate, just send me an email.

Exploratory group goal and initiatives to achieve this goal

The goal of this group is to simply to unlock/enhance shareholder value. There are two basic plans or phases to achieve this goal.

“Plan A”: Pro-actively “support” and monitor the management during this turnaround phase. This involves:
· Organizing and maintaining retail/institutional shareholder base to discuss the progress of the company.
· Communicating as a group with management through emails.
· Meeting with management (as needed) to discuss various issues such as compensation, operating expenses, profitability and other strategic initiatives.
· Using the resources of the group to disseminate information to the group’s members and other (existing/potential) shareholders. (via blog/email base, letter campaign to other news organizations such as Businessweek, Lightreading, gathering of information in China/other parts of the world)
· Reinforce sense of urgency to management/BOD by being prepared to implement “Plan B” quickly.

“Plan B”: Seek change in management and/or a sale of the company. This involves:
· Meeting with management/BOD to discuss sale of company.
· Letter campaign to other institutional shareholders to join this group (activist group at this point)
· Proposing management changes and putting up slate of directors that will make significant operational changes or seek a sale of the company.
· Court potential suitors for the company.

During the upcoming shareholder conference call, I will provide some additional details to the above initiatives but these are broadly the initiatives that are typical in these types of cases. I would like to receive input from the other shareholders during the meeting but basically present this to other shareholders now to clarify the intent of this group.

Exploratory group to enhance share holder value

Over the last few weeks and since I started this blog, I have been contacting other shareholders in order to gauge sentiment about the company and management's turnaround strategy. While it is too early to evaluate the impact of the turnaround plan, I believe this is the proper time to organize an "exploratory group" to enhance shareholder value and track the progress of the company. Currently, just on the few shareholders I have talked with, we have about 1.2 million shares or 1%. In addition, a large overseas fund manager whom I met at the shareholder meeting disclosed having about 10%. This manager has sent information to support his holdings and I don't have any reason to doubt his position. In any case, with so much at stake and a lot of value left in the company, we would like to invite other shareholders to "join" our group. There are no major committments except to participate and discuss the company's progress.

The first "event" I am planning for the group is a conference call to be held within 2 weeks and prior to the Q4 earnings. As you know, this upcoming earnings call will be critical with respect to the convertible bond and the outlook for 2008. This shareholder conference call will be an opportunity for interaction with other shareholders and for us to draft a document to send to management on items they should address at the shareholder meeting.

I understand that shareholders (retail/institutional) will have different goals and expectations. Some want immediate actions from the company. Some are willing to give the company time to work out this current turnaround. However, we are all currently in the same boat with little good options. It is imperative that the company produces tangible results very quickly and throughout 2008.

Again, I invite all interested shareholders whether you have 1k shares or an institutional holder. If you want a voice, this is your opportunity to be proactive with your investment. You can email me at tim_94305@yahoo.com if interested.

Feds fund rate cut by 3/4% to 3.5% and UT goes down 9% to an all-time closing low

The market makes a lot of sense, right?



One of the major weaknesses of UT as a company has been management. For some reason or another, it has been "behind" the curve regarding managing the PAS downturn, anticipating the rise of 3G, iptv, and cutting costs or selling assets (divisions and/or holdings). But, it may be catching a break at an opportune time here in dealing with the convertible bond. Consider:



-Over the last few months, the feds funds rate has gone down from 5.25% down to 3.5%. In addition, further rate cuts are expected. Despite the negative percerptions on what rate the company can get, the sharp drop in the fed funds rate, slowing economy, and expectations of further cuts will allow the company to negotiate a lower short or long term deal.



-Efficient use of capital. The convertible coming due has forced the company to transfer funds from China that were earning 2%. The company paid $22 million in additional interest in 2007 just for being late in filing on top of the regular interest payments.



-Appreciation of investments. Gemdale and Infinera were less than $5m at the start of 2007 and was close to $90-100m at the end of 2007. The fact that the CB is coming due has forced the company to sell at relative highs.



-Falling dollar/appreciating currencies outside US. Since the debt is in dollars, the company has been able to take advantage of the currency appreciation the last few years and will continue to do so if they get additional bridge loans as revenues from outside the US will pay for any new loans denominated in dollars.



-Slowing worldwide outlook will help PAS extend its life. Pas revenues are still very critical to UT and delays in spending/implenting 3G rollouts can only extend the life of PAS.



-Cost cutting/2008 cash flow outlook. In a few weeks, UT will discuss q4 2007 results and present 2008 projections. The street will watch for signficant improvements in cash flows for 2008. The head count reduction completed in q4 will start having an impact in q1 2008. The lack of investigation costs related to the options/China contracts/interest payments should help signficantly. Blackmore mentioned signing one Asian OEM and in talks with others. He talked about cost savings of $50m or more from inventory management. If there was any time that management needs to present a good outlook, this is it.



In summary, Barton has been presented with a much better environment than 6 months ago. Some have been by design as UT hired Blackmore, implemented cost cuts, and took a lot of the write-offs/spending in 2007. Others have been by chance (luck) as investments went up, the economy is slowing down and rates being cut. They have sufficient funds to pay most if not all of the convertible bond and could get a bridge loan or even a longer term loan for much better rates. The debtors know this is a company that will pay their debt back (and more!). Barton has collected some serious compensation for terrible work in my opinion. He is now presented with an almost slam dunk situation to deal with the CB to the shareholders best interest (as if he had to say that in public-unbelievable). In any case, todays drop to $2.57 is ridiculous indeed. I picked up a token 3k shares for $2.62 in defiance of this madness :-) I expect a major earnings run coming up....hopefully.