I checked my yahoo email this afternoon and saw there was another email alert from UTStarcom. More option grants? More details on management/board compensation? Delayed quarterly filings? Someone else being investigated by the SEC or justice department? Nope, it was a preannouncement that the company exceeded their previous guidance for Q1. Instead of revenues of $500m to $520m, it will come in between $580m to $590m. Gross margins are going to be 15-16% instead of the 13% estimated previously.
I then proceeded to read through the PR for the REAL negative news. There has to be negative news. Almost every quarter that the company has exceeded (since 2004) has come with very poor guidance. In May 2005, the company reported 29 cents/share due to the Japan contract being recognized and then poor guidance followed. They exceeded in Q1 2006 but again guidance was not good. Is there more China investigations? Well, they did have higher than estimated expenses due to "unanticipated professional services expenses". Its actually pretty bad when you give guidance 1 month before the quarter ends (end of Feb) and then say its unanticipated.
The upside in revenue was partially expected as Fran Barton has been very conservative but the 300 basis point upside in GMs is significant showing the non-PCD businesses are also doing well. Another big positive surprise is the liquidity position. Back in the end of February, Barton updated the cash position at $228m with $48m in debt. At the end of the quarter (one month later), the cash/short term investments has become $305m and the debt down to $36m. The company attributed the "strong cash flow from operations generated primarily by management of working capital." So, the "cash" went from a net $180m to $269m in one month! We'll still need to see the balance sheet (payables/inventory) but this is clearly good news and that their cash generation plan is working.
The company is still implementing a new ERP system and had to delay the filings. Looking at the glass half empty, I still wonder why they would release preliminary numbers now and they didn't in late 2006 to most of 2007. Maybe their legal department has no issues with releasing good news :-) Anyway, looking at the glass half full, its good to know that they actually listened to some of the items we talked about during the shareholder meeting (communication, preannounce when you have good news, etc).
PS. Its funny how the yahoo board/management is now under the gun because they DIDN'T listen to their shareholders. It may be a good idea to actually listen to shareholders once in a while :-) Again, I am not a braniac like some people on the boards (specially those that bash me) but I think the stock is on an uptrend.
Tuesday, May 6, 2008
Sunday, May 4, 2008
Weekly recap - 6 month high
The stock closed at $3.32 for the week, up almost 11%. Although there were some "fundamental" news during the week, the highlight was the stock price action. During the previous week (on Monday), we saw the lowest volume ever (April 21, 2008 - 317k shares). I am not a stock technician but the price action was really bullish this week. On Monday morning, the stock took a "dip" to $2.96 at the open where the market (or MM) tried to fake off the bullish sentiment growing in anticipation of the iptv webinar. The stock then closed the month at $3.25, a nice 14% increase that I'm sure fund managers (long & short) had to take note of. The stock broke through the $3.19 (triple top price action of the last couple of months) and then proceeded to take out 6 month high of $3.42 and then having succesive day highs of $3.43 and $3.44 before some profit taking late Friday. Overall, I'm not a braniac like a lot of people on the message boards but I think the stock is going higher :-)
I could end the weekly recap with the stock price but there were some interesting developments that I'd like to touch upon for recrod keeping purposes.
IPTV Webinar - I still want to do a seperate posting but my initial impression was positive due to the 3 million overall subscriber capacity already booked (compared to very little 3 years ago when Bill Huang held a similar iptv webinar). I like the fact that Brian Caskey mentioned the 3 million as not a lot yet, offering an insight that they have only scratched the surface. For comparison, Merrill Lynch estimated that UT could have a "base" subscriber number of 4 million in China over 5 years (with an upside of 2 to 4x). The number of wins that have been announced (specially in India) show that the potential of iptv is real and UT has material traction. I was happy with the 1 million number with MTNL (it was only 500k on the November call) but had questions with the 800k live users since it was already 750k two months ago (and supposedely had 40k STBs being shipped/month in China alone). Also, why wasn't the India/Sri Lanka contracts discussed in more detail. Also, what "new developments" were discussed in the webinar. I was hoping for information on Hong Kong or other new wins but the company is probably saving this for the earnings call. Anyway, I posed those questions to Barry Hutton, UTs director of IR and he gave the following response.
"Hi Tim,
Thanks for the question. I see where you are pulling certain numbers from the February 28th earnings call and then trying to approximate future results and metrics. However, estimating these future results may not be as straight forward of a process as it might appear. So doing that simple math might lead to some misleading estimates.
Unfortunately, Reg FD somewhat limits my ability to give you adefinitive updated number or a detailed explanation in a closed forum such as this e-mail or even a phone call. But we want to be sensitive to your question. So on the upcoming earnings call we will not only give you updated subscriber numbers but also try to provide clarity on how best to think about the growth of the business going forward. In regards to our not mentioning certain customer or geographic wins, I remind you of the conversation you had with management in mid March. Recall that our ability to discuss certain wins is often limited by certain factors like customer approval requirements etc. Even if thedeal is discussed by other parties or in other forums we are sometimes limited in our ability to issue a release. Again, on our upcoming earnings call we hope to provide a more complete update as to our progress. I hope this helps and you will hear more shortly"
Here was my response to his response.
"Barry, Thanks for your response. If you have other ways toclarify the growth in the business, that would be welcome as well but STB shipped and live users were provided previously, and only live users were provided yesterday. It would help to have some clarification specially since the only conclusion from the live numbers is STB are not being shipped/ordered at the same rate or that adoption/subscriber uptake has slowed down.
As for the PR, I was NOT asking for a PR on Hong Kong but information/confirmation on the contract. This is not similar to Motorolas wimax announcement because the HK iptv info came directly from a UTStarcom executive (not other parties).
As for the "forum",Y esterday's iptv webinar was suppose to discuss thedevelopments in iptv, wasn't it? Let me make it more clear. Why can a UTStarcom executive in Hong Kong announce they have won a signficant contract in iptv and Peter and Brian Caskey not even mention HK during the "iptv" webinar? BTW, I think these are not "material" disclosures but simply clarification on news that was already provided."
Anyway, I think we will hear much more in the earnings call but I really should have asked those questions during the webinar.
Post of the week - This one goes to a relative unknown rrbassplayer who posted on the "unsurmountable problems UTSI faces". http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=151764&mid=151764&tof=10&frt=1
The poster brings up valid issues in India regarding broadband users and the pace of iptv adoption there. However, it is good that UT has a broadband group in India to help push the countries broadband development (what a coincidence :-) Some shareholders also point to the negative posts at a time when the stock is making new 6 month highs as bullish and somehow this is some short attack (nah, can't be....:-)
SEC Settlement - See my previous post.
Yahoo-Microsoft - Most people have probably heard that Microsoft made a last gasp offer of $33/share but Yahoo rejected it and wanted $37-38. This is very relevant for UT because of what happened as recent as last year. Ultimately we shareholders hope that the board/management think of shareholder value (I know that seems like a hard concept to grasp the last few years). Anyway, when the group met with management on March 17, I wanted to start the discussion with a simple question. Does the management believe it can turn itself around or is it better to go into a strategic option now rather than wasting years again (and hurting its balance sheet even more). Even during my last meeting with Thomas Toy, I mentioned the opportunity costs for shareholders that the board/management has bascially decided on when they went into the strategic option, rejected some offers (for atleast part of the company) and decided it was better to go it alone and do a turnaround (when the stock was even at $7). Back to Yahoo, they rejected a $40 offer for Microsoft over a year ago, and now a $33 offer when the stock was at $19 (before this latest overture by Microsoft). The company is holding out for $3 to $4 more. However, what are the chances it can recover from the beating it will take (probably drop to the low $20s if not the teens) and then recover to $37 to $38 in the next yea? Shareholders did not even get the right to "vote" on the offer.
Back to UT, this is precisely why the board/management took a major responsibilty/risk in this turnaround and investors should keep in mind the opportunity loss by the boards' decisions.
Have a good rest of the weekend to everyone.
I could end the weekly recap with the stock price but there were some interesting developments that I'd like to touch upon for recrod keeping purposes.
IPTV Webinar - I still want to do a seperate posting but my initial impression was positive due to the 3 million overall subscriber capacity already booked (compared to very little 3 years ago when Bill Huang held a similar iptv webinar). I like the fact that Brian Caskey mentioned the 3 million as not a lot yet, offering an insight that they have only scratched the surface. For comparison, Merrill Lynch estimated that UT could have a "base" subscriber number of 4 million in China over 5 years (with an upside of 2 to 4x). The number of wins that have been announced (specially in India) show that the potential of iptv is real and UT has material traction. I was happy with the 1 million number with MTNL (it was only 500k on the November call) but had questions with the 800k live users since it was already 750k two months ago (and supposedely had 40k STBs being shipped/month in China alone). Also, why wasn't the India/Sri Lanka contracts discussed in more detail. Also, what "new developments" were discussed in the webinar. I was hoping for information on Hong Kong or other new wins but the company is probably saving this for the earnings call. Anyway, I posed those questions to Barry Hutton, UTs director of IR and he gave the following response.
"Hi Tim,
Thanks for the question. I see where you are pulling certain numbers from the February 28th earnings call and then trying to approximate future results and metrics. However, estimating these future results may not be as straight forward of a process as it might appear. So doing that simple math might lead to some misleading estimates.
Unfortunately, Reg FD somewhat limits my ability to give you adefinitive updated number or a detailed explanation in a closed forum such as this e-mail or even a phone call. But we want to be sensitive to your question. So on the upcoming earnings call we will not only give you updated subscriber numbers but also try to provide clarity on how best to think about the growth of the business going forward. In regards to our not mentioning certain customer or geographic wins, I remind you of the conversation you had with management in mid March. Recall that our ability to discuss certain wins is often limited by certain factors like customer approval requirements etc. Even if thedeal is discussed by other parties or in other forums we are sometimes limited in our ability to issue a release. Again, on our upcoming earnings call we hope to provide a more complete update as to our progress. I hope this helps and you will hear more shortly"
Here was my response to his response.
"Barry, Thanks for your response. If you have other ways toclarify the growth in the business, that would be welcome as well but STB shipped and live users were provided previously, and only live users were provided yesterday. It would help to have some clarification specially since the only conclusion from the live numbers is STB are not being shipped/ordered at the same rate or that adoption/subscriber uptake has slowed down.
As for the PR, I was NOT asking for a PR on Hong Kong but information/confirmation on the contract. This is not similar to Motorolas wimax announcement because the HK iptv info came directly from a UTStarcom executive (not other parties).
As for the "forum",Y esterday's iptv webinar was suppose to discuss thedevelopments in iptv, wasn't it? Let me make it more clear. Why can a UTStarcom executive in Hong Kong announce they have won a signficant contract in iptv and Peter and Brian Caskey not even mention HK during the "iptv" webinar? BTW, I think these are not "material" disclosures but simply clarification on news that was already provided."
Anyway, I think we will hear much more in the earnings call but I really should have asked those questions during the webinar.
Post of the week - This one goes to a relative unknown rrbassplayer who posted on the "unsurmountable problems UTSI faces". http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=151764&mid=151764&tof=10&frt=1
The poster brings up valid issues in India regarding broadband users and the pace of iptv adoption there. However, it is good that UT has a broadband group in India to help push the countries broadband development (what a coincidence :-) Some shareholders also point to the negative posts at a time when the stock is making new 6 month highs as bullish and somehow this is some short attack (nah, can't be....:-)
SEC Settlement - See my previous post.
Yahoo-Microsoft - Most people have probably heard that Microsoft made a last gasp offer of $33/share but Yahoo rejected it and wanted $37-38. This is very relevant for UT because of what happened as recent as last year. Ultimately we shareholders hope that the board/management think of shareholder value (I know that seems like a hard concept to grasp the last few years). Anyway, when the group met with management on March 17, I wanted to start the discussion with a simple question. Does the management believe it can turn itself around or is it better to go into a strategic option now rather than wasting years again (and hurting its balance sheet even more). Even during my last meeting with Thomas Toy, I mentioned the opportunity costs for shareholders that the board/management has bascially decided on when they went into the strategic option, rejected some offers (for atleast part of the company) and decided it was better to go it alone and do a turnaround (when the stock was even at $7). Back to Yahoo, they rejected a $40 offer for Microsoft over a year ago, and now a $33 offer when the stock was at $19 (before this latest overture by Microsoft). The company is holding out for $3 to $4 more. However, what are the chances it can recover from the beating it will take (probably drop to the low $20s if not the teens) and then recover to $37 to $38 in the next yea? Shareholders did not even get the right to "vote" on the offer.
Back to UT, this is precisely why the board/management took a major responsibilty/risk in this turnaround and investors should keep in mind the opportunity loss by the boards' decisions.
Have a good rest of the weekend to everyone.
Thursday, May 1, 2008
SEC Settlement and stock "technicals"
"UTStarcom, Inc. (Nasdaq: UTSI - News), today announced a final settlement with the Securities and Exchange Commission (the "SEC") regarding the previously-disclosed SEC investigation of the Company's financial disclosures during prior reporting periods, historic option grant awards practices, certain historical sales contracts in China and other matters."
http://biz.yahoo.com/prnews/080501/aqth551.html?.v=1
"UTStarcom Chief Executive Hong Liang Lu and former Chief Financial Officer Michael Sophie paid penalties of $100,000 and $75,000 respectively, but did not admit or deny the allegations, the SEC said in a statement."
"The executives "did little to ensure that the company's internal controls were adequate and effective" after they were warned of accounting weaknesses by outside auditors, said Marc Fagel of the SEC's San Francisco office."
http://www.reuters.com/article/marketsNews/idINN0147203920080501?rpc=44
The biggest winners in another one of the sad episodes with this company have been the shorts, accountants, Barton, and to a certain extent Blackmore. The company has been using the "growing too fast" excuse for just about all their accounting problems but can someone for once take some responsibility? I atleast hope Peter or some of the other senior executives can step up and overcome the "all excuses/poor performing" environment/mentality they have been in.
Being an engineer, I am biased towards the technical people in the company against the management/finance people. How long does it take to fix all the finances and accounting systems? Even up to now, their internal controls/accounting systems are not fully functional yet (let alone "world class").
I work for a company called Tetra Tech with close to 10k people that was put together with over 40 acquisitions through the years. Do things go wrong? Yes. Does it take 3 years to fix something? No Way. Can it go for 12 or 16 quarters without being profitable? No Way. Does it waste tens of millions in interest payments? No Way. Can it take its time addressing cost cuts when it is severely needed? No Way. And on and on.......
Instead of trumpeting the settlement today, the company should release how much the REAL cost to shareholders have been, offer an apology, and what restitutions the responsible parties will do with their compensations. Will it happen? I guess when pigs fly :-)
On a side note, the stock hit a 6 month high ($3.43) and up about 14% just this week. Did anything fundamentally change this week? Not really. Is it fundamentally different from when it hit $2.23 on March 17? Not really. The opportunities and roadblocks that we have been discussing in the blog, with management/board, and in the message boards continue whether the stock is at $3 or $10 (right now).
As a side note, see this set of posts from March 17, 2008:
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=150760&mid=150780&tof=269&rt=2&frt=1&off=1
and this one yesterday.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=151750&mid=151750&tof=19&frt=1
I selected the posts from Tigre as he is a well known poster and well informed regarding the company/technology/industry. Nothing has changed "fundamentally" but he went from looking at the glass half empty (or cracking) to buying the stock and even discussing broadband uptake in India (of all places). http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=151807&mid=151807&tof=6&frt=1
Ultimately, the stock will be driven by fundamentals as Tigre mentioned but the technicals (stock) have improved and incorporates a whole slew of items and is the primary driver at this stage. This blog/group will continue to discuss fundamental issues and oversee the company performance every step of the way (and hopefully have given shareholders confidence to hold/buy under $3 which we have discussed constantly) but as we've seen in the past, people have to watch the technicals closely because it incorporates things we are not aware of.
If the stock goes back down or it pulls back as the stock moves higher, you can always come back to the blog/group. We will be here as a "put" on the price (in some respect). Otherwise, good luck on the way up and pay particular attention to Hangman's posts. He seems to know what he is talking about :-)
http://biz.yahoo.com/prnews/080501/aqth551.html?.v=1
"UTStarcom Chief Executive Hong Liang Lu and former Chief Financial Officer Michael Sophie paid penalties of $100,000 and $75,000 respectively, but did not admit or deny the allegations, the SEC said in a statement."
"The executives "did little to ensure that the company's internal controls were adequate and effective" after they were warned of accounting weaknesses by outside auditors, said Marc Fagel of the SEC's San Francisco office."
http://www.reuters.com/article/marketsNews/idINN0147203920080501?rpc=44
The biggest winners in another one of the sad episodes with this company have been the shorts, accountants, Barton, and to a certain extent Blackmore. The company has been using the "growing too fast" excuse for just about all their accounting problems but can someone for once take some responsibility? I atleast hope Peter or some of the other senior executives can step up and overcome the "all excuses/poor performing" environment/mentality they have been in.
Being an engineer, I am biased towards the technical people in the company against the management/finance people. How long does it take to fix all the finances and accounting systems? Even up to now, their internal controls/accounting systems are not fully functional yet (let alone "world class").
I work for a company called Tetra Tech with close to 10k people that was put together with over 40 acquisitions through the years. Do things go wrong? Yes. Does it take 3 years to fix something? No Way. Can it go for 12 or 16 quarters without being profitable? No Way. Does it waste tens of millions in interest payments? No Way. Can it take its time addressing cost cuts when it is severely needed? No Way. And on and on.......
Instead of trumpeting the settlement today, the company should release how much the REAL cost to shareholders have been, offer an apology, and what restitutions the responsible parties will do with their compensations. Will it happen? I guess when pigs fly :-)
On a side note, the stock hit a 6 month high ($3.43) and up about 14% just this week. Did anything fundamentally change this week? Not really. Is it fundamentally different from when it hit $2.23 on March 17? Not really. The opportunities and roadblocks that we have been discussing in the blog, with management/board, and in the message boards continue whether the stock is at $3 or $10 (right now).
As a side note, see this set of posts from March 17, 2008:
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=150760&mid=150780&tof=269&rt=2&frt=1&off=1
and this one yesterday.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=151750&mid=151750&tof=19&frt=1
I selected the posts from Tigre as he is a well known poster and well informed regarding the company/technology/industry. Nothing has changed "fundamentally" but he went from looking at the glass half empty (or cracking) to buying the stock and even discussing broadband uptake in India (of all places). http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=151807&mid=151807&tof=6&frt=1
Ultimately, the stock will be driven by fundamentals as Tigre mentioned but the technicals (stock) have improved and incorporates a whole slew of items and is the primary driver at this stage. This blog/group will continue to discuss fundamental issues and oversee the company performance every step of the way (and hopefully have given shareholders confidence to hold/buy under $3 which we have discussed constantly) but as we've seen in the past, people have to watch the technicals closely because it incorporates things we are not aware of.
If the stock goes back down or it pulls back as the stock moves higher, you can always come back to the blog/group. We will be here as a "put" on the price (in some respect). Otherwise, good luck on the way up and pay particular attention to Hangman's posts. He seems to know what he is talking about :-)
Tuesday, April 29, 2008
Shareholder Benefits Plan
One of the proposals in the Schedule 14A proxy filings is an exchange program for employees (non-executives/directors) to receive a smaller number of options but re-priced at the price if/when it is implemented. The filing goes in great detail to show the "benefits" to shareholders by helping to retain employees and motivating them to do well. While it seems unfair to shareholders, it is probably to our benefit to vote for it as it is reasonably well crafted. Anyway, while thinking about this, I was also thinking how we can work with management/board to actually look after shareholders who have stuck with the company (I know, what a concept, huh?)
Anyway, I am by no means an expert in this but there have been other companies that have crafted plans that benefit shareholders. By todays filing and all the compensation details we have read the last few months/years, it is apparent that this company atleast knows how to craft compensation plans. I would like to start a discussion on a Shareholder Benefits Plan. We have had discussions with management/board regarding a stock buyback but this is not the only way it can directly benefit existing shareholders. Some ideas could be:
Anyway, I am by no means an expert in this but there have been other companies that have crafted plans that benefit shareholders. By todays filing and all the compensation details we have read the last few months/years, it is apparent that this company atleast knows how to craft compensation plans. I would like to start a discussion on a Shareholder Benefits Plan. We have had discussions with management/board regarding a stock buyback but this is not the only way it can directly benefit existing shareholders. Some ideas could be:
- Special warrants - issued to shareholders that give it a right to buy certain number of shares (correlated to existing holdings) at a certain price.
- Special dividend - a one time payout may actually "slightly" annoy the shorts :-)
- Preferred (convertible) shares - that pays a dividend and convertible to common shares (where did we hear that before :-)
- Others?
The management/board has consistenly mentioned that they are for shareholders so this is definitely something they should address and shareholder groups can rally upon. I hope that the shareholder base can provide other suggestions and we can bring it up with management/board. Heck, I'll even call Thomas Toy to discuss the employee exchange program AND the shareholder benefit plan that should be on that proxy statement or be brought up in a special shareholder session.
PS... it does seem that with the retention bonuses, all the RSUs, the employee exchange program, new CEO (compensation) and all the newly minted shares (on top of all the accumulated ones all these years) given to all the executives/board, we may be getting close to the point that there is a unanimous consensus to really work for the share price going up now, huh? :-)
Sunday, April 27, 2008
State of worldwide IPTV deployment
As a preview to UTStarcom's iptv webinar tomorrow, I wanted to compile some historic subscriber numbers and projections going forward for the iptv industry and UTStarcom. In general, projections for IPTV have mostly been way off. The projections have been based mainly on broadband users that can be converted to iptv users (and penetration rates have often been cited to show the potential uptake in iptv). There are various impedements to iptv uptake such as the speed of connection (broadband itself), regulatory issues, negotiations with content providers, and added benefits just to name of a few. For UTStarcom, there are other hurdles such as competition in various markets. Back in 2007 when UTStarcom was trying to sell itself, there were a series of company sponsored articles to play up iptv's potential and Ying Wu was even quoted as saying the main barriers to iptv uptake in China are breaking down. http://utstarcom-stocknews.blogspot.com/2007/11/telephonyonline-series-of-articles-on.html
While the revenues from iptv have not returned the company to profitability, there are material developments in the last year that show a glimmer of the potential of iptv for UTStarcom. Here is a post discussing potential for UTStarcom iptv with some reference to their PAS experience.
http://utstarcom-stocknews.blogspot.com/2008/03/uts-potential-iptv-growth-in-china.html
Here are some information on previous UTStarcom wins.
Taiwan - "The Markwell contract includes system capacity for 500,000 RollingStream IPTV subscribers and 20,000 set-top boxes initially. Markwell plans to deploy an additional 480,000 RollingStream set-top boxes over the next two years."
MTNL, India - "UTStarcom, Inc. announced a three-year contract through its partnership with AKSH Optifibre Ltd. to deploy its RollingStream end-to-end IPTV solution with Mahanagar Telephone Nigam Ltd. (MTNL) in India. The contract represents the first commercial IPTV deployment in India and AKSH Optifibre Ltd. is the first company to launch IPTV in India. AKSH is the pioneer in optifibre fiber and cable technologies and their main product is a Fiber-to-the-Home solution." MTNL is adding 40-50 subscribers/day. While low, it does show progress that we can measure and track. http://www.telecomtiger.com/fullstory.aspx?storyid=1148&passfrom=vasstory "MT&L currently has an initial IPTV subscriber target of 500,000 subscribers over three years." (Blackmore on the Q3 Call in November). http://seekingalpha.com/article/53890-utstarcom-q3-2007-earnings-call-transcript?source=yahoo&page=2
Bharti Airtel, India - Back in August of 2007..."In China, UTStarcom started with trials of a few thousand homes at a time, building to what's now a 310,000-subscriber audience. "In India, it's different. They start you off bigger," to the tune of a 120,000-subscriber launch for Bharti, says Brian Caskey, UTStarcom vice president of marketing." "Bharti has an initial deployment of 120,000 lines and a subscriber target of 500,000 as well." (also from Q3 call in November).
Third win in India - The customer has not been announced but it could be BSNL. On the Q3 call, Peter Blackmore mentioned, "We are in the process of building BSNL’s network to support IPTV services."
Brazil - "More recently they have started their first IPTV deployment of 10,000 lines" (also from Q3 call in November).
China/Japan/India - In a previous summary post after the Q4 results, I posted, "Currently over 750k subscribers, up from 600k late last year. That is huge growth of 25% in a little over 2 months. Aside from wins/expansions in China, they won in Taiwan (Markwell cable), Sri Lanka Telecom (SLT) and a new customer in India. Rollouts will predominantly start in Q2 and there is the usual 6-9 month revenue lag so these are nice strategic wins. Market share in IPTV in China is greater than 65% and well over 80% in India." Shanghai seems to be the main driver for UT iptv with end of the year targets of 800k users (overall).
In terms of additional iptv wins that the company could announce tomorrow, Hong Kong seems to have the most promise with the recent uptick in company job listings and an article showing they have won a significant iptv contract in Hong Kong. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=150979&mid=150979&tof=-1&rt=2&frt=2&off=1
There may be news regarding CALA, middle eastern, and eastern european countries just based on UTs involvement with NGN, PAS, handsets, etc that could lead into iptv.
Lets look back at some overall iptv numbers and projections. The company will no doubt reference some of their own projections but its nice to see some historical projections and what has happened.
End of 2006. "Canalys estimates that the total number of IPTV subscribers worldwide reached 3.6 million by the end of 2006, with Western Europe leading the way and accounting for 2.4 million of those. The sheer number of operators in the region provides its IPTV scale, and major investments in backbone infrastructure are being made as providers rush to build substantial subscriber bases. The IPTV market is highly fragmented. The top five providers account for over 60% of all subscribers, but the rush of service launches by new entrants in 2006 means that there are numerous companies with only a few thousand subscribers each. The top three providers globally according to Canalys are PCCW on 18.2% share, France Telecom with 16.8% and Free Telecom on 14.0%. These are joined in the top five by Telefonica and Fastweb." http://www.iptv-news.com/content/view/1018/64/
End of 2007. "There were 9.9mn IPTV subscribers globally at the end of last year, more than double the previous year, according to a new report from consultancy firm Telecommunications Management Group (TMG). "
The report, entitled “IPTV: The Killer Broadband Application”, forecasts that there will be nearly 60mn subscribers to IPTV services around the world by 2010, with a growth rate of over 500% expected during the next three years. http://www.iptv-news.com/content/view/1849/64/
2011. - Worldwide IPTV subscribers to reach 72.6 million by 2011, says MRG. http://broadcastengineering.com/news/worldwide-iptv-subscribers-1127/
From the subscriber numbers in various regions, Europe has taken the lead with about 2/3 of the subscribers but Asia is seen to have the fastest growth and will surpass Europe. http://marketintelligencedigest.blogspot.com/2007/06/iptv-to-make-big-gains-in-asia.html
Sigma designs (worldwide leader in iptv chips with about 24-25 deployments)- "From this basis we believe the market for media processors into IPTV set top boxes will increase from 8 million units in 2007 to 14 million units in 2008. Nine of these telcos are based on the Microsoft media room platform while 14 use a customized LINUX based platform. For the Microsoft media room platform we believe this will remain 100% Sigma based during the rest of 2008. For the LINUX based platforms we also expect to retain our share of the market during this year. "
For those that have some extra time and want to get a good picture of worldwide deployments, read the sigma designs CC ....http://seekingalpha.com/article/68320-sigma-designs-inc-f4q08-quarter-end-1-31-2008-earnings-call-transcript?source=yahoo&page=3
Some quick highlights, AT&T is at a run-rate of 12k/week and targetting 40k/week. Korea (one carrier) is at about 100k/month. UTStarcom China is already at 40k/month but if the China market acutally opens up, those numbers will pale in comparisson and UTStarcom will shoot up on all the iptv lists.
The supplier positions constantly change but here are some snapshots on where UT is leading in some cases (even at this early juncture).
"The report found that Thomson is the world’s largest commercial IPTV middleware supplier, followed by UTStarcom." http://www.iptv-news.com/content/view/1018/64/
Total worldwide IPTV and SDV equipment revenue hit $1.1 billion in 4Q07
-- The number of IPTV subscribers is forecast by Infonetics to top 97 million worldwide by 2011
-- Worldwide service provider revenue from IPTV services is expected to grow nearly 10-fold in the 5 years between 2007 and 2011
-- Worldwide pure IP set-top box revenue grew 16% in 4Q07 over 3Q07 and is set to skyrocket in 2008
-- Motorola leads the worldwide IP set-top box (STB) market in 2007, Microsoft leads the IPTV middleware and content delivery platform market, and UTStarcom leads the integrated digital headend platform market
-- In 2007, the regional breakdown for worldwide IPTV equipment revenue was 40% North America, 30% EMEA, 28% Asia Pacific, and 2% CALA
http://www.marketwire.com/mw/release.do?id=834677
Here is a post back in early January regarding some penetration rates in various countries.
http://utstarcom-stocknews.blogspot.com/2008/01/iptv-penetration-rates.html
Again, you have to take the projections with a grain of salt as they change a lot but it does seem like UT has some material traction this time (with the announced wins/subscriber numbers, worldwide trends, deregulation, etc). For some perspective, on September 15, 2005, previous UT CTO Bill Huang held an iptv webinar and frankly, I don't remember much from it (although I am sure I listened to it) and looking back, why the heck did they even have it? Anyway, its been a couple of months since we got an update on UT worldwide and China iptv subscribers and the fact that they are having a webinar for an hour shows more communication and probably some positive developments. Again, what can I say with this company but good luck to us all. :-)
PS, this post may have been a little all over the place (not as organized as I'd like) but I just wanted to throw all the info out there and not surprisingly, there is a lot. Also, it won't cost you $10k or even $20 so how can you beat that? Have a good rest of the weekend everyone and looking forward to the update tomorrow.
While the revenues from iptv have not returned the company to profitability, there are material developments in the last year that show a glimmer of the potential of iptv for UTStarcom. Here is a post discussing potential for UTStarcom iptv with some reference to their PAS experience.
http://utstarcom-stocknews.blogspot.com/2008/03/uts-potential-iptv-growth-in-china.html
Here are some information on previous UTStarcom wins.
Taiwan - "The Markwell contract includes system capacity for 500,000 RollingStream IPTV subscribers and 20,000 set-top boxes initially. Markwell plans to deploy an additional 480,000 RollingStream set-top boxes over the next two years."
MTNL, India - "UTStarcom, Inc. announced a three-year contract through its partnership with AKSH Optifibre Ltd. to deploy its RollingStream end-to-end IPTV solution with Mahanagar Telephone Nigam Ltd. (MTNL) in India. The contract represents the first commercial IPTV deployment in India and AKSH Optifibre Ltd. is the first company to launch IPTV in India. AKSH is the pioneer in optifibre fiber and cable technologies and their main product is a Fiber-to-the-Home solution." MTNL is adding 40-50 subscribers/day. While low, it does show progress that we can measure and track. http://www.telecomtiger.com/fullstory.aspx?storyid=1148&passfrom=vasstory "MT&L currently has an initial IPTV subscriber target of 500,000 subscribers over three years." (Blackmore on the Q3 Call in November). http://seekingalpha.com/article/53890-utstarcom-q3-2007-earnings-call-transcript?source=yahoo&page=2
Bharti Airtel, India - Back in August of 2007..."In China, UTStarcom started with trials of a few thousand homes at a time, building to what's now a 310,000-subscriber audience. "In India, it's different. They start you off bigger," to the tune of a 120,000-subscriber launch for Bharti, says Brian Caskey, UTStarcom vice president of marketing." "Bharti has an initial deployment of 120,000 lines and a subscriber target of 500,000 as well." (also from Q3 call in November).
Third win in India - The customer has not been announced but it could be BSNL. On the Q3 call, Peter Blackmore mentioned, "We are in the process of building BSNL’s network to support IPTV services."
Brazil - "More recently they have started their first IPTV deployment of 10,000 lines" (also from Q3 call in November).
China/Japan/India - In a previous summary post after the Q4 results, I posted, "Currently over 750k subscribers, up from 600k late last year. That is huge growth of 25% in a little over 2 months. Aside from wins/expansions in China, they won in Taiwan (Markwell cable), Sri Lanka Telecom (SLT) and a new customer in India. Rollouts will predominantly start in Q2 and there is the usual 6-9 month revenue lag so these are nice strategic wins. Market share in IPTV in China is greater than 65% and well over 80% in India." Shanghai seems to be the main driver for UT iptv with end of the year targets of 800k users (overall).
In terms of additional iptv wins that the company could announce tomorrow, Hong Kong seems to have the most promise with the recent uptick in company job listings and an article showing they have won a significant iptv contract in Hong Kong. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=150979&mid=150979&tof=-1&rt=2&frt=2&off=1
There may be news regarding CALA, middle eastern, and eastern european countries just based on UTs involvement with NGN, PAS, handsets, etc that could lead into iptv.
Lets look back at some overall iptv numbers and projections. The company will no doubt reference some of their own projections but its nice to see some historical projections and what has happened.
End of 2006. "Canalys estimates that the total number of IPTV subscribers worldwide reached 3.6 million by the end of 2006, with Western Europe leading the way and accounting for 2.4 million of those. The sheer number of operators in the region provides its IPTV scale, and major investments in backbone infrastructure are being made as providers rush to build substantial subscriber bases. The IPTV market is highly fragmented. The top five providers account for over 60% of all subscribers, but the rush of service launches by new entrants in 2006 means that there are numerous companies with only a few thousand subscribers each. The top three providers globally according to Canalys are PCCW on 18.2% share, France Telecom with 16.8% and Free Telecom on 14.0%. These are joined in the top five by Telefonica and Fastweb." http://www.iptv-news.com/content/view/1018/64/
End of 2007. "There were 9.9mn IPTV subscribers globally at the end of last year, more than double the previous year, according to a new report from consultancy firm Telecommunications Management Group (TMG). "
The report, entitled “IPTV: The Killer Broadband Application”, forecasts that there will be nearly 60mn subscribers to IPTV services around the world by 2010, with a growth rate of over 500% expected during the next three years. http://www.iptv-news.com/content/view/1849/64/
2011. - Worldwide IPTV subscribers to reach 72.6 million by 2011, says MRG. http://broadcastengineering.com/news/worldwide-iptv-subscribers-1127/
From the subscriber numbers in various regions, Europe has taken the lead with about 2/3 of the subscribers but Asia is seen to have the fastest growth and will surpass Europe. http://marketintelligencedigest.blogspot.com/2007/06/iptv-to-make-big-gains-in-asia.html
Sigma designs (worldwide leader in iptv chips with about 24-25 deployments)- "From this basis we believe the market for media processors into IPTV set top boxes will increase from 8 million units in 2007 to 14 million units in 2008. Nine of these telcos are based on the Microsoft media room platform while 14 use a customized LINUX based platform. For the Microsoft media room platform we believe this will remain 100% Sigma based during the rest of 2008. For the LINUX based platforms we also expect to retain our share of the market during this year. "
For those that have some extra time and want to get a good picture of worldwide deployments, read the sigma designs CC ....http://seekingalpha.com/article/68320-sigma-designs-inc-f4q08-quarter-end-1-31-2008-earnings-call-transcript?source=yahoo&page=3
Some quick highlights, AT&T is at a run-rate of 12k/week and targetting 40k/week. Korea (one carrier) is at about 100k/month. UTStarcom China is already at 40k/month but if the China market acutally opens up, those numbers will pale in comparisson and UTStarcom will shoot up on all the iptv lists.
The supplier positions constantly change but here are some snapshots on where UT is leading in some cases (even at this early juncture).
"The report found that Thomson is the world’s largest commercial IPTV middleware supplier, followed by UTStarcom." http://www.iptv-news.com/content/view/1018/64/
Total worldwide IPTV and SDV equipment revenue hit $1.1 billion in 4Q07
-- The number of IPTV subscribers is forecast by Infonetics to top 97 million worldwide by 2011
-- Worldwide service provider revenue from IPTV services is expected to grow nearly 10-fold in the 5 years between 2007 and 2011
-- Worldwide pure IP set-top box revenue grew 16% in 4Q07 over 3Q07 and is set to skyrocket in 2008
-- Motorola leads the worldwide IP set-top box (STB) market in 2007, Microsoft leads the IPTV middleware and content delivery platform market, and UTStarcom leads the integrated digital headend platform market
-- In 2007, the regional breakdown for worldwide IPTV equipment revenue was 40% North America, 30% EMEA, 28% Asia Pacific, and 2% CALA
http://www.marketwire.com/mw/release.do?id=834677
Here is a post back in early January regarding some penetration rates in various countries.
http://utstarcom-stocknews.blogspot.com/2008/01/iptv-penetration-rates.html
Again, you have to take the projections with a grain of salt as they change a lot but it does seem like UT has some material traction this time (with the announced wins/subscriber numbers, worldwide trends, deregulation, etc). For some perspective, on September 15, 2005, previous UT CTO Bill Huang held an iptv webinar and frankly, I don't remember much from it (although I am sure I listened to it) and looking back, why the heck did they even have it? Anyway, its been a couple of months since we got an update on UT worldwide and China iptv subscribers and the fact that they are having a webinar for an hour shows more communication and probably some positive developments. Again, what can I say with this company but good luck to us all. :-)
PS, this post may have been a little all over the place (not as organized as I'd like) but I just wanted to throw all the info out there and not surprisingly, there is a lot. Also, it won't cost you $10k or even $20 so how can you beat that? Have a good rest of the weekend everyone and looking forward to the update tomorrow.
Saturday, April 26, 2008
Weekly Recap
The stock closed right at the "Medoza" line at $3 even, losing 4 cents for the week. On Monday, the stock traded 317300 shares, which could be the lowest volume day ever. This reflects the wait and see attitude of investors/traders as UT works on their turnaround plan. On Monday (April 28, 2008), UTStarcom will have a 1-hr webinar at 11AM Pacific (during market hours). I'll post a preview on that topic separately but wanted to touch upon this weeks light activity.
Hiring of Frankie Sum - "Sum will oversee all the country managers in Asia Pacific except China, India and Japan" "Prior to joining UTStarcom, Sum served as head of Asia sales for EDS and held a variety of senior positions over a nine-year period at Cisco Systems, including Hong Kong managing director responsible for the company's operations in Hong Kong, China, Taiwan, and the Philippines at various periods. Previously, he held several managerial roles for global technology leaders including Software AG, Informix Software, Concurrent Computer Corporation and IBM." I like the hire due to his background (but one has to wonder why he moves around so much) with many different companies but don't think its too signficant as it excludes the China, India, and Japan markets.
Increased job postings at UT - There is a signficant increase in the amount of job postings from UT in April specifically in India (Guragaon/Haryana) and Hong Kong. http://jobs-utstarcom.icims.com/utstarcom_jobs/jobs/candidate/jobs.jsp?ss=1&searchLocation=&searchCategory=
Bharti Airtel is deploying UTs iptv system in Guragaon (http://www.iptv-news.com/content/view/1268/64) and has a facility there. In HK, we had news of an iptv win so the increased job postings for network engineers (iptv) is a good sign/confirmation.
PCD division borrowing of $50million - UT tapped $50million of the $75million of the secured revolving credit facility from Wells Fargo. The funds could be used for "working capital, capital expenditures, or investments." Some shareholders have speculated this could be a prelude to selling part of the PCD, or for a share buyback, etc. Back in the Merriman conference call a month ago, the company quelled another "rumor" of credit concerns by saying they have enough funds and will not tap "equity" markets. Since the company paid off the entire CB+interest+other short term debt close to $380-400m recently, it is expected that the company would tap some other short term debt to increase working capital. This could simply be used to pay suppliers offering volume discounts or early payment discounts. At reasonable interest rates, this falls under the "good" debt side.
Motorola earnings report - Ugly report from Motorola showing their handset division lost $418m, revs down 39% and market share down from 12.5% to 9.5% (ouch!) despite growing volume shipments worldwide for mobile phones. The analysts still value the entire company at $15-18/share. http://www.businessweek.com/technology/content/apr2008/tc20080424_772413.htm?campaign_id=yhoo The takeaway is competitors (including UT) are gaining huge market share in North America. I also read about a company that Motorola bought a year or two ago from a WSJ article on Thursday but can't recall the name of the company (I was trying to correlate the price to UTs PCD...maybe in the future when I come across it again).
Rumor/post of the week - From shareholder techbroker, "This is the opportunity, if not the biggest opportunity, for UTSI in near term. At recent SARFT's digital tv show (CCBN), UT's 'digital tv version of RollingStream' is viewed as the best solution to add/improve the service of digital tv ( http://www.utstar.com.cn/news/detail.jsp?newsId=1205988367522). Basically, UT's solution can make digital tv have the same service as IPTV does. This is the exactly what SARFT needs now! Rumor is that UT and SARFT in close discussion in implementing's UT's solution." Best post goes to Shadow on a variety of topics... http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_U/threadview?m=tm&bn=27187&tid=151676&mid=151704&tof=1&rt=2&frt=1&off=1
There are a lot of good points made by Shadow, but let me address this one point specifically.
"Wish Tim got more information about products and strategies when he met with management, instead of wasting time advising them how to run the business." First and foremost, I am a shareholder and we have to address the share price with the management/board. You cannot have the shareprice go from $10 to $2.5 (let alone from $40/50 to $2.5) and continuously focus on specific products and how great it is. The company has expenses of $115m-120m for this quarter and more importantly had about $40-50m or more of R&D for the past 3, 4, 5 years! I am not a techy either so if they win a small wimax or ngn contract, I have to fall back on contract amounts and not be swayed by having a "win" since they are burning a lot of money. As for the wimax win, I already posted what UT IR could disclose on it. My feeling is it is not a major win because Motorola provided most of the equipment and UT probably provided some management/software/services only due to their PAS relationship with Fitel.
"Interview" with Hamed Khorsand, BWS financial - I posted on this a couple of days ago. Being in the Bay Area myself, I had also tried to get a hold of Qiang Li, UTs former chief scientist who is now a professor in the Santa Clara School of Engineering. (Link/post provided by Shadow... http://www.scu.edu/engineering/horizons/2007spring/professor.cfm). While I am primarily concerned with the shareprice, UTs iptv technology is a major key tied to the shareprice and having an unrelated doctorate from Stanford myself, I wanted to chat with Qiang Li and get his insights. Unfortunately, when I called the number, another professor answered and mentioned he had only seen/met Dr. Li once in the last year and was on leave/sabatical. Anyway, I am not sure how serious Dr. Li's focus toward academia and may even be back in industry (who knows?). Anyway, If opportunities present itself to gather more information on UT, I will try to post the info on the blog to the benefit of shareholders.
Short Interest - Short interest went down about 8% to around 21m shares (posted by RM516).
General Comments - During the bull market, with minor pullbacks, subsequent new highs, and then the recent bear market/recession, I have seen/followed many companies that have gone through one or even two or more cycles of recovery/reinventing themselves. Even Ford Motors had a profitable quarter, although they are not expected to return to sustained profitability until 2009. UT has had 12 consecutive unprofitable quarters and are not projected to return to sustained profitability until 2009. A fellow shareholder Tigre commented (per the BWS interview) that atleast he is not the only one predicting earnings will not come until 2009. On the contrary, MOST if not ALL analyts/institutions are predicting that UT will not get back to breakeven until 2009 or 2010. Management's last guidance was to be back in the black in 2009 and maybe late 2008. I think investors are realistic but Tigre may be correlating my and other's optimism on the stock price to getting back in the black. That is not accurate as I believe the stock market is forward thinking and the stock will recover way before the company breaks even (just as the stock will show weakness way before the earnings break down). A lot of catalysts such as opening up of the China iptv markets, divestitures, share buy back, new products, improved macro environments, more expense cuts, leasing of the China building, new contracts (increased book to bill), etc can lead to increased share price going forward.
Good results as oppose to good excuses - As Tigre mentioned, the shareprice will ultimately be deterimined by positive fundamental changes. I have followed the company for years and increased my activity in the last 8-12 months. When I talk with fellow shareholders, I emphasize that we cannot continue to sit back and "hope". The blog/group has become a platform where shareholders can share information, communicate with the company, demand performance/accountability, and maybe organize for structural change in the future. In the next few weeks, we will be discussing the upcoming re-election of board members, etc. During my communications with IR and face to face meetings with management/board, a recurring theme has emerged. For all the resources and decisions over the years, the results have been bad. The management/board atleast have tried to explain some of the bad results but at the end of the day, it is still bad results. The management/board has portrayed every bad result as not in their control. It seems the management/board has not been capable of managing their resources and have not been creative in coming up with good solutions. There is always a legal reason or an unfortunate circumstance to their bad results. Well, if that is the case, then why should they deserve outsize compensation? If current management (and that includes Peter Blackmore now) cannot be creative or come up with great solutions/plans and have to just resort to "cook-book" solutions, then what are they being paid for? If Barton can't navigate this company back in a reasonable timeframe, then what is the point of his plans? If he has to consistently blame others for his missed estimates, then what does that say of their controls/accounting? As a manager at any level, if you see there is a problem, you aggresively fix it (not in 3 or 4 years but in a quarter or two at the most). Does Imelt get 3 years or even a third chance?
Going back to management/board, a concern is their energy and age. It is a fair question on how much they are willing to devote/sacrifice at this stage of their careers. We'll see going forward but if each of them have to start looking at the mirror and honestly assess their own situations on whether they are capable of doing the job or not.
Hiring of Frankie Sum - "Sum will oversee all the country managers in Asia Pacific except China, India and Japan" "Prior to joining UTStarcom, Sum served as head of Asia sales for EDS and held a variety of senior positions over a nine-year period at Cisco Systems, including Hong Kong managing director responsible for the company's operations in Hong Kong, China, Taiwan, and the Philippines at various periods. Previously, he held several managerial roles for global technology leaders including Software AG, Informix Software, Concurrent Computer Corporation and IBM." I like the hire due to his background (but one has to wonder why he moves around so much) with many different companies but don't think its too signficant as it excludes the China, India, and Japan markets.
Increased job postings at UT - There is a signficant increase in the amount of job postings from UT in April specifically in India (Guragaon/Haryana) and Hong Kong. http://jobs-utstarcom.icims.com/utstarcom_jobs/jobs/candidate/jobs.jsp?ss=1&searchLocation=&searchCategory=
Bharti Airtel is deploying UTs iptv system in Guragaon (http://www.iptv-news.com/content/view/1268/64) and has a facility there. In HK, we had news of an iptv win so the increased job postings for network engineers (iptv) is a good sign/confirmation.
PCD division borrowing of $50million - UT tapped $50million of the $75million of the secured revolving credit facility from Wells Fargo. The funds could be used for "working capital, capital expenditures, or investments." Some shareholders have speculated this could be a prelude to selling part of the PCD, or for a share buyback, etc. Back in the Merriman conference call a month ago, the company quelled another "rumor" of credit concerns by saying they have enough funds and will not tap "equity" markets. Since the company paid off the entire CB+interest+other short term debt close to $380-400m recently, it is expected that the company would tap some other short term debt to increase working capital. This could simply be used to pay suppliers offering volume discounts or early payment discounts. At reasonable interest rates, this falls under the "good" debt side.
Motorola earnings report - Ugly report from Motorola showing their handset division lost $418m, revs down 39% and market share down from 12.5% to 9.5% (ouch!) despite growing volume shipments worldwide for mobile phones. The analysts still value the entire company at $15-18/share. http://www.businessweek.com/technology/content/apr2008/tc20080424_772413.htm?campaign_id=yhoo The takeaway is competitors (including UT) are gaining huge market share in North America. I also read about a company that Motorola bought a year or two ago from a WSJ article on Thursday but can't recall the name of the company (I was trying to correlate the price to UTs PCD...maybe in the future when I come across it again).
Rumor/post of the week - From shareholder techbroker, "This is the opportunity, if not the biggest opportunity, for UTSI in near term. At recent SARFT's digital tv show (CCBN), UT's 'digital tv version of RollingStream' is viewed as the best solution to add/improve the service of digital tv ( http://www.utstar.com.cn/news/detail.jsp?newsId=1205988367522). Basically, UT's solution can make digital tv have the same service as IPTV does. This is the exactly what SARFT needs now! Rumor is that UT and SARFT in close discussion in implementing's UT's solution." Best post goes to Shadow on a variety of topics... http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_U/threadview?m=tm&bn=27187&tid=151676&mid=151704&tof=1&rt=2&frt=1&off=1
There are a lot of good points made by Shadow, but let me address this one point specifically.
"Wish Tim got more information about products and strategies when he met with management, instead of wasting time advising them how to run the business." First and foremost, I am a shareholder and we have to address the share price with the management/board. You cannot have the shareprice go from $10 to $2.5 (let alone from $40/50 to $2.5) and continuously focus on specific products and how great it is. The company has expenses of $115m-120m for this quarter and more importantly had about $40-50m or more of R&D for the past 3, 4, 5 years! I am not a techy either so if they win a small wimax or ngn contract, I have to fall back on contract amounts and not be swayed by having a "win" since they are burning a lot of money. As for the wimax win, I already posted what UT IR could disclose on it. My feeling is it is not a major win because Motorola provided most of the equipment and UT probably provided some management/software/services only due to their PAS relationship with Fitel.
"Interview" with Hamed Khorsand, BWS financial - I posted on this a couple of days ago. Being in the Bay Area myself, I had also tried to get a hold of Qiang Li, UTs former chief scientist who is now a professor in the Santa Clara School of Engineering. (Link/post provided by Shadow... http://www.scu.edu/engineering/horizons/2007spring/professor.cfm). While I am primarily concerned with the shareprice, UTs iptv technology is a major key tied to the shareprice and having an unrelated doctorate from Stanford myself, I wanted to chat with Qiang Li and get his insights. Unfortunately, when I called the number, another professor answered and mentioned he had only seen/met Dr. Li once in the last year and was on leave/sabatical. Anyway, I am not sure how serious Dr. Li's focus toward academia and may even be back in industry (who knows?). Anyway, If opportunities present itself to gather more information on UT, I will try to post the info on the blog to the benefit of shareholders.
Short Interest - Short interest went down about 8% to around 21m shares (posted by RM516).
General Comments - During the bull market, with minor pullbacks, subsequent new highs, and then the recent bear market/recession, I have seen/followed many companies that have gone through one or even two or more cycles of recovery/reinventing themselves. Even Ford Motors had a profitable quarter, although they are not expected to return to sustained profitability until 2009. UT has had 12 consecutive unprofitable quarters and are not projected to return to sustained profitability until 2009. A fellow shareholder Tigre commented (per the BWS interview) that atleast he is not the only one predicting earnings will not come until 2009. On the contrary, MOST if not ALL analyts/institutions are predicting that UT will not get back to breakeven until 2009 or 2010. Management's last guidance was to be back in the black in 2009 and maybe late 2008. I think investors are realistic but Tigre may be correlating my and other's optimism on the stock price to getting back in the black. That is not accurate as I believe the stock market is forward thinking and the stock will recover way before the company breaks even (just as the stock will show weakness way before the earnings break down). A lot of catalysts such as opening up of the China iptv markets, divestitures, share buy back, new products, improved macro environments, more expense cuts, leasing of the China building, new contracts (increased book to bill), etc can lead to increased share price going forward.
Good results as oppose to good excuses - As Tigre mentioned, the shareprice will ultimately be deterimined by positive fundamental changes. I have followed the company for years and increased my activity in the last 8-12 months. When I talk with fellow shareholders, I emphasize that we cannot continue to sit back and "hope". The blog/group has become a platform where shareholders can share information, communicate with the company, demand performance/accountability, and maybe organize for structural change in the future. In the next few weeks, we will be discussing the upcoming re-election of board members, etc. During my communications with IR and face to face meetings with management/board, a recurring theme has emerged. For all the resources and decisions over the years, the results have been bad. The management/board atleast have tried to explain some of the bad results but at the end of the day, it is still bad results. The management/board has portrayed every bad result as not in their control. It seems the management/board has not been capable of managing their resources and have not been creative in coming up with good solutions. There is always a legal reason or an unfortunate circumstance to their bad results. Well, if that is the case, then why should they deserve outsize compensation? If current management (and that includes Peter Blackmore now) cannot be creative or come up with great solutions/plans and have to just resort to "cook-book" solutions, then what are they being paid for? If Barton can't navigate this company back in a reasonable timeframe, then what is the point of his plans? If he has to consistently blame others for his missed estimates, then what does that say of their controls/accounting? As a manager at any level, if you see there is a problem, you aggresively fix it (not in 3 or 4 years but in a quarter or two at the most). Does Imelt get 3 years or even a third chance?
Going back to management/board, a concern is their energy and age. It is a fair question on how much they are willing to devote/sacrifice at this stage of their careers. We'll see going forward but if each of them have to start looking at the mirror and honestly assess their own situations on whether they are capable of doing the job or not.
Wednesday, April 23, 2008
BWS Financial thoughts on UTStarcom
This morning, I had the opportunity to talk with Hamed Khorsand, a financial analyst with BWS Financial, one of the remaining analysts covering UTStarcom. Hamed has followed/covered UTStarcom since 2003 and started this type of work in 2000. The following are paraphrased questions/answers from our conversation.
Why continue to follow UT? - Hamed mentioned that there are different reasons for maintaining his coverage on various companies. For UT, he likes their technology and is waiting to see how the turnaround plays out.
How did he arrive at his $6 target and $10 valuation? - Basically, the sum of the parts is more valuable than the current company. He believes that there is a good chance of divestitures due to the separation of none-core/core businesses.
Does he believe the company is better off now/worth more compared to back in 2006? - Hamed mentioned he did not favor selling the company now and would prefer them to go through the turnaround before trying to sell the company (if at all). I have written that with all the issues in 2006, the company is actually more focused and closer to profitability now so I was not advocating a sale now (neither does the board/management when we met with them) but just wanted to see his thoughts on a comparison. He did say they are better off now.
Valuation metrics? - I asked if UT becomes profitable, will he not consider cash flow/growth as oppose to sum of the parts. Yes, he concurs.
Management/board - Interestingly, Hamed is more positive on the management/board of UT than he does Sigma Designs. I asked about Sigma Designs because Hamed has been very positive on Sigma (with a $100 price target) all the way until the day of the earnings report and then management unleashed the guidance shortfall due to Motorola over-ordering. This may be a case where the expectations on Sigma was much higher and UT has very little expectations. I reminded Hamed that UT has been in the red for 12 consecutive quarters while Sigma has been positive/growing for the last couple of years. Hamed is definitely not happy with Sigma management (I don't blame him because his clients probably lost a lot of money with his call). As for UT, he is waiting to see if the metrics/targets UT management has laid out can be met. Any pushout will disappoint investors (obviously).
Earnings/breakeven - Hamed predicts earnings/breakeven will not occur until mid 2009. His earnings estimate for 2009 is for a loss of 12 cents/share. This will be better than the $1.62/share loss in 2007 and almost $1 loss/share projected for 2008. Obviously, even the company does not know whether they can get to breakeven earlier but it shows the low expectations out there.
Major catalysts in 2008 - In terms of catalysts such as divestitures, stock buyback, opening of China iptv markets etc., what is the single most important catalyst? Hamed mentioned the opening up of China iptv markets. The iptv webinar on Monday, April 28 should be very positive. I'll write a preview post this weekend.
Lack of major tier 1 clients - Hamed mentioned that the company still lacks major tier 1 clients. Because UT supplies not only an end-to-end iptv system but also a full suite of networking/telecommunications gear, Hamed mentioned UT has not been able to get tier1 clients that uses them primarily. Most carriers want to use multiple suppliers to diversify and not rely on one single provider.
Expenses - Hamed mentioned that UT has to realize it is not making 40% GMs anymore and need to lower expenses (although he is not too suprised by the pace of expense cuts) and improve GMs (which he predicts to be in the 14.5 to 15% range).
PCD - Hamed was upbeat about the PCD (internal/resale). He thinks the resale part can be sold for/worth about $250m.
Debt free - Hamed interestingly portrayed UT as "debt free". From the last update, Barton mentioned UT having $228m in cash with $48m in debt with half the cash in China and half in the US. In today's environment, resolution of the CB and having the net cash make UT virtually debt free. Hopefully, divestitures, leasing the China building, and other cash generating measures mentioned by management will start to kick in. Until, the company gets their cost base right or atleast good progress towards it, it will be tough to get decent valuations.
I did not expect to hear any surprises or anything really new but it was good to talk with Hamed and get his take on various things just to confirm if we have all the general view points. The trading volume and generally flat stock price for the last 6-8 months reflects the wait and see attitude of most shareholders. The upcoming news (such as the webinar, earnings cc/guidance, shareholder meeting) may provide some catalysts for the stock but we'll just have to wait and see....
Why continue to follow UT? - Hamed mentioned that there are different reasons for maintaining his coverage on various companies. For UT, he likes their technology and is waiting to see how the turnaround plays out.
How did he arrive at his $6 target and $10 valuation? - Basically, the sum of the parts is more valuable than the current company. He believes that there is a good chance of divestitures due to the separation of none-core/core businesses.
Does he believe the company is better off now/worth more compared to back in 2006? - Hamed mentioned he did not favor selling the company now and would prefer them to go through the turnaround before trying to sell the company (if at all). I have written that with all the issues in 2006, the company is actually more focused and closer to profitability now so I was not advocating a sale now (neither does the board/management when we met with them) but just wanted to see his thoughts on a comparison. He did say they are better off now.
Valuation metrics? - I asked if UT becomes profitable, will he not consider cash flow/growth as oppose to sum of the parts. Yes, he concurs.
Management/board - Interestingly, Hamed is more positive on the management/board of UT than he does Sigma Designs. I asked about Sigma Designs because Hamed has been very positive on Sigma (with a $100 price target) all the way until the day of the earnings report and then management unleashed the guidance shortfall due to Motorola over-ordering. This may be a case where the expectations on Sigma was much higher and UT has very little expectations. I reminded Hamed that UT has been in the red for 12 consecutive quarters while Sigma has been positive/growing for the last couple of years. Hamed is definitely not happy with Sigma management (I don't blame him because his clients probably lost a lot of money with his call). As for UT, he is waiting to see if the metrics/targets UT management has laid out can be met. Any pushout will disappoint investors (obviously).
Earnings/breakeven - Hamed predicts earnings/breakeven will not occur until mid 2009. His earnings estimate for 2009 is for a loss of 12 cents/share. This will be better than the $1.62/share loss in 2007 and almost $1 loss/share projected for 2008. Obviously, even the company does not know whether they can get to breakeven earlier but it shows the low expectations out there.
Major catalysts in 2008 - In terms of catalysts such as divestitures, stock buyback, opening of China iptv markets etc., what is the single most important catalyst? Hamed mentioned the opening up of China iptv markets. The iptv webinar on Monday, April 28 should be very positive. I'll write a preview post this weekend.
Lack of major tier 1 clients - Hamed mentioned that the company still lacks major tier 1 clients. Because UT supplies not only an end-to-end iptv system but also a full suite of networking/telecommunications gear, Hamed mentioned UT has not been able to get tier1 clients that uses them primarily. Most carriers want to use multiple suppliers to diversify and not rely on one single provider.
Expenses - Hamed mentioned that UT has to realize it is not making 40% GMs anymore and need to lower expenses (although he is not too suprised by the pace of expense cuts) and improve GMs (which he predicts to be in the 14.5 to 15% range).
PCD - Hamed was upbeat about the PCD (internal/resale). He thinks the resale part can be sold for/worth about $250m.
Debt free - Hamed interestingly portrayed UT as "debt free". From the last update, Barton mentioned UT having $228m in cash with $48m in debt with half the cash in China and half in the US. In today's environment, resolution of the CB and having the net cash make UT virtually debt free. Hopefully, divestitures, leasing the China building, and other cash generating measures mentioned by management will start to kick in. Until, the company gets their cost base right or atleast good progress towards it, it will be tough to get decent valuations.
I did not expect to hear any surprises or anything really new but it was good to talk with Hamed and get his take on various things just to confirm if we have all the general view points. The trading volume and generally flat stock price for the last 6-8 months reflects the wait and see attitude of most shareholders. The upcoming news (such as the webinar, earnings cc/guidance, shareholder meeting) may provide some catalysts for the stock but we'll just have to wait and see....
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