The initial guidance for overall 2008 revenues was for an increase of 4.5% from 2.467b to 2.577b. From the Analyst Day slides, 2008 revenues are projected at 2.580b. No problem there or is there? Barton gave a business unit breakdown of expected revenues (I'm using midpt range values) and gross margins as follows:
MCBU $315m 37%
BBBU $180m 24%
TBU $210m 22%
CSBU $40m 70%
PCD $1739m 6.2%
Services $60m 35%
MSBU $33m 70% (The last one Barton forgot to mention in the target but consistent with overall guidance)
That adds up to $2.577b and 15% GMs total, which is the same as the overall numbers of a 4.5% growth in revenue and 15% GMs. In the Analyst Day slides, the numbers were for a 4.6% growth and 15% GMs).
Here is the discrepancy. Because of the strong performance by PCD, the figure in the Analyst Day slides show PCD at $1825m or a 9.7% gain rather than a 4.5% gain. Great, right? Maybe. Non-PCD revenue was projected at $755m ($1035m - $280m internal design) for a decrease of 4.3% from 2007 (thats according to the slide note). However, in 2007, I calculated Non-PCD revenue of $803m ($2.467b-1.664b). Based on the business unit target breakdown, I calculated a 2008 Non-PCD revenue of $838m! If we go with the 4.3% decrease in Non-PCD revenue (as noted in the slide), then the Non-PCD revenue should be $768m and not $755m.
IF somebody made a mistake on the slides and instead of a decrease of 4.3%, it was an increase of 4.3%, then it would be $837.5m ($803m * 1.043) or in line with the Non-PCD guidance from Barton when he discussed the individual business units. If Non-PCD revenue is $755m, then that would be a decrease of almost 6% and not 4.3%.
Q2 guidance - Revenue of $580-610m and overall GMs of 14% were provided for a gross profit of $83.3m. PCD revenue of $460-480m and PCD GMs of 6.5% were provided for a gross profit of $30.5m. Non-PCD revenue of $120-130m and GMs of 36% were provided for a gross profit of $45m. Does $30.5m + 45m add up to $83.3m? I don't know about UT's accounting systems but it sure does not look encouraging.
Q3 & Q4 2008 - Q1 Non-PCD booked was $155.3m ($586m total rev - $430.7m PCD rev). Q2 projection is for $120-130m (say $125m). So, the first half will have Non-PCD rev of only $280.3m. Nothing wrong with that and Barton could be very low balling Q2. IF 2008 Non-PCD rev is $755m, then the 2nd half should still have $474.7m of Non-PCD rev (I really need to have an accronym like NP for Non-PCD :-). Anyway, at 33% GMs, that would yield $156.6 in gross profits for the 2nd half or $78m/quarter. If the 2008 NP rev was $838m, then there would still be $557m. At 33% GMs, that would yield $184m in gross profits or $92m/quarter. Of course, I still need to back out MSBU but say quarterly OPEX was still $100m/quarter for comparisson. Then, you still have to add the gross profits from the internal part of the PCD. This gets a little complicated because if it is only $280m of the $1.825b, then its 15.5% of the total but 25% of the PCD revenue in Q1 was internal UT made. So, if 25% of the $430.7m (or $107m) is gone, there is only $172m ($280m-$107m) left or $57m/quarter. At 12% GMs, that is still $7m in quarterly gross profits.
Ok, back to the 2nd half quarters, IF NP was only $755m for the year (still including MSBU here), Q3 & Q4 would have gross profits of $78m+7m = $85m with a $100m expense or loss of $15m. If yearly NP was indeed $838m, then Q3 & Q4 would average $92m+7m = $99m or close to the $100m expense. In either case, you can see that the second half should have strong NP revenues and hence the neutral cash flows for the year.
Now, I was going to do a 2009 evaluation using $755m NP as a base case and add revenue increases to see how much cash burn the company would have in various scenarios but I'll pause for now (the discrepancy is huge on whether the slide note and numbers were a mistake!). Something to think about......
Friday, July 4, 2008
Cash and Asset Position
After the PCD sale and subsequent 17% drop in the stock this week, investors are understandably not happy. Because the operations are not going to be profitable anytime soon, it is now prudent to look (again) at the (1) company cash/assets and (2) growth prospects of the core businesses and timing of profitability. I will discuss the first part in this post and the second part in another post.
At the end of 2007, the company had $503m in cash and short term investments. It also had $323m in short term debt for a net cash position of $180m. During the Q4 2007 call, Barton updated the cash at $220m and the debt at $40m (net cash of $180m with half of the cash in China and half in the US). The full year forecast prior to the divestitures of the PCD and MSBU was for neutral cash flows. The almost $100m net cash gain after Q1 2008 will be reversed in Q2. So, I will use the net $180m cash as basis for my year end cash/asset balance. Here are my estimates.
$180m
$230m (sale of PCD including $216m upfront and $14m in escrow to be received soon)
-$30m The PCD had operating profits of $86m. Lets assume this is all cash flow to the company. For the 2nd half of the year, I am assuming they will lose $30m more in cash flow. This assumes 12% gross margins for the internal handset and 6% for the distribution part of the PCD (also using 6.9% overall GMs, $280m in internal PCD and the rest about $1.545b for distribution part).
+0m (With the same argument, the sale of money losing MSBU should benefit cash flows - unless revenue recognition in the 2nd half is much stronger, but I will assign zero for now)
+6m (With $230m in cash, the company should make 5% in half a year or atleast save in short term interest payments/borrowings)
So, at the end of the year, the company should have about $386m in net cash. Now, lets look at other potential cash/assets.
$10-15m? (Sale of MSBU. This division had sales of about $30m and potentially more from a source that contacted me. I didn't want to add any cash from this sale to the above figure just to be conservative).
$40-50m? (The other non-core asset is CSBU, which includes the 3com Commworks division it bought for $100m a few years ago. This division will be profitable this year, have revenues in the 40m (double from last year), and gross margins above 50%.
$15m (Long term investments)
$6m (2% remaining interest in PCD assuming $300m valuation)
$6m (Bank notes)
$30m (Restricted cash)
$10m (Remaining receivables from PCD sale in escrow due in 12 months)
$50m (Due 2.5 years from now if cummulative earnings from 2008-2010 are met, looking good so far)
Thats about $175m more in assets that could potentialy be realized.
Plant, property, and equipment are valued at about $210m (with the Hangzhou property/building alone assessed at $180m last year).
There are obviously other factors such as receivables, payables, inventory, intangibles, etc but the above adds to about $771m (or $200m more than the current market cap). Shareholder equity based on the last 10Q prior to the two divestitures was $661m (or about $90m higher than the current market cap).
The cash/asset part as detailed above is relatively straightforward. We have been doing these analyses for a while now. The more important analysis is the cash flow/profitability of the core businesses in 2009 and going forward. For a while now, the stock has been discounting the underlying assets due to losses and other issues. The stock has increased due to the elimination of certain issues and the divestiture of some assets but operational profitability is still far off. Barton was correct that it provides the company with more transparency and they can really focus on the core businesses. The outlook will change from the bookings they receive from quarter to quarter but I'll take a closer look at the situation in the next post.
At the end of 2007, the company had $503m in cash and short term investments. It also had $323m in short term debt for a net cash position of $180m. During the Q4 2007 call, Barton updated the cash at $220m and the debt at $40m (net cash of $180m with half of the cash in China and half in the US). The full year forecast prior to the divestitures of the PCD and MSBU was for neutral cash flows. The almost $100m net cash gain after Q1 2008 will be reversed in Q2. So, I will use the net $180m cash as basis for my year end cash/asset balance. Here are my estimates.
$180m
$230m (sale of PCD including $216m upfront and $14m in escrow to be received soon)
-$30m The PCD had operating profits of $86m. Lets assume this is all cash flow to the company. For the 2nd half of the year, I am assuming they will lose $30m more in cash flow. This assumes 12% gross margins for the internal handset and 6% for the distribution part of the PCD (also using 6.9% overall GMs, $280m in internal PCD and the rest about $1.545b for distribution part).
+0m (With the same argument, the sale of money losing MSBU should benefit cash flows - unless revenue recognition in the 2nd half is much stronger, but I will assign zero for now)
+6m (With $230m in cash, the company should make 5% in half a year or atleast save in short term interest payments/borrowings)
So, at the end of the year, the company should have about $386m in net cash. Now, lets look at other potential cash/assets.
$10-15m? (Sale of MSBU. This division had sales of about $30m and potentially more from a source that contacted me. I didn't want to add any cash from this sale to the above figure just to be conservative).
$40-50m? (The other non-core asset is CSBU, which includes the 3com Commworks division it bought for $100m a few years ago. This division will be profitable this year, have revenues in the 40m (double from last year), and gross margins above 50%.
$15m (Long term investments)
$6m (2% remaining interest in PCD assuming $300m valuation)
$6m (Bank notes)
$30m (Restricted cash)
$10m (Remaining receivables from PCD sale in escrow due in 12 months)
$50m (Due 2.5 years from now if cummulative earnings from 2008-2010 are met, looking good so far)
Thats about $175m more in assets that could potentialy be realized.
Plant, property, and equipment are valued at about $210m (with the Hangzhou property/building alone assessed at $180m last year).
There are obviously other factors such as receivables, payables, inventory, intangibles, etc but the above adds to about $771m (or $200m more than the current market cap). Shareholder equity based on the last 10Q prior to the two divestitures was $661m (or about $90m higher than the current market cap).
The cash/asset part as detailed above is relatively straightforward. We have been doing these analyses for a while now. The more important analysis is the cash flow/profitability of the core businesses in 2009 and going forward. For a while now, the stock has been discounting the underlying assets due to losses and other issues. The stock has increased due to the elimination of certain issues and the divestiture of some assets but operational profitability is still far off. Barton was correct that it provides the company with more transparency and they can really focus on the core businesses. The outlook will change from the bookings they receive from quarter to quarter but I'll take a closer look at the situation in the next post.
Thursday, July 3, 2008
Sale of the PCD - 100th blog post
When I posted last Monday regarding the likelihood that the PCD would be sold within the next six months, I didn't expect it would be the next day :-) The much anticipated divestiture of the PCD happened last Tuesday (July 1) for approximately $240m to AIG Vantage Capital, a part of AIG investments. "In addition to the cash consideration, UTStarcom could also receive up to US$50 million based on a three-year earn out provision."
http://biz.yahoo.com/prnews/080701/aqtu063.html?.v=54
The initial reaction to the sale was negative with the stock dipping to the low $5s and then rebounding back that day. Was it a buy on the rumor and sell on the news? Was it profit taking after a good run in this bear market? Was it disappointment with the amount? I have written a lot about the PCD because it made up a signficant part of the company's revenue and the cash/liquidity it could bring to the company. Some of my recent posts regarding the potential value of the PCD:
1. "Most people have discussed a $200-250m conservative valuation for UTs PCD." (March 8, 2008) http://utstarcom-stocknews.blogspot.com/2008/03/valuation.html
2. "PCD - Hamed was upbeat about the PCD (internal/resale). He thinks the resale part can be sold for/worth about $250m." (April 23, 2008) http://utstarcom-stocknews.blogspot.com/2008/04/bws-financial-thoughts-on-utstarcom.html
3. "For the entire PCD, I am estimating it could be worth about $500m" (May 10, 2008) http://utstarcom-stocknews.blogspot.com/2008/05/value-of-utstarcoms-pcd.html
4. "So, the enterprise value (PALM) is closer to $700m even with the 18% drop. UT is projected to make over $1.8b in revenues and operating profits of $85m. What is UT's PCD worth? (June 30, 2008) http://utstarcom-stocknews.blogspot.com/2008/06/uts-pcd-performance-and-valuation.html
The company sold the distribution part only and maintained their internal handset design unit. There were 14 potential buyers and four offers. UTStarcom maintained a 2% ownership and a supplier agreement. Barton mentioned three benefits of the divestiture:
1. Releases high working capital requirements.
2. Cash proceeds improving net cash position.
3. More transparent company profile.
The company received $216m immediately and the rest in escrow ($14m for closing and $10m for product warranty to be released in 12 months).
If we compare the financial performance of the PCD with Palms entire company, it would seem that the price is "low" considering Palm's enterprise value is over $700m (it even went up today by almost 8%). However, in 2004, this division was only at a $800-900m yearly revenue run rate and margins were in the 2-3%.
Overall, the company is executing on their strategy of divesting non-core assets, cutting expenses, improving liquidity/cash flow, and focusing on the core businesses. I would have liked the company to receive more (just as in the gemdale, infinera sales - look where they are now though) but receiving cash in this environment is definitely a positive. Some will point to profitability being pushed back but the true value of the company will be whether the core businesses take off or not. The asset/investment sales give the company the time/position to focus on the core businesses. For that, as a shaerholder, I applaud the sale and congratulate management for executing the sale of the PCD at a very reasonable price and at the peak of performance to date.
On a side note, this is my 100th blog post (since the blog started 8 months ago). The sale of the PCD is symbolic for me in that the purchase back in 2004 represented a deviation from their higher margin/core businesses. As a shareholder, it was not what I invested in. So, this sale represents a refocused company that has been delivering on its stated goals and slowly but surely regaining shareholder confidence. Much more work is still needed (and acknowledged by maagement) to get to profitability (specially without the PCD) so it will be interesting on how management will navigate that and get to their stated metrics in 2009. In future posts this weekend, I'll touch upon the cash position and operating metrics of the company without the PCD.
Have a wonderful Fourth of July to everyone!
http://biz.yahoo.com/prnews/080701/aqtu063.html?.v=54
The initial reaction to the sale was negative with the stock dipping to the low $5s and then rebounding back that day. Was it a buy on the rumor and sell on the news? Was it profit taking after a good run in this bear market? Was it disappointment with the amount? I have written a lot about the PCD because it made up a signficant part of the company's revenue and the cash/liquidity it could bring to the company. Some of my recent posts regarding the potential value of the PCD:
1. "Most people have discussed a $200-250m conservative valuation for UTs PCD." (March 8, 2008) http://utstarcom-stocknews.blogspot.com/2008/03/valuation.html
2. "PCD - Hamed was upbeat about the PCD (internal/resale). He thinks the resale part can be sold for/worth about $250m." (April 23, 2008) http://utstarcom-stocknews.blogspot.com/2008/04/bws-financial-thoughts-on-utstarcom.html
3. "For the entire PCD, I am estimating it could be worth about $500m" (May 10, 2008) http://utstarcom-stocknews.blogspot.com/2008/05/value-of-utstarcoms-pcd.html
4. "So, the enterprise value (PALM) is closer to $700m even with the 18% drop. UT is projected to make over $1.8b in revenues and operating profits of $85m. What is UT's PCD worth? (June 30, 2008) http://utstarcom-stocknews.blogspot.com/2008/06/uts-pcd-performance-and-valuation.html
The company sold the distribution part only and maintained their internal handset design unit. There were 14 potential buyers and four offers. UTStarcom maintained a 2% ownership and a supplier agreement. Barton mentioned three benefits of the divestiture:
1. Releases high working capital requirements.
2. Cash proceeds improving net cash position.
3. More transparent company profile.
The company received $216m immediately and the rest in escrow ($14m for closing and $10m for product warranty to be released in 12 months).
If we compare the financial performance of the PCD with Palms entire company, it would seem that the price is "low" considering Palm's enterprise value is over $700m (it even went up today by almost 8%). However, in 2004, this division was only at a $800-900m yearly revenue run rate and margins were in the 2-3%.
Overall, the company is executing on their strategy of divesting non-core assets, cutting expenses, improving liquidity/cash flow, and focusing on the core businesses. I would have liked the company to receive more (just as in the gemdale, infinera sales - look where they are now though) but receiving cash in this environment is definitely a positive. Some will point to profitability being pushed back but the true value of the company will be whether the core businesses take off or not. The asset/investment sales give the company the time/position to focus on the core businesses. For that, as a shaerholder, I applaud the sale and congratulate management for executing the sale of the PCD at a very reasonable price and at the peak of performance to date.
On a side note, this is my 100th blog post (since the blog started 8 months ago). The sale of the PCD is symbolic for me in that the purchase back in 2004 represented a deviation from their higher margin/core businesses. As a shareholder, it was not what I invested in. So, this sale represents a refocused company that has been delivering on its stated goals and slowly but surely regaining shareholder confidence. Much more work is still needed (and acknowledged by maagement) to get to profitability (specially without the PCD) so it will be interesting on how management will navigate that and get to their stated metrics in 2009. In future posts this weekend, I'll touch upon the cash position and operating metrics of the company without the PCD.
Have a wonderful Fourth of July to everyone!
Monday, June 30, 2008
UTs PCD performance and valuation
Recently, there has been negative news in the handset industry. Sony Ericsson warned of falling mobile phone demand that will result in just a breakeven quarter and also warned of shipping delays during the quarter. Palm followed by reporting a quarterly loss of $43.4m. Motorola and Huawei are trying to sell and divest their handset business.
I have posted a few times regarding UTs Personal Communication Division. As we know, this has been classified as "none-core" and may be divested as well. Because of the significant profits/revenue that this brings to the company, some investors are concern that UTs PCD is going to be impacted as well. Lets look at the recent performance at Palm and from UTStarcom.
Palm Q4 performance - Total revenue was $296.2m compared to $401m from the year earlier quarter. The company lost $42m from a $17m profit. Smartphone sell through was 968k units, up 29% due to the Centro but its higher margin Treo line is slowing. Analysts expect the centro to peak in a couple of quarters and then Palm will really be in trouble. Gross margins are down to 25.3% and ASP for the smartphones (which make up the bulk of Palm sales) is down to $288.
UTs PCD Q1 performance - Total revenue was $431m, up from $288m in the same quarter in 2007. Gross margins increased from 5.8 to 7.6%. ASPs increased significantly to $209 and the company shipped 2 million units. Guidance for next quarter is $460-480m or sequential increase of about 9%. Book-to-bill actually went up to 1.3 from 1.2 despite the already 50% increase in revenue (amazing). Days sales outstanding (DSO) was down to 19 from 42 days.
Valuation - After dropping 18% in the last 2 days, Palm is still valued at $578m with an even higher enterprise value (due to its negative net cash of $120m). So, the enterprise value is closer to $700m even with the 18% drop. UT is projected to make over $1.8b in revenues and operating profits of $85m. What is UT's PCD worth?
Commentary - UTStarcom has designated the PCD as none-core and shareholders have been trying to put a valuation on it. Blackmore mentioned during the analyst day that they want to resolve their business unit lineup by the end of the year, so I believe all divestitures will happen within the next 6 months. While there are difficulties within the mobile phone space, the number of mobile phones is set to exceed 1 billion units with a 10% increase this year (this is not the automotive industry). Verizon's purchase of Alltel would also help UT. UT's lower ASP, lower gross margins and diversity in distributors are actually perfect in this environment as they take market share and act like the walmart of the cellphone space. In terms of valuation, it is still hard to put a number but could it be worth at least Palm's enterprise value of $700m? If so, that would exceed UTs current market cap [not including cash, building, and the core and (other non-core) businesses]. While the company has resolved a bunch of issues and there is improved bookings in the core businesses, I would attribute a good part of the stock run-up to the PCD business, which has been performing well. Based on its bookings, industry low returns (according to Blackmore in the last conference call), still low ASPs, it should continue to perform very well for the company.
PS. I added shares today partly because of the PCD valuation. I am still amazed the stock is at this level base on valuation alone. I'll post later in the week on valuation but I think you already see where I am going with this :-)
I have posted a few times regarding UTs Personal Communication Division. As we know, this has been classified as "none-core" and may be divested as well. Because of the significant profits/revenue that this brings to the company, some investors are concern that UTs PCD is going to be impacted as well. Lets look at the recent performance at Palm and from UTStarcom.
Palm Q4 performance - Total revenue was $296.2m compared to $401m from the year earlier quarter. The company lost $42m from a $17m profit. Smartphone sell through was 968k units, up 29% due to the Centro but its higher margin Treo line is slowing. Analysts expect the centro to peak in a couple of quarters and then Palm will really be in trouble. Gross margins are down to 25.3% and ASP for the smartphones (which make up the bulk of Palm sales) is down to $288.
UTs PCD Q1 performance - Total revenue was $431m, up from $288m in the same quarter in 2007. Gross margins increased from 5.8 to 7.6%. ASPs increased significantly to $209 and the company shipped 2 million units. Guidance for next quarter is $460-480m or sequential increase of about 9%. Book-to-bill actually went up to 1.3 from 1.2 despite the already 50% increase in revenue (amazing). Days sales outstanding (DSO) was down to 19 from 42 days.
Valuation - After dropping 18% in the last 2 days, Palm is still valued at $578m with an even higher enterprise value (due to its negative net cash of $120m). So, the enterprise value is closer to $700m even with the 18% drop. UT is projected to make over $1.8b in revenues and operating profits of $85m. What is UT's PCD worth?
Commentary - UTStarcom has designated the PCD as none-core and shareholders have been trying to put a valuation on it. Blackmore mentioned during the analyst day that they want to resolve their business unit lineup by the end of the year, so I believe all divestitures will happen within the next 6 months. While there are difficulties within the mobile phone space, the number of mobile phones is set to exceed 1 billion units with a 10% increase this year (this is not the automotive industry). Verizon's purchase of Alltel would also help UT. UT's lower ASP, lower gross margins and diversity in distributors are actually perfect in this environment as they take market share and act like the walmart of the cellphone space. In terms of valuation, it is still hard to put a number but could it be worth at least Palm's enterprise value of $700m? If so, that would exceed UTs current market cap [not including cash, building, and the core and (other non-core) businesses]. While the company has resolved a bunch of issues and there is improved bookings in the core businesses, I would attribute a good part of the stock run-up to the PCD business, which has been performing well. Based on its bookings, industry low returns (according to Blackmore in the last conference call), still low ASPs, it should continue to perform very well for the company.
PS. I added shares today partly because of the PCD valuation. I am still amazed the stock is at this level base on valuation alone. I'll post later in the week on valuation but I think you already see where I am going with this :-)
Saturday, June 28, 2008
Weekly recap - Bear Market/Shareholder Meeting
The stock closed the week at $5.55, down 32 cents or about 5.5%. The bigger news, however, was the record price for oil (reaching $143) and the continued decline in the overall markets (over 3 percent). The Dow, Nasdaq, and S&P are all down about 20% from their October 2007 highs and down 12-14% year to date.
News/highlights from the week include the following.
Most trusted in India - UTStarcom, Inc. (Nasdaq: UTSI - News) today announced that it has been named "Most Trusted Company" in India in the areas of Internet Protocol TV (IPTV) and broadband leadership by VARIndia. http://biz.yahoo.com/prnews/080623/aqm071.html?.v=50 Commentary: The company has won this two years in a row. My thoughts on this are more cynical due to the major losses the company suffered (and continues to suffer) in India. From the last earnings call, Barton explained the problematic Indian contract as follows: "“Why do you keep having these things happen?” You can imagine a contract which the terms are fixed, and you bid and accept the terms you are given.
And when there are features where it says what amounts to most favored nation pricing type terms. So if anybody comes up with a price for something we’ve got on our delivery list, that’s lower than we’ve been charging or we’re used to charging, we are obligated to honor that. And that type of language happens to us once in a while and we have to adjust, and that means we take an incremental loss." UT continues to pay up while we keep hearing about penalties and corruption charges on Huawei/ZTE in the hundreds of millions but who knows if it will be enforced. So, at the end, UT wins the most trusted company and management has been sensitive to the India situation saying they have learned a lot from it.
India IPTV - I just want to clarify again that UT has won 4 out of 5 India IPTV contracts but this includes Sri Lanka (the other 3 in the India region are MTNL, Bharti Airtel, and UTL). Brian Caskey mentioned at the analyst day that there is an additional win coming. http://www.ilocus.com/2008/06/opening_up_iptv_middleware_for.html Another clarification. There was an article that noted iptv being provided without broadband. This is simply not the case. The UT system is very robust due to content going over all ip so the UT iptv system will/can work with any end device (STB, cable, mobile, computer, etc) but will need broadband connections.
Interview with Peter Blackmore - For completeness, here is one of Peter's interview at the analyst day meeting. http://www.ilocus.com/2008/06/interview_with_peter_blackmore.html
Q1 2008 transcript - http://seekingalpha.com/article/82898-utstarcom-inc-q1-2008-earnings-call-transcript?source=yahoo&page=1
Sector weakness - Late in the week, sony-ericsson and palm had some negative news that hurt the overall tech space. I will post separately on this after the weekly recap.
Shareholder meeting - With the company providing periodic updates (filing on time), meeting with us shareholders (in March) and the webinars/analyst day events, communication has obviously improved. Coupled with the 100% increase in the stock price year to date, I have to admit I went in with "less than a sense of urgency". Don't get me wrong, I am still down on my UT investment but it is much better than the $2.31 price when we met with management back in March 17. The first thing I mentioned to fellow shareholders is that we keep meeting with the markets in turmoil! Hopefully, last Friday was the worse or close to the worse just like the March 17 date. Ok, on to the details of the meeting which is probably the only thing you care about :-)
I arrived at the meeting hoping to get something to eat since I haven't had lunch yet and so after greeting fellow shareholders, T. Toy, P. Blackmore, F. Barton, and B. Hutton, headed straight to the food spread. Normally, I would be "shy" on these events but with the social atmosphere, I was going for the food (he he). I got a few mushrooms on a stick (delicious), chicken wings, fancy sandwiches on small pita/french breads (don't really know what was in them but heck I was hungry) and took a seat at conference table and munched away during the presentation. There were about 6 shareholders (everyone except 1 I had met before, the new one could have been a short, he he, just kidding..don't really know but if I was short, why not go to the meeting?). There were also other directors (B. Ryan) and other UT executives (D. King) and their accountants/lawyers (about 20 or so other non-shareholders/employees). T. Toy asked why I and another shareholder was wearing "green". I replied that since the stock was up....He responded that hopefully, he doesn't see me in red.
So, basically, there were 3 shareholders in 2006, 11 in 2007, and 6 this year. Its not really like the Walmart or Berkshire Hathaway meetings but there are benefits to being one of the few shareholders who show up. The shareholder meeting was highlighted by the transition of the CEO position from Hong Lu to Peter Blackmore and to the contributions made by Hong Lu to the company he started back in 1991. T. Toy discussed meeting Hong Lu in 1993 in Hangzhou when they had 21 employees in a small room and seeing how it has grown to the company it is today. I applauded with everyone due to Hong Lu's accomplishment (well deserved but as a shareholder, it has not made me any money yet). I did enjoy these types of moments because Lu did spend a lifetime accomplishing something truly remarkable and this could actually still be the start of the company becoming an even bigger success compared to the PAS glory days.
Preliminary results of the proxy voting were given with all three company backed resolutions being approved by shareholders. I'm interested to see the actual numbers when they are published. Peter Blackmore was the only presenter and basically it was a repeat of the analyst day meeting (shortened) as he knew most of the shareholders already heard the presentation. After the presentation, as in the previous shareholder meeting, each shareholder was given an opportunity to ask questions. Since there were fewer of us there, we could ask more questions.
I focused on India iptv and discussing BSNL in particular. I also had a couple of follow up questions on broadband and TVs delivering iptv w/out a STB. David King (SVP of international sales and marketing) answered my questions and some of the questions of fellow shaerholders regarding the international markets. For me, the highlight of the meeting (aside from the mushrooms on a stick) was getting to hear David King and his clear explanations on UT challenges and opportunities. I really had a favorable feeling towards David (as I did the first time I met Peter Blackmore).
My next question was regarding the core business. I mentioned that I was comfortable with the current share price but was trying to project a higher valuation and that can only come with success in the core businesses. However, without PCD, the company is set to lose $130m. This seems to conflict with Blackmore's stated goals of achieving the cost base right by 2009. There were other questions as well and most of the answers were upbeat (as you can imagine, this is a shareholder meeting :-) The formal shareholder meeting ended about 2:30pm (from a 1PM start). The informal session lasted much shorter because there was a board meeting or some other meeting they had to attend to. I would have liked to hang around and ask a lot more questions since this was the shareholder meeting (not sure why they would schedule a meeting right after the shareholder meeting on a Friday?, maybe its the only time they are all together, who knows?). Anyway, its always good to attend these meetings and get a sense of how the company is performing and if its still a good investment.
My final word for the weekly recap is that UT is progressing in its turnaround. There is a ton of work to be done with the core businesses (obviously) but I remain optimistic that shareholders will continue to be rewarded going forward.
News/highlights from the week include the following.
Most trusted in India - UTStarcom, Inc. (Nasdaq: UTSI - News) today announced that it has been named "Most Trusted Company" in India in the areas of Internet Protocol TV (IPTV) and broadband leadership by VARIndia. http://biz.yahoo.com/prnews/080623/aqm071.html?.v=50 Commentary: The company has won this two years in a row. My thoughts on this are more cynical due to the major losses the company suffered (and continues to suffer) in India. From the last earnings call, Barton explained the problematic Indian contract as follows: "“Why do you keep having these things happen?” You can imagine a contract which the terms are fixed, and you bid and accept the terms you are given.
And when there are features where it says what amounts to most favored nation pricing type terms. So if anybody comes up with a price for something we’ve got on our delivery list, that’s lower than we’ve been charging or we’re used to charging, we are obligated to honor that. And that type of language happens to us once in a while and we have to adjust, and that means we take an incremental loss." UT continues to pay up while we keep hearing about penalties and corruption charges on Huawei/ZTE in the hundreds of millions but who knows if it will be enforced. So, at the end, UT wins the most trusted company and management has been sensitive to the India situation saying they have learned a lot from it.
India IPTV - I just want to clarify again that UT has won 4 out of 5 India IPTV contracts but this includes Sri Lanka (the other 3 in the India region are MTNL, Bharti Airtel, and UTL). Brian Caskey mentioned at the analyst day that there is an additional win coming. http://www.ilocus.com/2008/06/opening_up_iptv_middleware_for.html Another clarification. There was an article that noted iptv being provided without broadband. This is simply not the case. The UT system is very robust due to content going over all ip so the UT iptv system will/can work with any end device (STB, cable, mobile, computer, etc) but will need broadband connections.
Interview with Peter Blackmore - For completeness, here is one of Peter's interview at the analyst day meeting. http://www.ilocus.com/2008/06/interview_with_peter_blackmore.html
Q1 2008 transcript - http://seekingalpha.com/article/82898-utstarcom-inc-q1-2008-earnings-call-transcript?source=yahoo&page=1
Sector weakness - Late in the week, sony-ericsson and palm had some negative news that hurt the overall tech space. I will post separately on this after the weekly recap.
Shareholder meeting - With the company providing periodic updates (filing on time), meeting with us shareholders (in March) and the webinars/analyst day events, communication has obviously improved. Coupled with the 100% increase in the stock price year to date, I have to admit I went in with "less than a sense of urgency". Don't get me wrong, I am still down on my UT investment but it is much better than the $2.31 price when we met with management back in March 17. The first thing I mentioned to fellow shareholders is that we keep meeting with the markets in turmoil! Hopefully, last Friday was the worse or close to the worse just like the March 17 date. Ok, on to the details of the meeting which is probably the only thing you care about :-)
I arrived at the meeting hoping to get something to eat since I haven't had lunch yet and so after greeting fellow shareholders, T. Toy, P. Blackmore, F. Barton, and B. Hutton, headed straight to the food spread. Normally, I would be "shy" on these events but with the social atmosphere, I was going for the food (he he). I got a few mushrooms on a stick (delicious), chicken wings, fancy sandwiches on small pita/french breads (don't really know what was in them but heck I was hungry) and took a seat at conference table and munched away during the presentation. There were about 6 shareholders (everyone except 1 I had met before, the new one could have been a short, he he, just kidding..don't really know but if I was short, why not go to the meeting?). There were also other directors (B. Ryan) and other UT executives (D. King) and their accountants/lawyers (about 20 or so other non-shareholders/employees). T. Toy asked why I and another shareholder was wearing "green". I replied that since the stock was up....He responded that hopefully, he doesn't see me in red.
So, basically, there were 3 shareholders in 2006, 11 in 2007, and 6 this year. Its not really like the Walmart or Berkshire Hathaway meetings but there are benefits to being one of the few shareholders who show up. The shareholder meeting was highlighted by the transition of the CEO position from Hong Lu to Peter Blackmore and to the contributions made by Hong Lu to the company he started back in 1991. T. Toy discussed meeting Hong Lu in 1993 in Hangzhou when they had 21 employees in a small room and seeing how it has grown to the company it is today. I applauded with everyone due to Hong Lu's accomplishment (well deserved but as a shareholder, it has not made me any money yet). I did enjoy these types of moments because Lu did spend a lifetime accomplishing something truly remarkable and this could actually still be the start of the company becoming an even bigger success compared to the PAS glory days.
Preliminary results of the proxy voting were given with all three company backed resolutions being approved by shareholders. I'm interested to see the actual numbers when they are published. Peter Blackmore was the only presenter and basically it was a repeat of the analyst day meeting (shortened) as he knew most of the shareholders already heard the presentation. After the presentation, as in the previous shareholder meeting, each shareholder was given an opportunity to ask questions. Since there were fewer of us there, we could ask more questions.
I focused on India iptv and discussing BSNL in particular. I also had a couple of follow up questions on broadband and TVs delivering iptv w/out a STB. David King (SVP of international sales and marketing) answered my questions and some of the questions of fellow shaerholders regarding the international markets. For me, the highlight of the meeting (aside from the mushrooms on a stick) was getting to hear David King and his clear explanations on UT challenges and opportunities. I really had a favorable feeling towards David (as I did the first time I met Peter Blackmore).
My next question was regarding the core business. I mentioned that I was comfortable with the current share price but was trying to project a higher valuation and that can only come with success in the core businesses. However, without PCD, the company is set to lose $130m. This seems to conflict with Blackmore's stated goals of achieving the cost base right by 2009. There were other questions as well and most of the answers were upbeat (as you can imagine, this is a shareholder meeting :-) The formal shareholder meeting ended about 2:30pm (from a 1PM start). The informal session lasted much shorter because there was a board meeting or some other meeting they had to attend to. I would have liked to hang around and ask a lot more questions since this was the shareholder meeting (not sure why they would schedule a meeting right after the shareholder meeting on a Friday?, maybe its the only time they are all together, who knows?). Anyway, its always good to attend these meetings and get a sense of how the company is performing and if its still a good investment.
My final word for the weekly recap is that UT is progressing in its turnaround. There is a ton of work to be done with the core businesses (obviously) but I remain optimistic that shareholders will continue to be rewarded going forward.
Saturday, June 21, 2008
Weekly recap - New 52 wk high
The stock closed the week at $5.87, up 41 cents or 7.5% for the week. The weekly performance included establishing a new 52 week high of $5.94 on Thursday and coming during a week where the S&P, Nasdaq, and DOW lost 3.1, 2, and 3.8 percent respectively this week. The stock is now up 113% for the year and 163% from the 52 wk low established just last March. With the upcoming shareholder meeting next week, month-end closing (window dressing), and potential market bounce, UT is set to break $6 and continue upwards.
News/highlights from the week include the following.
Sri Lanka Telecom IPTV contract - This was one of the four (out of five) iptv contracts won by UT in the India region. "SLT's IPTV deployment is designed to support approximately 100,000 subscribers in the next two years and will enable the company to provide video services to future subscribers over copper lines in the next three to four years." http://biz.yahoo.com/prnews/080617/aqtu035.html?.v=57 In terms of other potential iptv wins, there has not been a formal announcement for Hong Kong. The activities in Russia, Eastern Europe, Middle East, and South America for iptv/broadband/ngn should keep the pipeline of potential wins in iptv growing.
Wi-Lan lawsuit targets Rim, Motorola, and UTStarcom - "Wi-Lan said it has started litigation in the U.S. District Court for the Eastern District of Texas, Marshall Division, alleging that the companies' mobile devices and other equipment infringe Wi-Lan patents. It did not specify what damages or remedies it will seek under the legal action." http://www.reuters.com/article/marketsNews/idCAN2042612520080620?rpc=44 These kinds of lawsuits are more of a problem because Wi-Lan is just a patent shop and doesn't build anything (hard to counter sue them if they are not making anything). "Formerly a money-losing wireless equipment maker, Wi-Lan switched gears in 2006 to build a storehouse of patents through acquisition." I guess if all things fail for UT, it can also start suing other tech companies for patent infringement (like Starent).
India iptv developments/updates - The post(s) of the week go to canada3396 who posted about Aksh and its work with MTNL and now BSNL in providing iptv services.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=153334&mid=153334&tof=4&frt=1 The uptake in iptv subscribers in India is still slow (as expected) but there was an interesting news item showing UT controller/STB that can be used with cable systems. http://www.hellogiri.com/icontrol-iptv-by-mtnl-in-delhi-and-mumbai-cost-and-features/ (you can see the UT logo in the figure :-)
Schaeffer's Investment Report - As UT stock makes news highs for the year, other investors/traders start to take note of the company. http://www.schaeffersresearch.com/commentary/content/utstarcom+inc+utsi+-+a+turnaround+situation/trading_floor_blog.aspx?single=true&blogid=85415 Overall, the company is still a tightly held secret or even something most people would not even consider (considering its history of destroying shareholders). When the stock gets into the teens or higher, then it will be a must own, analysts will jump on the bandwagon, and indeces will add it (funds will then have to get in). That of course is still a long ways away but the potential is definitely there and its nice to dream about much higher prices.
Technology talk - For those technology buffs, Tigre and Shadow have their consistent inputs. Tigre discusses investments in China's home grown TD-SCDMA. Some companies are working towards 4G already. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=153261&mid=153261&tof=33&frt=1 Shadow discusses some new technologies... http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=153267&mid=153285&tof=19&rt=2&frt=1&off=1 Shadow also corrected me about UT selling its wimax division. I had speculated last Monday that this has been sold as part of the MSBU but during the Analyst day meeting next morning, it seems that it was not part of the deal for divestitures.
Proxies - I hope everyone has had a chance to send in their proxies. If not, you can also do it on line. The shareholder group's suggestion would be to withhold votes to the directors but agree with the employee stock option exchange program. Now, that the stock is climbing, it is interesting to note if holders of options with $6-10 strike prices choose to reduce the number of options to get a slightly better strike price. In some weird way, it would be better if the stock had stayed under $5 and all the options exchanged (that would be better for current shareholders-less dilution in the future).
Postings this week - There has been a pickup of postings on the yahoo board due to the new highs and the outperformance. My suggestion is to take a break from posting or overthinking the situation. The stock/company is clearly in turnaround mode, it clearly has value (safest stock at $3.75 :-) and now the stock technicals are very good. Keep up the postings with good content but there really isn't much value saying the stock is outperforming 10x or the shorts are going to boost the stock to $100. Lets have some class and keep the garbage out of the message boards so that its easier to find the good information.
I am going to have my root canal permanently filled (and capped) later today but it should be much easier than the impacted teeth extraction I had last week. Have a good weekend to everyone. By the way, some of the shareholders going to next week's shareholder meeting will meet earlier (for lunch), let me know if you are interested in joining us. I hope there will be more than 11 shareholders for this year's shareholder meeting.
News/highlights from the week include the following.
Sri Lanka Telecom IPTV contract - This was one of the four (out of five) iptv contracts won by UT in the India region. "SLT's IPTV deployment is designed to support approximately 100,000 subscribers in the next two years and will enable the company to provide video services to future subscribers over copper lines in the next three to four years." http://biz.yahoo.com/prnews/080617/aqtu035.html?.v=57 In terms of other potential iptv wins, there has not been a formal announcement for Hong Kong. The activities in Russia, Eastern Europe, Middle East, and South America for iptv/broadband/ngn should keep the pipeline of potential wins in iptv growing.
Wi-Lan lawsuit targets Rim, Motorola, and UTStarcom - "Wi-Lan said it has started litigation in the U.S. District Court for the Eastern District of Texas, Marshall Division, alleging that the companies' mobile devices and other equipment infringe Wi-Lan patents. It did not specify what damages or remedies it will seek under the legal action." http://www.reuters.com/article/marketsNews/idCAN2042612520080620?rpc=44 These kinds of lawsuits are more of a problem because Wi-Lan is just a patent shop and doesn't build anything (hard to counter sue them if they are not making anything). "Formerly a money-losing wireless equipment maker, Wi-Lan switched gears in 2006 to build a storehouse of patents through acquisition." I guess if all things fail for UT, it can also start suing other tech companies for patent infringement (like Starent).
India iptv developments/updates - The post(s) of the week go to canada3396 who posted about Aksh and its work with MTNL and now BSNL in providing iptv services.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=153334&mid=153334&tof=4&frt=1 The uptake in iptv subscribers in India is still slow (as expected) but there was an interesting news item showing UT controller/STB that can be used with cable systems. http://www.hellogiri.com/icontrol-iptv-by-mtnl-in-delhi-and-mumbai-cost-and-features/ (you can see the UT logo in the figure :-)
Schaeffer's Investment Report - As UT stock makes news highs for the year, other investors/traders start to take note of the company. http://www.schaeffersresearch.com/commentary/content/utstarcom+inc+utsi+-+a+turnaround+situation/trading_floor_blog.aspx?single=true&blogid=85415 Overall, the company is still a tightly held secret or even something most people would not even consider (considering its history of destroying shareholders). When the stock gets into the teens or higher, then it will be a must own, analysts will jump on the bandwagon, and indeces will add it (funds will then have to get in). That of course is still a long ways away but the potential is definitely there and its nice to dream about much higher prices.
Technology talk - For those technology buffs, Tigre and Shadow have their consistent inputs. Tigre discusses investments in China's home grown TD-SCDMA. Some companies are working towards 4G already. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=153261&mid=153261&tof=33&frt=1 Shadow discusses some new technologies... http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=153267&mid=153285&tof=19&rt=2&frt=1&off=1 Shadow also corrected me about UT selling its wimax division. I had speculated last Monday that this has been sold as part of the MSBU but during the Analyst day meeting next morning, it seems that it was not part of the deal for divestitures.
Proxies - I hope everyone has had a chance to send in their proxies. If not, you can also do it on line. The shareholder group's suggestion would be to withhold votes to the directors but agree with the employee stock option exchange program. Now, that the stock is climbing, it is interesting to note if holders of options with $6-10 strike prices choose to reduce the number of options to get a slightly better strike price. In some weird way, it would be better if the stock had stayed under $5 and all the options exchanged (that would be better for current shareholders-less dilution in the future).
Postings this week - There has been a pickup of postings on the yahoo board due to the new highs and the outperformance. My suggestion is to take a break from posting or overthinking the situation. The stock/company is clearly in turnaround mode, it clearly has value (safest stock at $3.75 :-) and now the stock technicals are very good. Keep up the postings with good content but there really isn't much value saying the stock is outperforming 10x or the shorts are going to boost the stock to $100. Lets have some class and keep the garbage out of the message boards so that its easier to find the good information.
I am going to have my root canal permanently filled (and capped) later today but it should be much easier than the impacted teeth extraction I had last week. Have a good weekend to everyone. By the way, some of the shareholders going to next week's shareholder meeting will meet earlier (for lunch), let me know if you are interested in joining us. I hope there will be more than 11 shareholders for this year's shareholder meeting.
Sunday, June 15, 2008
Weekly recap - Analyst Day
The stock closed the week at $5.46, losing 7 cents or 1.3%. The markets were mixed after a torrid rally on Friday. Here are some of the UT related news for the week.
Short interest - As of May 27, 2008, short interest rose 5.3m or about 25% to 25.56m. During this period, shares pulled back to the mid $4 level and have subsequently rallied to the mid $5s. Since the report is 2 weeks delayed, the short interest level may have gone right back down during this rally. We'll check back on this in a couple of weeks but it is worth tracking because of the huge increase and the corresponding price increase.
Divestiture of MSBU - See Monday's posting on this. On the following day during the analyst day meeting, management mentioned that MSBU had $30+ million in revenue and operating expenses of about $20m/year. I was contacted by an "unverified source" that mentioned revenues were higher than the $30m and that the business unit was profitable. In any case, it is good that management is following through on their stated goals of reducing opex and focusing on the best opportunities.
New China Executives - Aside from Peter Blackmore formally becoming the CEO in July, a couple of other promotions in China. Ying Wu's brother (just kidding), Robert Wu will be the China CEO and Manfred Loong will be the China COO. I am Chinese myself but selecting "Manfred" as your name :-) Seriously, good luck to both of them and thanks to Hong Lu for stabilizing the China situation during the last year.
Analyst Day meeting on June 10, 2008 - I posted on this as well yesterday but would encourage people to listen to it in its entirety. The company website has put together all the conference/update calls dating back to Aug. 1, 2007 (when the stock price was about to break $3 for the first time). That collection of calls can also be seen as the Peter Blackmore-turnaround era and started the flow of information to shareholders once again after about a year of silence from the company. Very nice website and resource for shareholders. As I mentioned, it now gives investors a "fair chance" of evaluating their position and making an informed decision (which was something that was taken away during that period of silence from the company - something you know I have been bitter about).
PCD - Another comment I wanted to make about the Analyst Day meeting was the lack of discussion on the PCD side during the presentation. In fact, the company made it a point of modeling the company without PCD. While I understand the company's focus is on iptv, ngn, and broadband (something we investors would like for the future and something the company has an advantage in technology and can differentiate themselves), why wasn't there a major presentation of the PCD??? The PCD currently makes up $1.8+B of the $2.5+B of revenues expected for 2008. It has an operating profit of $86m! I have been focused on the valuation and shareholder enhancement and in order to attract attention to the company, PCD has to be front and center at this stage. As I mentioned on yesterday's posting, will I be excited that the core business is losing gobs of money, currently only growing 10%, and won't be profitable for 2 or 3 years? Why not have P. Christopher (head of PCD) do a presentation on the growth of PCD, margin improvements, clients, products, market share growth, comparisons with Motorola, etc. What about impact of Verizon buying Alltel?
I know its the analysts job to highlight valuation but put up a chart showing value of real estate, net cash position, projected value of PCD, revenue of core businesses, p/s, etc. Believe me, I "appreciate" the honesty of the difficulties in iptv at this stage and lowering costs, etc but in an Analyst Day meeting, you have to highlight the current strengths (and that is not the management/BOD but the PCD and valuation). As I mentioned, I cringed about the continued losses projected for 2008 and the model without the PCD ($130m loss!). The people asking questions about the PCD and growth potential of iptv (and ngn) and others were people who already OWNED significant chunks of UT (he he). They actually did a better job in trying to pull out the good information. Seriously, I already know there are good engineers and products (I would hope so if you are spending the kind of money the company has for years and years) but I want to see PERFORMANCE. Why not show their net cash position as a percentage of market cap and compare it to other companies? Why not bang the heads of people on PCD and its potential value? Its great to show their customers are benefitting but what about shareholders? Its nice to know they customers will get a payback after two short years. We shareholders know the customers have been benefiting and we have been suffering.
Best post of the week - This definitely goes to Salisburygo for his minute by minute summary of the Analyst Day meeting. Most people don't have the time to listen in specially 3 hours during the work day and he did an excellent job conveying the main points (although biased, he he). Get a life Salisburygo! (he he)
The company mentioned there are more road shows to come this year and as a shareholder I do appreciate the information and sense the company has confidence for better performance down the road. I want to give the management credit for the recent increased in share price but it is really way too early to celebrate so I remain an optimistic critic of management and the board. Happy Fathers Day to all the fathers out there. I've got reservations at the Black Angus tonight (woo hoo). After the tooth extraction I had last Monday, its going to be good eating tonight.
Short interest - As of May 27, 2008, short interest rose 5.3m or about 25% to 25.56m. During this period, shares pulled back to the mid $4 level and have subsequently rallied to the mid $5s. Since the report is 2 weeks delayed, the short interest level may have gone right back down during this rally. We'll check back on this in a couple of weeks but it is worth tracking because of the huge increase and the corresponding price increase.
Divestiture of MSBU - See Monday's posting on this. On the following day during the analyst day meeting, management mentioned that MSBU had $30+ million in revenue and operating expenses of about $20m/year. I was contacted by an "unverified source" that mentioned revenues were higher than the $30m and that the business unit was profitable. In any case, it is good that management is following through on their stated goals of reducing opex and focusing on the best opportunities.
New China Executives - Aside from Peter Blackmore formally becoming the CEO in July, a couple of other promotions in China. Ying Wu's brother (just kidding), Robert Wu will be the China CEO and Manfred Loong will be the China COO. I am Chinese myself but selecting "Manfred" as your name :-) Seriously, good luck to both of them and thanks to Hong Lu for stabilizing the China situation during the last year.
Analyst Day meeting on June 10, 2008 - I posted on this as well yesterday but would encourage people to listen to it in its entirety. The company website has put together all the conference/update calls dating back to Aug. 1, 2007 (when the stock price was about to break $3 for the first time). That collection of calls can also be seen as the Peter Blackmore-turnaround era and started the flow of information to shareholders once again after about a year of silence from the company. Very nice website and resource for shareholders. As I mentioned, it now gives investors a "fair chance" of evaluating their position and making an informed decision (which was something that was taken away during that period of silence from the company - something you know I have been bitter about).
PCD - Another comment I wanted to make about the Analyst Day meeting was the lack of discussion on the PCD side during the presentation. In fact, the company made it a point of modeling the company without PCD. While I understand the company's focus is on iptv, ngn, and broadband (something we investors would like for the future and something the company has an advantage in technology and can differentiate themselves), why wasn't there a major presentation of the PCD??? The PCD currently makes up $1.8+B of the $2.5+B of revenues expected for 2008. It has an operating profit of $86m! I have been focused on the valuation and shareholder enhancement and in order to attract attention to the company, PCD has to be front and center at this stage. As I mentioned on yesterday's posting, will I be excited that the core business is losing gobs of money, currently only growing 10%, and won't be profitable for 2 or 3 years? Why not have P. Christopher (head of PCD) do a presentation on the growth of PCD, margin improvements, clients, products, market share growth, comparisons with Motorola, etc. What about impact of Verizon buying Alltel?
I know its the analysts job to highlight valuation but put up a chart showing value of real estate, net cash position, projected value of PCD, revenue of core businesses, p/s, etc. Believe me, I "appreciate" the honesty of the difficulties in iptv at this stage and lowering costs, etc but in an Analyst Day meeting, you have to highlight the current strengths (and that is not the management/BOD but the PCD and valuation). As I mentioned, I cringed about the continued losses projected for 2008 and the model without the PCD ($130m loss!). The people asking questions about the PCD and growth potential of iptv (and ngn) and others were people who already OWNED significant chunks of UT (he he). They actually did a better job in trying to pull out the good information. Seriously, I already know there are good engineers and products (I would hope so if you are spending the kind of money the company has for years and years) but I want to see PERFORMANCE. Why not show their net cash position as a percentage of market cap and compare it to other companies? Why not bang the heads of people on PCD and its potential value? Its great to show their customers are benefitting but what about shareholders? Its nice to know they customers will get a payback after two short years. We shareholders know the customers have been benefiting and we have been suffering.
Best post of the week - This definitely goes to Salisburygo for his minute by minute summary of the Analyst Day meeting. Most people don't have the time to listen in specially 3 hours during the work day and he did an excellent job conveying the main points (although biased, he he). Get a life Salisburygo! (he he)
The company mentioned there are more road shows to come this year and as a shareholder I do appreciate the information and sense the company has confidence for better performance down the road. I want to give the management credit for the recent increased in share price but it is really way too early to celebrate so I remain an optimistic critic of management and the board. Happy Fathers Day to all the fathers out there. I've got reservations at the Black Angus tonight (woo hoo). After the tooth extraction I had last Monday, its going to be good eating tonight.
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