The stock closed at $3.13, down 13 cents or 4% for the week, the eight consecutive week UT stock has declined. The markets were also significantly lower from 3 to 4.7% this week as the markets return to bear market levels. Here are the UT related news for the week.
UT & Aksh power BSNL iptv for 20 Indian cities - This was already widely reported previously but the official PR came out this week. http://biz.yahoo.com/prnews/080902/aqtu017.html?.v=70
UT issues documents for employee options exchange - A 159 page document (no I didn't read it all) indicates that the option price will be at the closing on Oct, 1, 2008. There are 7.25m options with strike prices from $6-25+ that can be exchanged. Here is the exchange ratio for various options prices.
$6-10; 1.9 for 1
$10.01-15; 3.8 for 1
$15.01-20; 5.2 for 1
$20.01-25; 8.2 for 1
$25.01+; 9.2 for 1
If all options get exchanged, the number of options will drop to the 2.5-3m range. The options will vest 50% after 1 year and the rest 2 years from Oct. 1, 2008. If each option cost 50 cents for example, that would be worth $1.25-1.5m. I don't believe this is significant considering Barton's retention agreement alone was $2m/year.
Dell selling factories/Nokia revenue shortfall - Not too related but Dell is also trying to outsource their manufacturing to be more efficient while Nokia's shortfall show the competitive nature in the handset/smartphone market. UT's sale of the PCD at the height of their profitability was good timing/management. The sale brought liquidity, lowered working capital requirement, preserved internal handset contracts, and reduces operational risk for that business unit.
Russia conference - Shadow posted that UT was a major sponsor of an iptv conference in Russia. We have heard back in the shareholder meeting that UT was working on a couple of contracts in Russia and Brian Caskey made a trip there so there is some progress for potential contracts. http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_U/threadview?bn=27187&tid=155269&mid=155269
UT stock non-marginable - Last week, Etrade made UT stock non-marginable and that is before the stock even dropped below $3. If UT goes below $3, then other brokers will enforce margin requirements for UT putting more pressure on the stock. I knew we should have had a reverse stock split (just kidding.......no nasty emails/postings please :-)
Philippine NGN contracts - Top Philippine carrier PLDT plans to spend substantially on a next generation network (NGN) technology for its telephone service nationwide as it expects revenue to reach hundreds million of pesos in five years.
The company will spend 4.3 billion pesos ($93 million), which includes an incremental investment of 3.9 billion pesos ($84.2 million) for over five years, according to documents it filed with the National Telecommunications. Its existing investment in the proposed areas amounted to 464.01 million pesos ($10 million).
The company will finance its fresh investment through internally generated funds.
http://www.telecomasia.net/article.php?type=article&id_article=10183
There is no official PR from UT but this should be their contract (at about 17m/year for 5 years). So far, that first contract was for $10m (if this article is correct). It seems these NGN contracts are in the $10-20m range and have good expansion potential. Almost all UT competitors are also focusing on NGN but UT seems to have a bunch of wins in this area (Argentina, Taiwan, Brazil, Jersey, Philippines, etc).
India Broadband - Just a side note to last week's PR on India broadband. UT indicated it was the top broadband provider in India with 75% market share. Currently, there are only 4.5m broadband lines and the country is targetting 20m by 2010. Even with the Phase II contract with BSNL (around $80m+), there should be signficant contracts ahead in India if the country will come anywhere close to the 20m target. During my last 2 emails with Blackmore the last few weeks, he had just come back from Japan and Brazil respectively. Unless he was there on vacation, there might be some good developments in those two countries.
David King - Joins Acision as COO. David was at the shareholder meeting in June and discussed the Russia/India developments and the company's better focus on efficiencies and drive in new markets. I had a positive impression of David and liked the way he described the iptv markets in India and their better operational practices (cutting excess personnel/partnering, etc) so i didn't see his departure as a firing. However, he did have valid personal reasons for leaving and thats that. The company will find replacements and move on.
China Telecom earnings - Last week, I had notes some information regarding China Netcom's earnings pertaining to UT. This week, here are some notes from China Telecom.
In the first half of 2008, access lines in service decreased by 5.44 million to 214.9 million. PAS subscribers were 51.99 million with a net decrease of 6.06 million.
In the first half of ‘08, broadband subscribers increased 4.3 million to 39.95 million, an increase of 12.1% from the end of last year.
Fourth, to improve cost effectiveness, we implement stringent control on PAS handset subsidies and tilt investment towards profitable business and customer segments.
Fifth, maintenance CapEx on PAS to ensure normal operation declined by 88.4% from last year, accounting for a decrease of 3.4 percentage points of total investment to 0.5%.
Broadband growth in China continues to be impressive and will fuel iptv demand in the future but PAS has fallen off significantly, which is good in a way because its impact will be lessen on UT going forward.
China iptv - Last week, I noted the continued, steady growth in China (about 30% sequential growth). This one is about a week old as well. http://www.iptv-news.com/content/view/2267/64/ The headline is "China Telecom has shortlisted 11 companies to supply 574,000 IPTV set-top boxes, comprising 536,000 standard-definition and 38,000 high-definition units." It has ZTE benefitting the most and that "ZTE is thought to currently hold the largest market share of China's IPTV system and terminal market, and has supplied systems and terminals in a number of regions, including the provinces of Shaanxi, Jiangsu and Guangdong, as well as Beijing and Shanghai." At the very least, the iptv deployments remain healthy. UT should get its share.
BSNL iptv over 100 cities - Before the ink on UT's PR for 20 BSNL cities, they are already talking about 100 cities :-) http://dth-iptv-radio.blogspot.com/search/label/BSNL%20IPTV Subscriber target when the 20 BSNL cities was discussed was only about 10k in 9 months. Now, it is up to 100k by March 2009. The website also has a lot of postings on MTNL, Bharti, and other iptv news. It seems like there are a lot of iptv issues that have just been resolved very recently (the last few weeks) and has led to increased deployments. In that article, they talked about bringing iptv to 1/4 of the 82 million cable homes. The cost of iptv is about $4.5/month. Thats less than the cost of a DVR in the U.S. with plenty of added features. Another article in the website talks about 1m India iptv subscribers by 2011 (see section on Bharti iptv). With wins with Bharti, BSNL, MTNL, Goa, and Sri Lanka, the future for UT iptv in India is shaping up. The breakout could be in cable systems and in China but steady growth, which we anticipated since last year, is only beginning right now. Shadow's prediction of 400k in India doesn't look too ridiculous to me. I was looking for 50-100k in India but it might be closer to 200-300k.
IPTV, NGN, Broadband, Russia, India, China, Brazil, etc, etc, etc. - For the last few years, it has been mostly promises, trials, and strategic contract wins. The revenue has yet to come close to their expenses. The company has put in hundreds of millions in R&D the last few years to seed their technology and position. There is still some ways to go but the news I am reading indicate massive adoption/potential is teasingly close. I hate this company!!!!!!!! :-)
Have a good weekend everyone and lets hope UT breaks the 8 week losing streak.
Sunday, September 7, 2008
Sunday, August 31, 2008
Weekly recap - CFO Barton Retires
The stock closed at $3.26, down 10 cents or 3%. The stock is down 7 straight weeks and has lost $2.31/share or about 42%. The markets were also lower this week with the DOW/S&P losing about .78% and the Nasdaq 2%. The week's major news was the resignation of CFO Fran Barton and Senior VP international sales and marketing David King. Here are other news/commentary.
UT named #1 broadband infrastructure company in India - For the 2nd year in a row, UT was named by Voice& Data as the #1 broadband infrastructure company in India. Accoring to the PR, the number of broadband users has doubled from April 2007 to June 2008 to 4.38m. The target of reaching 20m users by 2010 shows that the India broadband market continues to be a good source of revenue for UTStarcom. The key for UT will be improving margins in that business unit. The position in broadband and iptv that UT has built over the last few years should hopefully start to benefit in the years to come.
China Netcom earnings - Both CT & CN reported earnings recently. Here is a PR from CN for their earnings. http://biz.yahoo.com/bw/080825/20080824005046.html?.v=1 Here are some itmes related to UT.
-The Company reported a decline in total capital expenditure of 10.7% year-on-year to RMB 7,527 million. In particular, investment in the businesses of fixed-line and PHS only accounted for 4.4% of the total, down 13.2 percentage points compared to the same period last year.
-As of June 30, 2008, we had 108,510 thousand local access subscribers, 2,310 thousand less
than at the end of 2007. Of this number, fixed-line subscribers declined by 1,499 thousand, while PHS subscribers declined by 811 thousand.
-We are working to upgrade the “Family 1+” from bundled services to household-oriented multimedia information services. In May, 2008, we launched a family gateway, which offered comprehensive information services to “Family 1+” customers, combining simultaneous access to the internet through various PCs, wireless internet access, family video monitoring and IPTV services.
By the end of the first half of 2008, there were 9,971 thousand “Family 1+” subscribers. Penetration rate among broadband subscribers for the “Family 1+” service was 36%.
-We believe that, after the 2008 Beijing Olympic Games, the high-quality broadband network established during the Olympic Games as well as the broadband consumption habit developed during the Olympic Games, will lead to a fast and sustainable growth in the innovative business and thus help catalyze the Company’s strategic transformation.
-I read in the WSJ that CT was planning to add about 8m broadband subscribers per year for the next 4 years.
China IPTV procurement list- China Telecom (NYSA: CHA; 0728.HK) has announced the winning lists of equipment manufacturers that provincial branches should use for IPTV 2.0 platform and terminal equipment procurement. The winning manufacturers were split into three areas: systems platforms, standard-definition terminals and high-definition terminals. http://www.marbridgeconsulting.com/marbridgedaily/2008-08-25/article/19055/china_telecom_announces_iptv_procurement_firms
China IPTV subscriber count as of Q2- There were 1.708 million subscribers of IPTV (Internet Protocol TV) service in the China market at the end of the second quarter of 2008, growing by 396,000 or 30.2% on quarter and by 132.1% on year, according to China-based consulting company Analysys International.
The exceptionally large growth in IPTV user base was due to the increased demand attributable to the Beijing 2008 Olympic Games, Analysys pointed out.
http://www.digitimes.com/systems/a20080829PR200.html
UT has maintained its market share (about 2x compared to ZTE) and the growth in China continues at a slow but steady pace (from 736k to 840k to 1m to 1.31m the last few quarters).
Barton's retirement package- Reviewing the two 8K filings regarding Bartons retention agreement/retirement package, it does seem Barton was good atleast with his own financials. When the $10m/4 year retention agreement was disclosed last November 30, 2007, the first installment was already given in November 2007. Thus, in just 9 months since the "four" year retention agreement was disclosed, Barton was able to collect two installments or 50% from a dollar standpoint. Even better for Mr. Barton, because the stock declined by nearly 50% from the June highs, he was able to receive nearly 877k shares for this year's installment. If the stock had maintained the mid $5 to $6 level and Barton continued to stay on till atleast November, he would only receive 400-500k shares. Projecting into Nov 30, 2009. If the stock hits $12, he would only receive 200k shares. If by Nov 30, 2010, the stock hits $20 (ok maybe wishful thinking), he would only receive a little over 100k. In any case, Barton has retired and hopefully the company can withstand his retirement and somehow manage to pull it together and continue their stellar run for shareholders :-)
Have a good rest of the Labor Day weekend everyone.
UT named #1 broadband infrastructure company in India - For the 2nd year in a row, UT was named by Voice& Data as the #1 broadband infrastructure company in India. Accoring to the PR, the number of broadband users has doubled from April 2007 to June 2008 to 4.38m. The target of reaching 20m users by 2010 shows that the India broadband market continues to be a good source of revenue for UTStarcom. The key for UT will be improving margins in that business unit. The position in broadband and iptv that UT has built over the last few years should hopefully start to benefit in the years to come.
China Netcom earnings - Both CT & CN reported earnings recently. Here is a PR from CN for their earnings. http://biz.yahoo.com/bw/080825/20080824005046.html?.v=1 Here are some itmes related to UT.
-The Company reported a decline in total capital expenditure of 10.7% year-on-year to RMB 7,527 million. In particular, investment in the businesses of fixed-line and PHS only accounted for 4.4% of the total, down 13.2 percentage points compared to the same period last year.
-As of June 30, 2008, we had 108,510 thousand local access subscribers, 2,310 thousand less
than at the end of 2007. Of this number, fixed-line subscribers declined by 1,499 thousand, while PHS subscribers declined by 811 thousand.
-We are working to upgrade the “Family 1+” from bundled services to household-oriented multimedia information services. In May, 2008, we launched a family gateway, which offered comprehensive information services to “Family 1+” customers, combining simultaneous access to the internet through various PCs, wireless internet access, family video monitoring and IPTV services.
By the end of the first half of 2008, there were 9,971 thousand “Family 1+” subscribers. Penetration rate among broadband subscribers for the “Family 1+” service was 36%.
-We believe that, after the 2008 Beijing Olympic Games, the high-quality broadband network established during the Olympic Games as well as the broadband consumption habit developed during the Olympic Games, will lead to a fast and sustainable growth in the innovative business and thus help catalyze the Company’s strategic transformation.
-I read in the WSJ that CT was planning to add about 8m broadband subscribers per year for the next 4 years.
China IPTV procurement list- China Telecom (NYSA: CHA; 0728.HK) has announced the winning lists of equipment manufacturers that provincial branches should use for IPTV 2.0 platform and terminal equipment procurement. The winning manufacturers were split into three areas: systems platforms, standard-definition terminals and high-definition terminals. http://www.marbridgeconsulting.com/marbridgedaily/2008-08-25/article/19055/china_telecom_announces_iptv_procurement_firms
China IPTV subscriber count as of Q2- There were 1.708 million subscribers of IPTV (Internet Protocol TV) service in the China market at the end of the second quarter of 2008, growing by 396,000 or 30.2% on quarter and by 132.1% on year, according to China-based consulting company Analysys International.
The exceptionally large growth in IPTV user base was due to the increased demand attributable to the Beijing 2008 Olympic Games, Analysys pointed out.
http://www.digitimes.com/systems/a20080829PR200.html
UT has maintained its market share (about 2x compared to ZTE) and the growth in China continues at a slow but steady pace (from 736k to 840k to 1m to 1.31m the last few quarters).
Barton's retirement package- Reviewing the two 8K filings regarding Bartons retention agreement/retirement package, it does seem Barton was good atleast with his own financials. When the $10m/4 year retention agreement was disclosed last November 30, 2007, the first installment was already given in November 2007. Thus, in just 9 months since the "four" year retention agreement was disclosed, Barton was able to collect two installments or 50% from a dollar standpoint. Even better for Mr. Barton, because the stock declined by nearly 50% from the June highs, he was able to receive nearly 877k shares for this year's installment. If the stock had maintained the mid $5 to $6 level and Barton continued to stay on till atleast November, he would only receive 400-500k shares. Projecting into Nov 30, 2009. If the stock hits $12, he would only receive 200k shares. If by Nov 30, 2010, the stock hits $20 (ok maybe wishful thinking), he would only receive a little over 100k. In any case, Barton has retired and hopefully the company can withstand his retirement and somehow manage to pull it together and continue their stellar run for shareholders :-)
Have a good rest of the Labor Day weekend everyone.
Saturday, August 30, 2008
Tenure and Resignation of Fran Barton
CFO Fran Barton is retiring effective August 31, 2008.
http://biz.yahoo.com/prnews/080828/aqth069.html?.v=65 This was unusual in that there was no transition period (atleast not that the street was aware of). Fran was hired by UTStarcom to be its CFO effective September 2005. Then CFO Mike Sophie focused on the COO spot after Fran Barton's hiring. From the company PR, "I believe that Fran's background represents an optimal fit for the needs of our finance organization as we go through the restructuring and diversification initiatives," said Mike Sophie, chief operating officer at UTStarcom, "His appointment will allow me to focus on the operating aspects of these initiatives. Fran and I will work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability."
http://sev.prnewswire.com/computer-electronics/20050802/SFTU10902082005-1.html
I want to highlight the positives and negatives of Fran Barton's tenure and provide some commentary.
Positives:
I will take the positives from the November 30, 2007 8K filing discussing Fran Barton's retention agreement.
"The Compensation Committee approved the Retention Agreement after taking into consideration: (i) Mr. Barton's performance during a challenging year, including completing the Company's previously disclosed stock option and historical sales contract investigations, bringing the Company current in its SEC filings and improving the Company's Section 404 compliance process; (ii) the critical nature of Mr. Barton's current and future role in light of anticipated management transitions in fiscal year 2008; and (iii) increasing competition in the market for experienced financial professionals. "
The balance sheet is also better due to asset/investment/none-core business unit sales.
Negatives:
1. There was not one single profitable operating quarter during Fran Barton's tenure.
1a. Write downs and poor contracts (such as in India) and bloated expenses added to the decline in PAS to contribute to the money losing quarters.
2. Predictions of profitability for (a) early 2007 (given in late 2005), (b) early 2008 (given in August 2007), and (c) early 2009 or late 2008 (given in late 2007) did not come close.
3. The material weaknesses identified have not been fully resolved (the last I heard there were 3 outstanding).
4. "Legacy" expenses from accounting to legal still continue to date.
5. ARP accounting systems are not fully in place as of yet.
6. The stock price has declined from around $8 (already down from the $30s/40s the previous year in 2004) to the low $3 level in 3 years.
Compensation:
Barton started out with a base salary of $500k that was increased to $750k. At the end of November, 2007 (after the shareholder meeting when the price was sub $3 no less), shareholders received news of the retention agreement.
"The Retention Agreement provides that the Company will provide a retention incentive to Mr. Barton with a total value of $10,000,000 (the "Retention Incentive"), consisting of a combination of restricted stock, RSUs, performance shares and performance units (together, "Equity") to be granted under the Plan and/or cash, in the sole discretion of the Compensation Committee. Each installment of the Retention Incentive will be awarded in a combination of Equity, in the Committee's sole discretion, up to the annual maximum amounts permitted under the Plan after taking into account Mr. Barton's focal awards for each particular year. The first installment was awarded effective November 30, 2007 (see below), and the remaining installments are expected to be awarded each January thereafter. Because of limits on the maximum amount of Equity that can be granted to an individual in any calendar year under the Plan, the Company expects that the Retention Incentive will be awarded over a number of years, so that as much of the Retention Incentive can be awarded under the Plan as possible. The first installment of the Retention Incentive will vest as to $2,500,000 in value on November 30, 2007, and the remaining installments will vest as to $2,500,000 in value on each November 30 thereafter until the full $10,000,000 in value has vested. For purposes of determining the vested value, the value of Equity to vest will be based on the Fair Market Value (as defined in the Plan) of the Company's common stock on the applicable date of grant."
Resignation Agreement:
Fran Barton will receive $380k and accelerated vesting of the $2.5m retention bonus that was going to vest in November 2008. So, Fran effectively collected half of the $10m in retention bonus.
Commentary:
As a shareholder in the company, it is hard for me to even say "thank you" for Fran Barton's services due to the negatives I outlined above. During the March 17 meeting that some shareholders had with management, I openly questioned management and lead director Thomas Toy about management compensation and highlighted specifically Fran Barton's compensation. Tom basically defended the compensation/retention agreement based on the "positives" noted on the 8k. At that time, the management/board made it seem Barton had the blue print plan to return the company to sustainable profitability and growth (See my March 2008 postings to review our meeting).
It does seem odd that now Barton has retired, management is confident that the executives left behind can fill Fran Barton's role with "seamless transition". I had emailed Peter Blackmore late Thursday and he explained the departures as simply for personal reasons and that he was confident in the team that they had. Blackmore wanted to discuss it personally but we did not hook up the following day. I have been a constant critic of Fran Barton even before blogging and did not feel he deserved the compensation for the performance. Now that the turnaround is well underway, it seems less likely he would contribute. I did not get an impression Barton was well in-tuned with the technology and would forget certain numbers even during planned CCs. During the few times I had personal contact with Fran, he seemed very nice/professional and well liked by the other employees. However, this is the business world where performance is the metric which we measure the CFO and not likeability. In that measure, Fran Barton did not fulfill the goal when he was hired to return the company to growth and profitability. The balance sheet seems better with all the asset sales but shareholder equity has also gone down. Nor did the shareprice (already low at the time when Fran Barton joined) go up.
In summary, I enjoyed the minimal conversations I had with Fran but think it is a positive impact to the company/share holders that he retired. I guess it was "nice" for Fran's reputation that the street react negatively for a day to Fran Barton's departure but that just reinforced my belief that in the short term that the street has mispriced the stock badly.
I want to end this post wishing Fran Barton good luck but does he really need it or UT shareholders still facing the ongoing soap opera that is UTStarcom......all potential, valuation, and little results. As we think about Fran's tenure, we shareholders still cling to the hope that management/board can "work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability." When did we hear that one before? Or are we shareholders just a bunch of short term traders with no patience. Right...give us a break. Really, please give us a break :-)
http://biz.yahoo.com/prnews/080828/aqth069.html?.v=65 This was unusual in that there was no transition period (atleast not that the street was aware of). Fran was hired by UTStarcom to be its CFO effective September 2005. Then CFO Mike Sophie focused on the COO spot after Fran Barton's hiring. From the company PR, "I believe that Fran's background represents an optimal fit for the needs of our finance organization as we go through the restructuring and diversification initiatives," said Mike Sophie, chief operating officer at UTStarcom, "His appointment will allow me to focus on the operating aspects of these initiatives. Fran and I will work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability."
http://sev.prnewswire.com/computer-electronics/20050802/SFTU10902082005-1.html
I want to highlight the positives and negatives of Fran Barton's tenure and provide some commentary.
Positives:
I will take the positives from the November 30, 2007 8K filing discussing Fran Barton's retention agreement.
"The Compensation Committee approved the Retention Agreement after taking into consideration: (i) Mr. Barton's performance during a challenging year, including completing the Company's previously disclosed stock option and historical sales contract investigations, bringing the Company current in its SEC filings and improving the Company's Section 404 compliance process; (ii) the critical nature of Mr. Barton's current and future role in light of anticipated management transitions in fiscal year 2008; and (iii) increasing competition in the market for experienced financial professionals. "
The balance sheet is also better due to asset/investment/none-core business unit sales.
Negatives:
1. There was not one single profitable operating quarter during Fran Barton's tenure.
1a. Write downs and poor contracts (such as in India) and bloated expenses added to the decline in PAS to contribute to the money losing quarters.
2. Predictions of profitability for (a) early 2007 (given in late 2005), (b) early 2008 (given in August 2007), and (c) early 2009 or late 2008 (given in late 2007) did not come close.
3. The material weaknesses identified have not been fully resolved (the last I heard there were 3 outstanding).
4. "Legacy" expenses from accounting to legal still continue to date.
5. ARP accounting systems are not fully in place as of yet.
6. The stock price has declined from around $8 (already down from the $30s/40s the previous year in 2004) to the low $3 level in 3 years.
Compensation:
Barton started out with a base salary of $500k that was increased to $750k. At the end of November, 2007 (after the shareholder meeting when the price was sub $3 no less), shareholders received news of the retention agreement.
"The Retention Agreement provides that the Company will provide a retention incentive to Mr. Barton with a total value of $10,000,000 (the "Retention Incentive"), consisting of a combination of restricted stock, RSUs, performance shares and performance units (together, "Equity") to be granted under the Plan and/or cash, in the sole discretion of the Compensation Committee. Each installment of the Retention Incentive will be awarded in a combination of Equity, in the Committee's sole discretion, up to the annual maximum amounts permitted under the Plan after taking into account Mr. Barton's focal awards for each particular year. The first installment was awarded effective November 30, 2007 (see below), and the remaining installments are expected to be awarded each January thereafter. Because of limits on the maximum amount of Equity that can be granted to an individual in any calendar year under the Plan, the Company expects that the Retention Incentive will be awarded over a number of years, so that as much of the Retention Incentive can be awarded under the Plan as possible. The first installment of the Retention Incentive will vest as to $2,500,000 in value on November 30, 2007, and the remaining installments will vest as to $2,500,000 in value on each November 30 thereafter until the full $10,000,000 in value has vested. For purposes of determining the vested value, the value of Equity to vest will be based on the Fair Market Value (as defined in the Plan) of the Company's common stock on the applicable date of grant."
Resignation Agreement:
Fran Barton will receive $380k and accelerated vesting of the $2.5m retention bonus that was going to vest in November 2008. So, Fran effectively collected half of the $10m in retention bonus.
Commentary:
As a shareholder in the company, it is hard for me to even say "thank you" for Fran Barton's services due to the negatives I outlined above. During the March 17 meeting that some shareholders had with management, I openly questioned management and lead director Thomas Toy about management compensation and highlighted specifically Fran Barton's compensation. Tom basically defended the compensation/retention agreement based on the "positives" noted on the 8k. At that time, the management/board made it seem Barton had the blue print plan to return the company to sustainable profitability and growth (See my March 2008 postings to review our meeting).
It does seem odd that now Barton has retired, management is confident that the executives left behind can fill Fran Barton's role with "seamless transition". I had emailed Peter Blackmore late Thursday and he explained the departures as simply for personal reasons and that he was confident in the team that they had. Blackmore wanted to discuss it personally but we did not hook up the following day. I have been a constant critic of Fran Barton even before blogging and did not feel he deserved the compensation for the performance. Now that the turnaround is well underway, it seems less likely he would contribute. I did not get an impression Barton was well in-tuned with the technology and would forget certain numbers even during planned CCs. During the few times I had personal contact with Fran, he seemed very nice/professional and well liked by the other employees. However, this is the business world where performance is the metric which we measure the CFO and not likeability. In that measure, Fran Barton did not fulfill the goal when he was hired to return the company to growth and profitability. The balance sheet seems better with all the asset sales but shareholder equity has also gone down. Nor did the shareprice (already low at the time when Fran Barton joined) go up.
In summary, I enjoyed the minimal conversations I had with Fran but think it is a positive impact to the company/share holders that he retired. I guess it was "nice" for Fran's reputation that the street react negatively for a day to Fran Barton's departure but that just reinforced my belief that in the short term that the street has mispriced the stock badly.
I want to end this post wishing Fran Barton good luck but does he really need it or UT shareholders still facing the ongoing soap opera that is UTStarcom......all potential, valuation, and little results. As we think about Fran's tenure, we shareholders still cling to the hope that management/board can "work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability." When did we hear that one before? Or are we shareholders just a bunch of short term traders with no patience. Right...give us a break. Really, please give us a break :-)
Sunday, August 24, 2008
Weekly recap - Management needs to act.
The stock closed the week at $3.36, down 10 cents or 3%. The markets rallied hard on Friday to pare losses. For the week, Nasdaq lost 1.5%, DOW .27%, and S&P .46%. The stock has now closed lower the last six consecutive weeks, dropping from $5.57 on July 7 for a loss of $2.21 or 40%. Technically, the stock is weak, trading below the 50 day ($4.8 or so) and the 200 day ($3.6 or so). There were no specific PRs from the company so I'd just like to discuss a couple of items.
IPTV - One of the disappointments during the last earnings call update is the iptv subscriber numbers. The company only added around 100k subscribers to reach 956k and mostly in China (Shanghai). Fellow shareholder Shadowdoc99 posted on the slow developments in iptv in China.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=154720&mid=155008&tof=12&rt=2&frt=1&off=1 Hopefully, the olympics will accelerate the growth in China, which is the main growth driver for UTs iptv in the near term (6 to 12 months).
Shadow also discussed some developements that could help UT in India regarding iptv system storage clauses: The Information and Broadcasting Ministry in India, based on recommendation by TRAI, has mandated that all IPTV carriers make available up to 90 days of stored broadcasts for subscribers. Reliance is going to have conniptions over this requirement as they have signed on with Microsoft for IPTV and cannot meet this requirement without huge capex for storage. In fact, only UTSI's system can meet this requirement economically and so it seems India is standardizing on UTSI's IPTV system.
This blog has a lot of good information on the latest iptv news in India, http://dth-iptv-radio.blogspot.com/search/label/BSNL%20IPTV
It seems like the regulations in India are very favorable to UT's iptv system and that UT is well positioned in India. The problem now is that broadband uptake and iptv ramp is still very slow and overal iptv numbers are around 10k. Compared to the contract capacity that UT has signed with Aksh (with MTNL, BSNL), Bharti Airtel, Goa, and Sri Lanka numbering potentially over 2 million subscribers over the next 2 to 3 years, the current number is very disappointing to say the least.
The situation is not much different in other parts of the world, such as in Taiwan and Brazil, where UT has announced contract wins. The numbers are very small (about 5 to 10k live subscribers). The Taiwan contract for example was for an initial 20k UT set top boxes and targettied 500k within 2 years. That contract was announced in December of 2007 so it has been very slow as well. Recently, management has indicated some optimism there and from the China olympics but we'll just have to see how it plays out.
Share Buy Back and investor confidence - I've posted a couple of times on this the past week and shareholders have sent emails to management. The developments from the earnings call (revenue shortfall, cash losses) are very frustrating to shareholders. The company is reaching out to the investment community (roadshows, analyst day meetings, earnings call/shareholder meetings, webinars, etc) at a time when the company's performance does not seem to be improving (and in some respect deteriorating). As an existing shareholder, I have to now question why management is spending time/effort/money to tell their story, reach out to NEW analysts/investors when they can't even appease the existing shareholder base/investment community and when they have yet to even come close to sustainable profitability. It doesn't make any sense to me. From Sophie to Barton to Blackmore, it seems like management has kept on promising profitability in the "next year" but have not delivered. Everyone is hesitant to cut costs to get to profitability because they want huge growth further down the line but where are the committments? Where is the balance? Where does shareprice and shareholders come to play? More frustrating, when it doesn't happen, there are more excuses. Can someone there really deliver? I really want to challenge management to respond to their existing shareholders and be accountable for what you are spewing out. Management needs to act and start delivering.
I continue to call on shareholders to email management to implement a share buyback for all the reasons I have posted on. Have a good rest of the weekend to everyone.
IPTV - One of the disappointments during the last earnings call update is the iptv subscriber numbers. The company only added around 100k subscribers to reach 956k and mostly in China (Shanghai). Fellow shareholder Shadowdoc99 posted on the slow developments in iptv in China.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=154720&mid=155008&tof=12&rt=2&frt=1&off=1 Hopefully, the olympics will accelerate the growth in China, which is the main growth driver for UTs iptv in the near term (6 to 12 months).
Shadow also discussed some developements that could help UT in India regarding iptv system storage clauses: The Information and Broadcasting Ministry in India, based on recommendation by TRAI, has mandated that all IPTV carriers make available up to 90 days of stored broadcasts for subscribers. Reliance is going to have conniptions over this requirement as they have signed on with Microsoft for IPTV and cannot meet this requirement without huge capex for storage. In fact, only UTSI's system can meet this requirement economically and so it seems India is standardizing on UTSI's IPTV system.
This blog has a lot of good information on the latest iptv news in India, http://dth-iptv-radio.blogspot.com/search/label/BSNL%20IPTV
It seems like the regulations in India are very favorable to UT's iptv system and that UT is well positioned in India. The problem now is that broadband uptake and iptv ramp is still very slow and overal iptv numbers are around 10k. Compared to the contract capacity that UT has signed with Aksh (with MTNL, BSNL), Bharti Airtel, Goa, and Sri Lanka numbering potentially over 2 million subscribers over the next 2 to 3 years, the current number is very disappointing to say the least.
The situation is not much different in other parts of the world, such as in Taiwan and Brazil, where UT has announced contract wins. The numbers are very small (about 5 to 10k live subscribers). The Taiwan contract for example was for an initial 20k UT set top boxes and targettied 500k within 2 years. That contract was announced in December of 2007 so it has been very slow as well. Recently, management has indicated some optimism there and from the China olympics but we'll just have to see how it plays out.
Share Buy Back and investor confidence - I've posted a couple of times on this the past week and shareholders have sent emails to management. The developments from the earnings call (revenue shortfall, cash losses) are very frustrating to shareholders. The company is reaching out to the investment community (roadshows, analyst day meetings, earnings call/shareholder meetings, webinars, etc) at a time when the company's performance does not seem to be improving (and in some respect deteriorating). As an existing shareholder, I have to now question why management is spending time/effort/money to tell their story, reach out to NEW analysts/investors when they can't even appease the existing shareholder base/investment community and when they have yet to even come close to sustainable profitability. It doesn't make any sense to me. From Sophie to Barton to Blackmore, it seems like management has kept on promising profitability in the "next year" but have not delivered. Everyone is hesitant to cut costs to get to profitability because they want huge growth further down the line but where are the committments? Where is the balance? Where does shareprice and shareholders come to play? More frustrating, when it doesn't happen, there are more excuses. Can someone there really deliver? I really want to challenge management to respond to their existing shareholders and be accountable for what you are spewing out. Management needs to act and start delivering.
I continue to call on shareholders to email management to implement a share buyback for all the reasons I have posted on. Have a good rest of the weekend to everyone.
Saturday, August 23, 2008
Update on Stock Buyback
In response to shareholder's emails to management, a generic reply was sent back to shareholders.
Thank you for your recent e-mail to UTStarcom's management.
We have had a number of recent conversations with many investors during which we've heard a range of investor concerns and suggestions along with a great deal of excitement about our future. We appreciate this feedback and want to remind our investors that UTStarcom's management and board of directors regularly evaluate the company's priorities, including, but not limited to, possible uses of its existing cash balances.
We continue to be excited about the strategic plan we outlined in late 2007, the progress we've made thus far and the opportunities that are in front of us.
Thank you for your continued interest in and support of UTStarcom.
Sincerely,
Mr. Barry Hutton
Senior Director, Investor Relations
UTStarcom, Inc.(510) 769-2807
---------------------------------------------------------------------------------------------
Let me be clear from the very start that the "progress made thus far" has been significant but only when compared to the hole the company dug for itself. In terms of operating a company for profitability, it has been a disaster. The company's stance has been to focus on the long term turnaround and opportunities the company has (again, in the reply above, "excitement" was used"). I can't believe ANY shareholder is excited unless they sold out and rebought at these levels. The problem with management discussing the recent progress (last year) is to ignore the previous four years! Who is being short term? Shareholders or management. It is clear that shareholders have stuck with this company while management takes its time and "reacting" rather than being "proactive". All their consultants and executives have not made a dent or even get close to sustainable profitability.
The share price being up for the year is more an indication of the value the company had and NOT due to company performance. People that say they are doing well since the shares are up are simply idiots. Anyone looking at the company assets last year knows it is worth significantly more. The fact that the stock can move up close to the $6 level shows how little they have to do on the operational side of things to move the stock up.
The "hope" with "new" management rests with Peter Blackmore as the new CEO. This being Peter's first CEO role and with the low expectations, low share price, heavy assets/resources of the company showed that there was significant shareholder value that can be unlocked. Peter has discussed the company being a large startup and of course that was not the case. This shareholder group has consistently brought the history of underperformance in all the discussions we've had all the way back four years ago! Peter had a fresh start and another year to 18 months to perform and get to sustainable profitability. That time is running out and Peter should take responsibility for this.
Going back to the share buyback. People that say they need to think longer term and save cash either don't have a significant position or don't care about the company's performance. Even with the buildup for the $80m+ India Phase II contract and losses for the rest of the year, the company will have over $300m+ in net cash at the end of the year. That is about 70% of the current market cap! The CFO Fran Barton mentioned that he would not like to be involved in a company that just down sizes and not growing. Lets consider two cases. One, they do not grow (book business) the several hundred million they need to get to profitability. Are they then going to lose $300m+ next year in cash flow? Definitely not. So, they should cut costs and return funds to shareholders.
Case 2 is supposedely the one management is on, growing the company's core business significantly and ramping bookings and revenue. There was a good discussion on this by shareholders Tigre and Shadow (and I threw my two cents in). EVEN if they grow bookings by $100m/quarter next year and beyond, could they do a share buyback? Looking at the India Phase II contract for $80m+, that is probably at the extreme in terms of lower margins, longer DSOs and they only spent $60m in cash flows while funding all the material/hardware for this. How many building contractors can fund an entire buildings materials/equipment before the ink dries on the contract? Besides, most of their contracts will be much smaller, have higher GMs, quicker turnaround (lower DSOs), etc. This is a company with over $300m in net cash and probably more if they sell the CSBU and further reduce expenses. BTW, how long will they have "legacy" accounting, legal, and other expenses. They have been talking about this for 2 years. The company fights for a few million in gross profits and throw away so much in their "legacy" expenses. Anyway, back to funding the "growth". Don't forget the this is a company that owns their China building, worth about $180m. What is the problem in getting a $50m line of credit if they really need it? I am not a financial expert by any means but it is getting ridiculous when a company that has so many consultants and supposedely top-notch executives (not to mention a decade+ of operating in China) cannot find lines of credits when they have virtually no debt, huge NET cash, owns their properties, and planning to grow bookings 25 to 50% overall.
So, what is it gentlemen? Case 1 or 2 or if its even worse than any of those, then go to a strategic alternative to sell the company. Judging by the conversations I have heard, it is Case 2 and the shareprice is too low and supposedely progress has been made to make selling out now ridiculous. So, either way you look at, a share buyback should be implemented or confidence in your basic competence or charge for looking after shareholder value is gone. Going to roadshows and making promises after years (let alone the 2nd half shortfall) of underdelivering is not a productive use of time/effort. Don't be idiots and be pro-active for once. I personally like the management team but you need to do the share buyback and look competent for once. Its hard for me to defend the company/stock when time after time, the company has not produced. There is still so much value and potential with the company but that cannot be the only fighting charge we hold on. Tangible actions on the shareprice has to occur. It should not be at these levels.
Have a good weekend.
Thank you for your recent e-mail to UTStarcom's management.
We have had a number of recent conversations with many investors during which we've heard a range of investor concerns and suggestions along with a great deal of excitement about our future. We appreciate this feedback and want to remind our investors that UTStarcom's management and board of directors regularly evaluate the company's priorities, including, but not limited to, possible uses of its existing cash balances.
We continue to be excited about the strategic plan we outlined in late 2007, the progress we've made thus far and the opportunities that are in front of us.
Thank you for your continued interest in and support of UTStarcom.
Sincerely,
Mr. Barry Hutton
Senior Director, Investor Relations
UTStarcom, Inc.(510) 769-2807
---------------------------------------------------------------------------------------------
Let me be clear from the very start that the "progress made thus far" has been significant but only when compared to the hole the company dug for itself. In terms of operating a company for profitability, it has been a disaster. The company's stance has been to focus on the long term turnaround and opportunities the company has (again, in the reply above, "excitement" was used"). I can't believe ANY shareholder is excited unless they sold out and rebought at these levels. The problem with management discussing the recent progress (last year) is to ignore the previous four years! Who is being short term? Shareholders or management. It is clear that shareholders have stuck with this company while management takes its time and "reacting" rather than being "proactive". All their consultants and executives have not made a dent or even get close to sustainable profitability.
The share price being up for the year is more an indication of the value the company had and NOT due to company performance. People that say they are doing well since the shares are up are simply idiots. Anyone looking at the company assets last year knows it is worth significantly more. The fact that the stock can move up close to the $6 level shows how little they have to do on the operational side of things to move the stock up.
The "hope" with "new" management rests with Peter Blackmore as the new CEO. This being Peter's first CEO role and with the low expectations, low share price, heavy assets/resources of the company showed that there was significant shareholder value that can be unlocked. Peter has discussed the company being a large startup and of course that was not the case. This shareholder group has consistently brought the history of underperformance in all the discussions we've had all the way back four years ago! Peter had a fresh start and another year to 18 months to perform and get to sustainable profitability. That time is running out and Peter should take responsibility for this.
Going back to the share buyback. People that say they need to think longer term and save cash either don't have a significant position or don't care about the company's performance. Even with the buildup for the $80m+ India Phase II contract and losses for the rest of the year, the company will have over $300m+ in net cash at the end of the year. That is about 70% of the current market cap! The CFO Fran Barton mentioned that he would not like to be involved in a company that just down sizes and not growing. Lets consider two cases. One, they do not grow (book business) the several hundred million they need to get to profitability. Are they then going to lose $300m+ next year in cash flow? Definitely not. So, they should cut costs and return funds to shareholders.
Case 2 is supposedely the one management is on, growing the company's core business significantly and ramping bookings and revenue. There was a good discussion on this by shareholders Tigre and Shadow (and I threw my two cents in). EVEN if they grow bookings by $100m/quarter next year and beyond, could they do a share buyback? Looking at the India Phase II contract for $80m+, that is probably at the extreme in terms of lower margins, longer DSOs and they only spent $60m in cash flows while funding all the material/hardware for this. How many building contractors can fund an entire buildings materials/equipment before the ink dries on the contract? Besides, most of their contracts will be much smaller, have higher GMs, quicker turnaround (lower DSOs), etc. This is a company with over $300m in net cash and probably more if they sell the CSBU and further reduce expenses. BTW, how long will they have "legacy" accounting, legal, and other expenses. They have been talking about this for 2 years. The company fights for a few million in gross profits and throw away so much in their "legacy" expenses. Anyway, back to funding the "growth". Don't forget the this is a company that owns their China building, worth about $180m. What is the problem in getting a $50m line of credit if they really need it? I am not a financial expert by any means but it is getting ridiculous when a company that has so many consultants and supposedely top-notch executives (not to mention a decade+ of operating in China) cannot find lines of credits when they have virtually no debt, huge NET cash, owns their properties, and planning to grow bookings 25 to 50% overall.
So, what is it gentlemen? Case 1 or 2 or if its even worse than any of those, then go to a strategic alternative to sell the company. Judging by the conversations I have heard, it is Case 2 and the shareprice is too low and supposedely progress has been made to make selling out now ridiculous. So, either way you look at, a share buyback should be implemented or confidence in your basic competence or charge for looking after shareholder value is gone. Going to roadshows and making promises after years (let alone the 2nd half shortfall) of underdelivering is not a productive use of time/effort. Don't be idiots and be pro-active for once. I personally like the management team but you need to do the share buyback and look competent for once. Its hard for me to defend the company/stock when time after time, the company has not produced. There is still so much value and potential with the company but that cannot be the only fighting charge we hold on. Tangible actions on the shareprice has to occur. It should not be at these levels.
Have a good weekend.
Tuesday, August 19, 2008
Share buyback campaign
My fellow shareholders,
It has been a major disappointment to see the stock drop down to the low $3 level after reaching almost $6 this year. The company's management let shareholders down with this year's shortfall and cash flow metrics after repeatedely touting their turnaround plan in previous earnings calls, analyst day meetings, shareholders meetings, and webinars. It can be argued that some of the events were not in management's control. However, with the company's history over the last few years, these "good excuses/negative results" have become all too common and drive down investor confidence, whatever is left. Management has discussed (a lot) about getting to profitability and there are signs of operational improvements. It has improved the balance sheet and for the most part, I believe the company is in a much better situation this year compared to last year. However, the fact remains, there is a significant difference in the street's interpretation of the company's performance and outlook to what management is portraying. This is not due to a lack of effort from management's part either (with the numerous events/communications/projections). However, this latest set-back has eroded hard earned credibility built up over the last year. Let me repeat. It has eroded hard earned credibility built up over the last year. It will be hard for the company to gain back credibility unless it starts producing good operational results or doing something tangible (much more than just talk and projections).
Since last year, the shareholder group has discussed a share buyback with the management and with lead director Thomas Toy. It seems that everyone was in agreement that the shareprice is undervalued but there were always issues that prevented a share buyback such as resolving the convertible bond, reorganization, building up revenue, and other items. The Chief Financial Officier, Fran Barton, has mentioned that they cannot do a buyback unless they have "excess" cash. After the recent sale of the PCD, the company has amassed a net cash position of over $400m. Even after subtracting the cash flow losses for the remainder of the year, the company will still have over $300m in net cash. The company has also indicated that it may sell or merge the remaining none-core business, the CSBU, that can also generate cash or additional cost savings. With Barton's "conservatism" when getting bad news out, I think that cash is going to be even more by the end of the year. Revenue growth in the high double digits and bookings of 25-50% are predicted for 2009. This is also a company that has very little debt, has interest income, and owns their China building. In any case, unless there is something more horrendous that we shareholders do not know, the company has plenty of "excess" cash.
At this time, I am calling for the management/board to finally institute the long discussed share buyback to significantly reduce the float and enhance shareholder value. The last thing I want is that the "excess" cash sits in a bank making 1.9% while shareholders watch their holdings drop 40+% in the last few weeks and possibly more. An analogy would be shareholders starving NOW while management keeps all the food that shareholders own to begin with. I will contact institutions and management to campaign for a share buyback as this is the best use of excess cash. Period. I suggest that ALL shareholders send an email to the CEO Peter Blackmore and CFO Fran Barton to voice their support for a share buyback. This is simply a no brainer at this time and a major indication on whether the board is for shareholder value (and people we can continue to support). I and a lot of shareholders have been major supporters of the company for years but there comes a time when the company has to give something back to its own shareholders. This time, there are really no ifs ands or buts. Again, if you agree, send an email to management to voice your support for the share buyback.
Here are the emails:
Peter.Blackmore@utstar.com
Fran.Barton@utstar.com
It has been a major disappointment to see the stock drop down to the low $3 level after reaching almost $6 this year. The company's management let shareholders down with this year's shortfall and cash flow metrics after repeatedely touting their turnaround plan in previous earnings calls, analyst day meetings, shareholders meetings, and webinars. It can be argued that some of the events were not in management's control. However, with the company's history over the last few years, these "good excuses/negative results" have become all too common and drive down investor confidence, whatever is left. Management has discussed (a lot) about getting to profitability and there are signs of operational improvements. It has improved the balance sheet and for the most part, I believe the company is in a much better situation this year compared to last year. However, the fact remains, there is a significant difference in the street's interpretation of the company's performance and outlook to what management is portraying. This is not due to a lack of effort from management's part either (with the numerous events/communications/projections). However, this latest set-back has eroded hard earned credibility built up over the last year. Let me repeat. It has eroded hard earned credibility built up over the last year. It will be hard for the company to gain back credibility unless it starts producing good operational results or doing something tangible (much more than just talk and projections).
Since last year, the shareholder group has discussed a share buyback with the management and with lead director Thomas Toy. It seems that everyone was in agreement that the shareprice is undervalued but there were always issues that prevented a share buyback such as resolving the convertible bond, reorganization, building up revenue, and other items. The Chief Financial Officier, Fran Barton, has mentioned that they cannot do a buyback unless they have "excess" cash. After the recent sale of the PCD, the company has amassed a net cash position of over $400m. Even after subtracting the cash flow losses for the remainder of the year, the company will still have over $300m in net cash. The company has also indicated that it may sell or merge the remaining none-core business, the CSBU, that can also generate cash or additional cost savings. With Barton's "conservatism" when getting bad news out, I think that cash is going to be even more by the end of the year. Revenue growth in the high double digits and bookings of 25-50% are predicted for 2009. This is also a company that has very little debt, has interest income, and owns their China building. In any case, unless there is something more horrendous that we shareholders do not know, the company has plenty of "excess" cash.
At this time, I am calling for the management/board to finally institute the long discussed share buyback to significantly reduce the float and enhance shareholder value. The last thing I want is that the "excess" cash sits in a bank making 1.9% while shareholders watch their holdings drop 40+% in the last few weeks and possibly more. An analogy would be shareholders starving NOW while management keeps all the food that shareholders own to begin with. I will contact institutions and management to campaign for a share buyback as this is the best use of excess cash. Period. I suggest that ALL shareholders send an email to the CEO Peter Blackmore and CFO Fran Barton to voice their support for a share buyback. This is simply a no brainer at this time and a major indication on whether the board is for shareholder value (and people we can continue to support). I and a lot of shareholders have been major supporters of the company for years but there comes a time when the company has to give something back to its own shareholders. This time, there are really no ifs ands or buts. Again, if you agree, send an email to management to voice your support for the share buyback.
Here are the emails:
Peter.Blackmore@utstar.com
Fran.Barton@utstar.com
Sunday, August 17, 2008
Weekly recap - No rebound
The stock closed at $3.46, down 2 cents or .57% for the week. This was disappointing in light of the strength in the Nasdaq (up over 1.5%) and the failure to bounce from a 27% decline last week. There were no announcements from the company but here are some discussion topics.
2008 Revenue shortfall quantified- Fellow shareholder shadowdoc99 refined his estimates and writes:
"Okay, Tim, thanks for your reply. Basically, I made the following mistakes in my estimate. First of all, I forgot to subtract the previously expected operating profit from the sold PCD division for H2 which would be about $16.5M ($63M for entire PCD division in 2007 minus $30M for UTSI supplied cell phones to PCD divided by 2 for H2 only). Secondly, I used gross margin of 36% for handsets instead of 22% or less and 15% for UTSI manufactured handsets instead of 10.7%. Not sure where I got the 15% figure from but the 10.7% figure was from 2007 and I couldn't find a number for 2008.
So, of the $40M in unexpected cash burn, $23.5M still needs to be explained ($40M - $16.5M = $23.5M) from a loss of $135M in sales. Using $31M in lost sales for PAS handsets at 22% margin gives gross loss of $6.82M; $15M sales loss of PAS infra at 45% margin gives gross loss of $6.75M; $89M lost sales of UTSI manufactured PCD handsets at 10.7% margin gives gross loss of $9.71M.
So, adding these all up we get total sales loss of $135M with gross operating loss of $23.1M which is close enough to the $23.5M. So, all in all not so bad. The PCD handset sales are down due to recession in the US and PAS handset sales are down due to recession in China plus the restructuring. These are short term events and will resolve as we go into 2009. The PAS infrastructure sale loss still bothers me. If it is simply postponed into 2009 because of revenue recognition due to the carrier reorganization, that is no problem. If it is a cancelled contract, why was it cancelled and can other long-term PAS contracts be cancelled? If this is a one-time event, it is a small amount and of minimal consequence. Judging by company's guidance that PAS declines in H2 of this year are not going to continue into 2009, I would guess this is either delayed revenue recognition or a singular problem that will not be repeated. "
I think this latest quantification is right on and shows that the "legacy" and handset part of the company are still a significant portion of the overall revenue stream of the company. While it seems these are short term issues, we need to pay as much attention to this as well as the growing core businesses.
PCD Sale, some final words- There has been some continued discussions on whether UT did the right thing by selling PCD when it was doing well and when the company's other businesses are still unprofitable. I had replied in favor of the sale to another shareholder this week, "The overall PCD was only netting 3 to 4% gross margins a couple of years ago and that figure included the higher margin UT design phones. Now, it has spiked to 6-8% with the higher priced/higher margin smart phones. I don't think it can be maintained though. Look at Palm ordering 5 million smart phones a few days ago from their Chinese supplier for 2009. Rimm is coming out with 3 or 4 smartphones in the sub $100 category. Apple's iphone is $199 (although with high monthlys). Average selling price is going down industry wise as these are commodity products. Even UTs own internal handset business is questionable since the margins are still low and volumes are not comparable to others (scale is definitely important). So, overall, I don't think it would have continued like that but I do hope it performs well enough for UT to collect as much of the $50m due end of 2010. If UT doesn't get a decent piece of the CDMA/GSM market in China as part of the restructuring, they might as well sell that one too and save on the expenses. As for inventory, that is definitely questionable as UT also had to take in a lot of invetory from Pantech-curitel before for the exclusive agreement. That burned up a lot of cash and led to low margins for what seems like forever."
Shanghai/Harbin iptv- Tigre writes, "Given the low monthly ARPU and the necessary cost of acquiring programmings and the need to share revenue with local broadcast and media partners, it is not easy to make a profit for CT/N on IPTV at this stage. As illustratged in the Harbin article, the lack of local contents has also limited the growth of IPTV in Harbin, despite content partnership with SMG which is based in Shanghai. Also, having an IPTV operating license hasn't prevented local SARFT from prohibiting Netcom's 20 yuan/month IPTV promotion, citing that the price is too low. This is not an issue in Shanghai as SMG is the local partner of CT there. So Shanghai has its unique characteristics (including higher income of residents and being an Olympics city) and we can not generalize the success in Shanghai and expect simple replication elsewhere in China."
IPTV has done well in Shanghai with expectations that iptv subscribers will reach 800k by year's end. Shanghai with 19m in population shows the potential growth of iptv in China but the different regulatory/content issues elsewhere prevent a full openning up of the China market that makes estimates/projections difficult.
UT IPTV growth- My last posting gave some projections of growth for UTs iptv business in 2009 based on growth in the last year, looking at global growth, projections, and strategic wins/uptake in UT markets. http://utstarcom-stocknews.blogspot.com/2008/08/iptv-potential-100m-revenue-growth-in.html Obviously, this is just an estimate and there are many factors that can significantly increase/decrease this number and various events that can occur over the 2nd half of 2008 that could impact the market. I'll be interested to see what sigma designs says at the end of the month during the earnings call. There will also be another UT roadshow sometime in September and the impact of the olympics. Obviously, the bookings will be scrutinized during Q3 and the overall outlook from the company for 2009. Here is another recent article that discusses growth in iptv, specially in China. http://www.iptv-news.com/content/view/2213/64/
August 12, 2008 - The number of IPTV subscriber worldwide will reach 53mn in 2009, according to new estimates from a report from UK research firm Companies and Markets, with the APAC region leading growth in terms of subscribers, service revenue, infrastructure and other metrics, thanks to high broadband penetration and a supportive regulatory framework.
Worldwide IPTV service revenue is predicted to reach US$38bn in 2009, with the Americas and Western Europe forecast to be the biggest markets in terms of revenue per user, according to the report, entitled "Global IPTV Market Analysis (2006-2010)". China is expected to be the future "IPTV dragon", thanks to its rapid urbanisation, fast-growing economy and expanding middle class, while the US is expected to be a more difficult market for IPTV due to high existing pay-TV penetration, and stiff price and service competition likely to come from "entrenched" operators of cable and satellite services.
Potential restructuring? - With continued losses projected for the next several quarters, uncertain PAS market, uncertain revenue growth from the core businesses, one analyst and some shareholders are speculating that the company will need to further restructure. UT 2008 revenues of $900m include only about $350m or so in core revenues (iptv, ngn, and broadband). A bulk is still in PAS infra/handsets, and GSM/CDMA handsets. Expenses are still around $380m yearly run rate with $160m or so in R&D. Parts of the R&D are linked to PAS/handsets but the bulk is in the core business. However, obviously, that is still way too high no matter how you look at it. So, is it time to cut further? At this time, I have to say no. The company will continue to cut expenses by selling/merging the CSBU into other business units, will reap further cost savings after all the "legacy" expenses are done (some additional IT, accounting, legal expenses to wrap up). The company has raised substantial cash (I don't agree with all the particulars in the stock sales, interest spending, etc) the past year and will end the year with a strong net cash position. The company's focus is on growth and have earned some time (not a lot) to show that bookings are strong and return to cash flow positive is near. Management stands by its goal of increasing revenue several hundred million and I can see how that can happen but timing is as usual tricky (its already missed Blackmore's initial sustainable expense ratio targets for late 2008/early 2009).
Stock buyback- When the company had over $600-700m in cash, it also had a lot of debt and net cash was lower than where it will end up the year. In fact, most companies with similar market caps don't have anywhere near the net cash the company has. The problem is the cash at hand is still "lower" and do we really want them to borrow at 10.9% or dilute the stock if they require more working capital? I want them to buy the stock at these lower prices but not to the point the company will get in trouble (obviously). I still think a limited buyback may not be bad and show confidence. The flip side is do they have good visibility in and when the iptv markets/core markets will open up? This is where management (Barton in particular) has to start earning their pay. If all you do is be very conservative and sell everything and raise huge cash and use uncertainty as an excuse for everything, then what are you there for. That is too extreme on one side. Management has to get a handle on the business to be more balance in addressing shareholder needs while positioning the company for growth. Creativity? I haven't seen it. Estimates? Way off on the downside and upside. I remain a shareholder because of the huge potential, valuation of the assets (technology/resources/cash/connections/customers etc.).
As a summary for the week, I am simply frustrated with the shareprice but think the company is close to realizing the growth in their core businesses soon (after years and years) and the stock is back to being an incredible value. It always seems darkest when the ...... Have a good weekend everybody. BTW, the olympics have been very exciting so far! Phelps...amazing skill, execution and luck.
2008 Revenue shortfall quantified- Fellow shareholder shadowdoc99 refined his estimates and writes:
"Okay, Tim, thanks for your reply. Basically, I made the following mistakes in my estimate. First of all, I forgot to subtract the previously expected operating profit from the sold PCD division for H2 which would be about $16.5M ($63M for entire PCD division in 2007 minus $30M for UTSI supplied cell phones to PCD divided by 2 for H2 only). Secondly, I used gross margin of 36% for handsets instead of 22% or less and 15% for UTSI manufactured handsets instead of 10.7%. Not sure where I got the 15% figure from but the 10.7% figure was from 2007 and I couldn't find a number for 2008.
So, of the $40M in unexpected cash burn, $23.5M still needs to be explained ($40M - $16.5M = $23.5M) from a loss of $135M in sales. Using $31M in lost sales for PAS handsets at 22% margin gives gross loss of $6.82M; $15M sales loss of PAS infra at 45% margin gives gross loss of $6.75M; $89M lost sales of UTSI manufactured PCD handsets at 10.7% margin gives gross loss of $9.71M.
So, adding these all up we get total sales loss of $135M with gross operating loss of $23.1M which is close enough to the $23.5M. So, all in all not so bad. The PCD handset sales are down due to recession in the US and PAS handset sales are down due to recession in China plus the restructuring. These are short term events and will resolve as we go into 2009. The PAS infrastructure sale loss still bothers me. If it is simply postponed into 2009 because of revenue recognition due to the carrier reorganization, that is no problem. If it is a cancelled contract, why was it cancelled and can other long-term PAS contracts be cancelled? If this is a one-time event, it is a small amount and of minimal consequence. Judging by company's guidance that PAS declines in H2 of this year are not going to continue into 2009, I would guess this is either delayed revenue recognition or a singular problem that will not be repeated. "
I think this latest quantification is right on and shows that the "legacy" and handset part of the company are still a significant portion of the overall revenue stream of the company. While it seems these are short term issues, we need to pay as much attention to this as well as the growing core businesses.
PCD Sale, some final words- There has been some continued discussions on whether UT did the right thing by selling PCD when it was doing well and when the company's other businesses are still unprofitable. I had replied in favor of the sale to another shareholder this week, "The overall PCD was only netting 3 to 4% gross margins a couple of years ago and that figure included the higher margin UT design phones. Now, it has spiked to 6-8% with the higher priced/higher margin smart phones. I don't think it can be maintained though. Look at Palm ordering 5 million smart phones a few days ago from their Chinese supplier for 2009. Rimm is coming out with 3 or 4 smartphones in the sub $100 category. Apple's iphone is $199 (although with high monthlys). Average selling price is going down industry wise as these are commodity products. Even UTs own internal handset business is questionable since the margins are still low and volumes are not comparable to others (scale is definitely important). So, overall, I don't think it would have continued like that but I do hope it performs well enough for UT to collect as much of the $50m due end of 2010. If UT doesn't get a decent piece of the CDMA/GSM market in China as part of the restructuring, they might as well sell that one too and save on the expenses. As for inventory, that is definitely questionable as UT also had to take in a lot of invetory from Pantech-curitel before for the exclusive agreement. That burned up a lot of cash and led to low margins for what seems like forever."
Shanghai/Harbin iptv- Tigre writes, "Given the low monthly ARPU and the necessary cost of acquiring programmings and the need to share revenue with local broadcast and media partners, it is not easy to make a profit for CT/N on IPTV at this stage. As illustratged in the Harbin article, the lack of local contents has also limited the growth of IPTV in Harbin, despite content partnership with SMG which is based in Shanghai. Also, having an IPTV operating license hasn't prevented local SARFT from prohibiting Netcom's 20 yuan/month IPTV promotion, citing that the price is too low. This is not an issue in Shanghai as SMG is the local partner of CT there. So Shanghai has its unique characteristics (including higher income of residents and being an Olympics city) and we can not generalize the success in Shanghai and expect simple replication elsewhere in China."
IPTV has done well in Shanghai with expectations that iptv subscribers will reach 800k by year's end. Shanghai with 19m in population shows the potential growth of iptv in China but the different regulatory/content issues elsewhere prevent a full openning up of the China market that makes estimates/projections difficult.
UT IPTV growth- My last posting gave some projections of growth for UTs iptv business in 2009 based on growth in the last year, looking at global growth, projections, and strategic wins/uptake in UT markets. http://utstarcom-stocknews.blogspot.com/2008/08/iptv-potential-100m-revenue-growth-in.html Obviously, this is just an estimate and there are many factors that can significantly increase/decrease this number and various events that can occur over the 2nd half of 2008 that could impact the market. I'll be interested to see what sigma designs says at the end of the month during the earnings call. There will also be another UT roadshow sometime in September and the impact of the olympics. Obviously, the bookings will be scrutinized during Q3 and the overall outlook from the company for 2009. Here is another recent article that discusses growth in iptv, specially in China. http://www.iptv-news.com/content/view/2213/64/
August 12, 2008 - The number of IPTV subscriber worldwide will reach 53mn in 2009, according to new estimates from a report from UK research firm Companies and Markets, with the APAC region leading growth in terms of subscribers, service revenue, infrastructure and other metrics, thanks to high broadband penetration and a supportive regulatory framework.
Worldwide IPTV service revenue is predicted to reach US$38bn in 2009, with the Americas and Western Europe forecast to be the biggest markets in terms of revenue per user, according to the report, entitled "Global IPTV Market Analysis (2006-2010)". China is expected to be the future "IPTV dragon", thanks to its rapid urbanisation, fast-growing economy and expanding middle class, while the US is expected to be a more difficult market for IPTV due to high existing pay-TV penetration, and stiff price and service competition likely to come from "entrenched" operators of cable and satellite services.
Potential restructuring? - With continued losses projected for the next several quarters, uncertain PAS market, uncertain revenue growth from the core businesses, one analyst and some shareholders are speculating that the company will need to further restructure. UT 2008 revenues of $900m include only about $350m or so in core revenues (iptv, ngn, and broadband). A bulk is still in PAS infra/handsets, and GSM/CDMA handsets. Expenses are still around $380m yearly run rate with $160m or so in R&D. Parts of the R&D are linked to PAS/handsets but the bulk is in the core business. However, obviously, that is still way too high no matter how you look at it. So, is it time to cut further? At this time, I have to say no. The company will continue to cut expenses by selling/merging the CSBU into other business units, will reap further cost savings after all the "legacy" expenses are done (some additional IT, accounting, legal expenses to wrap up). The company has raised substantial cash (I don't agree with all the particulars in the stock sales, interest spending, etc) the past year and will end the year with a strong net cash position. The company's focus is on growth and have earned some time (not a lot) to show that bookings are strong and return to cash flow positive is near. Management stands by its goal of increasing revenue several hundred million and I can see how that can happen but timing is as usual tricky (its already missed Blackmore's initial sustainable expense ratio targets for late 2008/early 2009).
Stock buyback- When the company had over $600-700m in cash, it also had a lot of debt and net cash was lower than where it will end up the year. In fact, most companies with similar market caps don't have anywhere near the net cash the company has. The problem is the cash at hand is still "lower" and do we really want them to borrow at 10.9% or dilute the stock if they require more working capital? I want them to buy the stock at these lower prices but not to the point the company will get in trouble (obviously). I still think a limited buyback may not be bad and show confidence. The flip side is do they have good visibility in and when the iptv markets/core markets will open up? This is where management (Barton in particular) has to start earning their pay. If all you do is be very conservative and sell everything and raise huge cash and use uncertainty as an excuse for everything, then what are you there for. That is too extreme on one side. Management has to get a handle on the business to be more balance in addressing shareholder needs while positioning the company for growth. Creativity? I haven't seen it. Estimates? Way off on the downside and upside. I remain a shareholder because of the huge potential, valuation of the assets (technology/resources/cash/connections/customers etc.).
As a summary for the week, I am simply frustrated with the shareprice but think the company is close to realizing the growth in their core businesses soon (after years and years) and the stock is back to being an incredible value. It always seems darkest when the ...... Have a good weekend everybody. BTW, the olympics have been very exciting so far! Phelps...amazing skill, execution and luck.
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