The stock closed at $1.17, down 68 cents or 37% for the year. The stock is down about 90% from the highs the last couple of years and about 97% over the last 5-years.
Here are the related news over the last few weeks. Thanks to Tigre, Shadow, Techbroker and others that have continued to post.
PAS end of the road? - "According to Sina, the government in recent days have also ordered operators of services using the 1900-1920 MHz frequency band (that's PAS) to stop network expansion and adding new subscribers."
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=157210&mid=157210&tof=49&frt=1
Gepon in China - "Chinese telecom equipment manufacturers Huawei and ZTE (763.HK, 000063.SZ) have won first-round equipment bidding for China Telecom's (NYSE:CHA, 728.HK) gigabit passive optical network (GPON) 2300, reports Communications Weekly. Fiberhome Telecommunication Technologies (600498.SH) and Alcatel Shanghai Bell also shared the bidding. The manufacturers will provide the equipment to China Telecom for free, said an unnamed source. China Telecom plans to trial GPON 2300 in Beijing, Shanghai, Wuhan and Hangzhou." http://www.jlmpacificepoch.com/newsstories?id=141056_0_5_0_M
Good discussion on the boards regarding this news. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=157323&mid=157323&tof=15&rt=1&frt=1&off=1
This is a relatively small trial (hence the free equipment) but nevertheless would like to see UT involved in trials/deployments. UT has previously mentioned winning small contracts in Gepon in China but at this stage it is still small.
Broadband/IPTV in Russia - Fixed-line growth, driven by demand for broadband and IPTV services, will help fuel Russia's telecom services market expansion from $37.2 billion in 2008 to $48.5 billion in 2013, according to a new Pyramid Research report, "Communications Markets in Russia." http://www.lightreading.com/document.asp?doc_id=172392
Still waiting for UT developments in Russia.
UT iptv win - (translated) The tender was finalized before the Spring Festival, UT Starcom to become the project's platform and terminal equipment provider, and the South together with the media for the city of Canton 800,000 cable provides the platform and equipment. 其互动电视业务将与广东的省网现有单向数字电视业务紧密关联。 Its interactive television business will be with the Guangdong provincial network of existing one-way digital TV business closely related. 互动电视业务建立在单向数字电视业务基础上，依托同一HFC网络进行传输。 Interactive TV business set up in a one-way digital television business, based on relying on the same HFC networks. 而双向机顶盒需同时承载互动电视业务和单向数字电视业务。 And two-way set-top box is required to carry a one-way interactive television services and digital television business.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=157323&mid=157326&tof=15&rt=1&frt=1&off=1
Tigre's commentary: As Techbroker commented, this is a good strategic win for UTSI but probably not financially very rewarding. It's great that UTSI carve out a share of a tier-one city that was thought to be Huawei's, and likely defeated ZTE in the bidding. It's just as significant to gain an important partner in Southern Media, to expand beyond existing partnership with SMG. And it wins a chance to showcase the relevance of its IPTV technology as applied to cable, going beyond its traditional application in telecom. Even though it is 2-3 years behind the CT/Huawei team in network construction and trials in Guangzhou, and its cable experience is not as rich as in telecom, it can compensate with more expertise in IPTV network itself and home turf advantage of its powerful media and cable partners. Done right, and UTSI will likely be able to count on more future collaborative projects with Southern Media and other cable companies around the country, which is pretty exciting long-term opportunity. However, to win the bidding war for such a choice set of partners in such a major city, UTSI probably had to fight fiercely against local rival ZTE. So it might not make any money to win this deal. Probably even lose money, knowing how competitive ZTE can be in lowballing its rivals. So this win has not been rewarded by a higher stock price for financial reasons. UTSI needs to cut expense elsewhere in order to keep up the battle in IPTV.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=157323&mid=157361&tof=15&rt=1&frt=1&off=1
Recognition for UT China IPTV Leadership - UTStarcom, Inc. (Nasdaq: UTSI - News) was presented with two awards at the 2008 EXPOCOMM China, October 21-25, 2008, for its long-standing Internet Protocol Television (IPTV) market leadership in China and direct contributions to the country's IPTV commercialization progress. China Electronics News named UTStarcom the "Best Commercial IPTV Vendor" in the country, and China Telecommunication Network gave the company its top "IPTV Industry Contribution Award."
http://biz.yahoo.com/prnews/090202/aqm045.html?.v=72
Over the last couple of years, UT has received numerious recognition in China/India which has worked out well for the customers but has not benefited shareholders.
UT executive pay - "Hong Liang Lu, Chairman, $700,000 per year; Peter Blackmore, President and Chief Executive Officer, $800,000 per year; Mark Green, Senior Vice President, Worldwide Human Resources and Real Estate, $367,500 per year; Susan Marsch, Senior Vice President, General Counsel, Secretary and Chief Ethics Officer, $330,000 per year and Viraj Patel, Interim Chief Financial Officer, Vice President, Corporate Controller, and Chief Accounting Officer, $288,750 per year. Susan Marsch was designated an Executive Officer by the Company on February 18, 2009."
There were also the usual stock grants based on "performance" metrics. hmmmmmmmm. Hong's salary should be reduced in the Chairman role. Overall, I think the salary is not excessive but most shareholders would like some commitment to company profitability and the share price.
Q4 2008 Results? - This was posted last week: Here's what Barry Hutton, UTSTARCOM Senior Director for Investor Relations, wrote in response to a similar question: "Our year end call is very likely to occur during the week of Feb. 23rd. That timing is consistent with both the year end reporting and the quarterly reporting during 2008. As always, 1 – 2 weeks in advance of the call we will issue a press release that provides the exact details for the conference call."
Shareprice and shareholder value - Back to the shareprice. According to book value and other metrics, UT is undervalued. The problem is it has been that way for the last few years. The current environment has not helped either. Some shareholders are calling for a sale but at this point, why? The stock was near $6 about 8 months ago and while there has been "permanent" value destruction/businesses in other companies such as the financials (Citigroup at $1.6 !), UT "should" be able to rebound stock wise IF they finally get closer to profitability.
Small caps in the tech sector have shown they can rebound much quicker as long as they have the technology, markets, and management. Palm went from $1 to $9. Starent is still a $1B company. Thats right $1 billion for a company UTStarcom is suing for basically stealing the technology for their main line of products. UT market cap of $150m is a joke. Are institutional holders selling in the $1-2 range. Yes. Look at the holdings of Brandes, State Street, Barclays, etc. Some of these institutions lost hundreds of millions and sometimes Billions in other companies they hold shares in. Their loss in other holdings can buy the entire UT 10x over! So, if they decide the company has turned a corner, the rebound can just be as swift. In the meantime, we small shareholders watch as the share price head to the low $1s and potentially under.
Advice to management during the next CC - While I hope for good 2009 guidance and signs for the timing when the company will break even and be profitable, I hope they take the opporutinity to let all the bad news out. Then address once and for all, what they will do to get back in the black. With the shareprice at this level, they might as well drop whatever bomb they are going to. The street is expecting the worse and if the stock should go lower, so what. For long-time shareholders, looking at a 95% or 96.5% loss is not much different and maybe, we can find the illusive inflection point and start moving up for good.
Have a good weekend.
Saturday, February 21, 2009
Sunday, February 15, 2009
Management/BOD roles & responsibilities
For this posting, I will respond to fellow shareholder Shadow. Shadow writes:
"I suppose the fact that sales have declined from $2.7 billion to $850 million per year is the fault of the BOD and has little to do with the stock price being where it is now? UTSI tried to buy revenue streams but that strategy failed for lots of reasons. So basically, the company became a startup again. Strip away PAS, PCD and purchased technology revenue for the past 5 years and what would you have for sales? Not much. Big sales in Japan for a year or two but not nearly enough to compensate for the huge PAS loss which continues. Japan sales were just a temporary blip anyhow and have not been sustained."
Sales of PAS peaking and declining have been well projected so this should not be a surprise to management/BOD. I would actually argue the other way and say PAS sales which are still in the hundreds of millions have given the company a huge advantage compared to normal startups the last 4 years. Shadow mentions the "failed strategy", reliance on PAS, PCD and other purchased technology, Japan. This is precisely why management/BOD have to take the full brunt of the blame.
"So this company is truly a start-up in many ways, a baby company severely impacted by the present economic decline while it is still in its infancy."
Again, how many startups have this amount of resource? Infancy? Tech companies don't survive this long unless they are successful or have huge resources.
"What is even worse is that the vision for this company by Hong Lu, right or wrong, is to build an international telecom equipment supplier. Company has the technology to accomplish this and that is why it is so interesting to me. Unfortunately, it had almost no accounting department or backoffice, little marketing and sales outside of China, only PAS marketing and sales experience in China, currency problems that blocked fair competition (with Chinese companies) and faced widespread regulatory and legal issues that blocked deployment of one of its main technologies, IPTV."
The vision, technology, and opportunities are what drew most shareholders into the company. I am not arguing that but blaming the current state to accounting, marketing, currency, and even the competition/regulatory AND not to the management/BOD misses the point. You can have quarterly or even yearly slip ups but the monumental collapse in the share price was multi-year and continuous. The management and BOD's role is to management/oversee a company through good AND bad times/situations. If the mangement/BOD decided to invest in an end-to-end iptv systement and bet the farm and it doesn't work, who do you blame?
"I believe Ying Wu's plan called for focusing the company entirely on IPTV in China and it is not clear his strategy would have worked. Speculation that company could have been sold for $10 a share at one point, is simply just that, speculation. If anyone has a link that proves this was an actual offer that was made, please post it."
The company went into a strategic study to potentially sell the company because it thought the shares were underpriced. This came from the Chairman at the time Thomas Toy. They had offers for atleast parts of the company. This was in late 2006. Toy also mentioned they were worried that some of the offers would not be able to close because of the subprime conditions. Again, this was in late 2006. The stock traded in the $7 range and went to $11. If they wanted to do a deal at $10 or somewhere at that range, they could have done it.
"I think Barton and the members of the BOD did the job they were brought in to do. That was to create a global business infrastructure without which you just couldn't go to large carriers and do contracts. They resolved all the SOX issues, back options issues, SEC filing issues and almost all legal issues that have been pending."
I have documented my frustrations with Barton for years (before the blog). I recall even being very frustrated with the lack of financials when the stock was at $8! so that tells you how long it took them to resolve those issues. The company was at the brink but got lucky in their gemdale/infinera investments and not to mention a final surge in their PCD operations, which was mostly due to the resale side (not even their own design units). As for the BOD, their job is to safeguard shareholder value, which they have not done.
"I agree with you that bookings did not materialize as projected. Why didn't they? If you know, then I would like to hear about it. Without knowing the "why", I find it inappropriate to blame management. Blackmore was awfully shore Q4 2008 sales were going to ramp much more than they actually did. Why didn't they? If it was because of the economic tsunami sweeping the world, is it inappropriate to blame management? The problem is that this failure occurred on top of all the other poor guidance issues from Mike Sophie and Fran Barton."
As I've said many times, the company has many many good reasons for poor performance.......When was the last good year...2004.
"The key to this company right now is Peter Blackmore and I just don't have enough information right now to judge him. My instinct is that he is a straight shooter and will fire employees who don't deliver what is expected of them and get new people who can do the job better. Seems to me that is what has happened in the past 6 months. Maybe not fast enough for some, but you have to be careful how you size a company like UTSI, that is striving to become an international telecom equipment supplier. Success hangs in the balance so the stock price is undervalued."
Peter gave shareholders a lot of hope at the beginning but more recently, is losing the confidence of shareholders and the street. He himself is not as confident and doesn't take responsibility for the failed guidances/expectations. What happened to profitability? What happend to achieving his target expense metrics? What happened to the revenue ramp of a few hundred million? What happened to the street/investor interaction?
"Fran Barton's compensation was appropriate when compared to prevailing Wall Street valuations. Ridiculous compensation is what the guys at Merrill Lynch got for bonuses last year after helping to destroy the banking system in this country and driving the economy into the deepest and longest recession since the Great Depression."
Comparing Barton to the financial CEOs is like comparing UT to Nortel. Check with Blackmore on what he thinks of Barton's compensation and performance.
Every chance I've had with management/BOD (and thats only a handful of times), I've brought up two things. Shareprice and compensation. In November of 2007 and March of 2008, I've frankly said, if the company can't turn it around, you better go back to a strategic alternative of selling the company before resources dwindle.
As a shareholder, the choices we have during the last 4 years have mostly been bad (sell at a price you think is ridiculously undervalued or stick it out and hope). While I always have hope, its clear that management/BOD have not shown the ability to manage/oversee and create any shareholder value. If they cannot step up now, I hope they start stepping down and let others take over (whether their positions personally or to sell to another company).
"I suppose the fact that sales have declined from $2.7 billion to $850 million per year is the fault of the BOD and has little to do with the stock price being where it is now? UTSI tried to buy revenue streams but that strategy failed for lots of reasons. So basically, the company became a startup again. Strip away PAS, PCD and purchased technology revenue for the past 5 years and what would you have for sales? Not much. Big sales in Japan for a year or two but not nearly enough to compensate for the huge PAS loss which continues. Japan sales were just a temporary blip anyhow and have not been sustained."
Sales of PAS peaking and declining have been well projected so this should not be a surprise to management/BOD. I would actually argue the other way and say PAS sales which are still in the hundreds of millions have given the company a huge advantage compared to normal startups the last 4 years. Shadow mentions the "failed strategy", reliance on PAS, PCD and other purchased technology, Japan. This is precisely why management/BOD have to take the full brunt of the blame.
"So this company is truly a start-up in many ways, a baby company severely impacted by the present economic decline while it is still in its infancy."
Again, how many startups have this amount of resource? Infancy? Tech companies don't survive this long unless they are successful or have huge resources.
"What is even worse is that the vision for this company by Hong Lu, right or wrong, is to build an international telecom equipment supplier. Company has the technology to accomplish this and that is why it is so interesting to me. Unfortunately, it had almost no accounting department or backoffice, little marketing and sales outside of China, only PAS marketing and sales experience in China, currency problems that blocked fair competition (with Chinese companies) and faced widespread regulatory and legal issues that blocked deployment of one of its main technologies, IPTV."
The vision, technology, and opportunities are what drew most shareholders into the company. I am not arguing that but blaming the current state to accounting, marketing, currency, and even the competition/regulatory AND not to the management/BOD misses the point. You can have quarterly or even yearly slip ups but the monumental collapse in the share price was multi-year and continuous. The management and BOD's role is to management/oversee a company through good AND bad times/situations. If the mangement/BOD decided to invest in an end-to-end iptv systement and bet the farm and it doesn't work, who do you blame?
"I believe Ying Wu's plan called for focusing the company entirely on IPTV in China and it is not clear his strategy would have worked. Speculation that company could have been sold for $10 a share at one point, is simply just that, speculation. If anyone has a link that proves this was an actual offer that was made, please post it."
The company went into a strategic study to potentially sell the company because it thought the shares were underpriced. This came from the Chairman at the time Thomas Toy. They had offers for atleast parts of the company. This was in late 2006. Toy also mentioned they were worried that some of the offers would not be able to close because of the subprime conditions. Again, this was in late 2006. The stock traded in the $7 range and went to $11. If they wanted to do a deal at $10 or somewhere at that range, they could have done it.
"I think Barton and the members of the BOD did the job they were brought in to do. That was to create a global business infrastructure without which you just couldn't go to large carriers and do contracts. They resolved all the SOX issues, back options issues, SEC filing issues and almost all legal issues that have been pending."
I have documented my frustrations with Barton for years (before the blog). I recall even being very frustrated with the lack of financials when the stock was at $8! so that tells you how long it took them to resolve those issues. The company was at the brink but got lucky in their gemdale/infinera investments and not to mention a final surge in their PCD operations, which was mostly due to the resale side (not even their own design units). As for the BOD, their job is to safeguard shareholder value, which they have not done.
"I agree with you that bookings did not materialize as projected. Why didn't they? If you know, then I would like to hear about it. Without knowing the "why", I find it inappropriate to blame management. Blackmore was awfully shore Q4 2008 sales were going to ramp much more than they actually did. Why didn't they? If it was because of the economic tsunami sweeping the world, is it inappropriate to blame management? The problem is that this failure occurred on top of all the other poor guidance issues from Mike Sophie and Fran Barton."
As I've said many times, the company has many many good reasons for poor performance.......When was the last good year...2004.
"The key to this company right now is Peter Blackmore and I just don't have enough information right now to judge him. My instinct is that he is a straight shooter and will fire employees who don't deliver what is expected of them and get new people who can do the job better. Seems to me that is what has happened in the past 6 months. Maybe not fast enough for some, but you have to be careful how you size a company like UTSI, that is striving to become an international telecom equipment supplier. Success hangs in the balance so the stock price is undervalued."
Peter gave shareholders a lot of hope at the beginning but more recently, is losing the confidence of shareholders and the street. He himself is not as confident and doesn't take responsibility for the failed guidances/expectations. What happened to profitability? What happend to achieving his target expense metrics? What happened to the revenue ramp of a few hundred million? What happened to the street/investor interaction?
"Fran Barton's compensation was appropriate when compared to prevailing Wall Street valuations. Ridiculous compensation is what the guys at Merrill Lynch got for bonuses last year after helping to destroy the banking system in this country and driving the economy into the deepest and longest recession since the Great Depression."
Comparing Barton to the financial CEOs is like comparing UT to Nortel. Check with Blackmore on what he thinks of Barton's compensation and performance.
Every chance I've had with management/BOD (and thats only a handful of times), I've brought up two things. Shareprice and compensation. In November of 2007 and March of 2008, I've frankly said, if the company can't turn it around, you better go back to a strategic alternative of selling the company before resources dwindle.
As a shareholder, the choices we have during the last 4 years have mostly been bad (sell at a price you think is ridiculously undervalued or stick it out and hope). While I always have hope, its clear that management/BOD have not shown the ability to manage/oversee and create any shareholder value. If they cannot step up now, I hope they start stepping down and let others take over (whether their positions personally or to sell to another company).
Saturday, January 24, 2009
Weekly Recap - Retesting lows?
The stock closed at $1.5, losing 9 cents or 5.7%. The markets were also down with the DOW, S&P, and Nasdaq losing 2.5, 2, and 3.4% respectively. The stock volume was down to the 200k level last week and the stock down another 19% this year alone. There has been no news from the company since the restructuring announcement. I did a quick scan of some websites/message board for related news.
Lu interview - Sharholder Techbroker posted the link to Lu's interview. http://translate.google.com/translate?prev=_t&hl=en&ie=UTF-8&u=http%3A%2F%2Fit.sohu.com%2F20090108%2Fn261641698.shtml&sl=zh-CN&tl=en&history_state0=
My initial comment: The success of PAS gave UT so much funds that they invested in various MAJOR projects from end to end iptv solution to 3G (total package - see above components) and even to the convergence of mobile, broadband, and fixed line, etc, etc. They have abandoned the WCDMA specific 3G products but have retained core parts to build new products/components for TDSCDMA such as softswitch (thats what I read into the Lu interview). Currently, they are focused on the terminals and iptv/broadband/ngn but not necessarily the mobile/wireless segment. But now that licenses have been issued, they can better focus their tech advantages to build new products aside from just terminals/handsets.
In the interview, it looks like Just in Time is using UT's Rolling Stream iptv solution.
Inida Mobile/broadband growth - India's mobile operators activated a staggering 10.81 million new lines during December 2008, taking the total number of wireless connections in the country to 346.89 million at the end of last year, according to new figures from the Telecom Regulatory Authority of India (TRAI) . http://www.unstrung.com/document.asp?doc_id=170862
The country's fixed line base continues to shrink, though: The number of fixed line connections in India fell by 150,000 during December 2008, finishing the year at 37.9 million. The number of fixed broadband connections grew, though, by 170,000 to 5.45 million.
Aksh Interview - http://www.lightreading.com/tv/tv_popup.asp?doc_id=170754 Good interview regarding iptv developments.
China IPTV policy breakthroughs - The Chinese IPTV market will see a number of further policy breakthroughs in 2009, according to Chinese consultancy firm CCID Consulting, following a rapid growth in the number of IPTV subscribers during 2008, when the number shot up 100% year-one-year.
The promotion of free and bundling marketing by operators has meant that IPTV subscribers have appeared in Shanghai, Zhejiang, Fujian and Guangdong, according to CCID Consulting, with around 700,000 subscribers in Shanghai alone at the end of last year. The consulting firm adds that the rapid subscriber growth has driven the development of the IPTV equipment market, although many telecom operators have found it difficult to make a profit from IPTV, with many promotions remaining at the free and low price promotion stage. http://www.iptv-news.com/iptv_news/january_09/chinese_iptv_market_to_see_policy_breakthroughs_in_2009
Microsoft IPTV in China Cable - Microsoft recorded three IPTV firsts today: the first cable operator customer for its Mediaroom platform; the breakthrough into the TV-over-broadband market in China; and the first deployment of the new Anytime capabilities that were announced last week at 2009 International CES in Las Vegas. (See Microsoft's Promise: TV Anytime You Want It.) http://www.lightreading.com/document.asp?doc_id=170207&site=cdn
While UT disclosed it won a cable customer in China for their iptv system, this Microsoft news shows the technology lead that UT has built over the last few years has eroded.
From the above links/information, there are obvious positives to the markets for UT products but also heavy competition for the few growth areas in today's recessionary environment. The heavy investments that UT was able to make due to their success in PAS in iptv, 3G, broadband/ngn, etc has not brought signficiant revenue and has led to losses the last 4 years. There is no doubt that they still retain good technology, maintained/grown tier 1/2 operators, and positioned themselves for growth. The balance sheet is good enough to weather this recession but expenses that have been significantly reduced are still high compared to expected revenues. At a certain point, they cannot cut more without having their competition over-run them and that will be the end game. At a certain point, they have to show significant growth that will get them to profitability. Judging from Lu's inteview and management's "optimism" over the last year or two, they still believe they are a major player and can be competitive/successful. The stock/markets don't reflect that confidence.
For me personally, at this stage, there is little to lose ($1.5 shareprice/market cap under net cash) and am rolling the dice that the valuation is ridiculous for what the company has invested, their current cash/technology/assets/markets/contracts/position. I guess thats better than investing in some of these banks :-) BTW, it looks like the markets are hanging near the November lows but holding so far (Dow was in the high 7k range all last week). With the negative headline news regarding layoffs, bank failures, etc, it seems only a matter of time that the lows will have to be tested.
Have a good weekend everyone.
Lu interview - Sharholder Techbroker posted the link to Lu's interview. http://translate.google.com/translate?prev=_t&hl=en&ie=UTF-8&u=http%3A%2F%2Fit.sohu.com%2F20090108%2Fn261641698.shtml&sl=zh-CN&tl=en&history_state0=
My initial comment: The success of PAS gave UT so much funds that they invested in various MAJOR projects from end to end iptv solution to 3G (total package - see above components) and even to the convergence of mobile, broadband, and fixed line, etc, etc. They have abandoned the WCDMA specific 3G products but have retained core parts to build new products/components for TDSCDMA such as softswitch (thats what I read into the Lu interview). Currently, they are focused on the terminals and iptv/broadband/ngn but not necessarily the mobile/wireless segment. But now that licenses have been issued, they can better focus their tech advantages to build new products aside from just terminals/handsets.
In the interview, it looks like Just in Time is using UT's Rolling Stream iptv solution.
Inida Mobile/broadband growth - India's mobile operators activated a staggering 10.81 million new lines during December 2008, taking the total number of wireless connections in the country to 346.89 million at the end of last year, according to new figures from the Telecom Regulatory Authority of India (TRAI) . http://www.unstrung.com/document.asp?doc_id=170862
The country's fixed line base continues to shrink, though: The number of fixed line connections in India fell by 150,000 during December 2008, finishing the year at 37.9 million. The number of fixed broadband connections grew, though, by 170,000 to 5.45 million.
Aksh Interview - http://www.lightreading.com/tv/tv_popup.asp?doc_id=170754 Good interview regarding iptv developments.
China IPTV policy breakthroughs - The Chinese IPTV market will see a number of further policy breakthroughs in 2009, according to Chinese consultancy firm CCID Consulting, following a rapid growth in the number of IPTV subscribers during 2008, when the number shot up 100% year-one-year.
The promotion of free and bundling marketing by operators has meant that IPTV subscribers have appeared in Shanghai, Zhejiang, Fujian and Guangdong, according to CCID Consulting, with around 700,000 subscribers in Shanghai alone at the end of last year. The consulting firm adds that the rapid subscriber growth has driven the development of the IPTV equipment market, although many telecom operators have found it difficult to make a profit from IPTV, with many promotions remaining at the free and low price promotion stage. http://www.iptv-news.com/iptv_news/january_09/chinese_iptv_market_to_see_policy_breakthroughs_in_2009
Microsoft IPTV in China Cable - Microsoft recorded three IPTV firsts today: the first cable operator customer for its Mediaroom platform; the breakthrough into the TV-over-broadband market in China; and the first deployment of the new Anytime capabilities that were announced last week at 2009 International CES in Las Vegas. (See Microsoft's Promise: TV Anytime You Want It.) http://www.lightreading.com/document.asp?doc_id=170207&site=cdn
While UT disclosed it won a cable customer in China for their iptv system, this Microsoft news shows the technology lead that UT has built over the last few years has eroded.
From the above links/information, there are obvious positives to the markets for UT products but also heavy competition for the few growth areas in today's recessionary environment. The heavy investments that UT was able to make due to their success in PAS in iptv, 3G, broadband/ngn, etc has not brought signficiant revenue and has led to losses the last 4 years. There is no doubt that they still retain good technology, maintained/grown tier 1/2 operators, and positioned themselves for growth. The balance sheet is good enough to weather this recession but expenses that have been significantly reduced are still high compared to expected revenues. At a certain point, they cannot cut more without having their competition over-run them and that will be the end game. At a certain point, they have to show significant growth that will get them to profitability. Judging from Lu's inteview and management's "optimism" over the last year or two, they still believe they are a major player and can be competitive/successful. The stock/markets don't reflect that confidence.
For me personally, at this stage, there is little to lose ($1.5 shareprice/market cap under net cash) and am rolling the dice that the valuation is ridiculous for what the company has invested, their current cash/technology/assets/markets/contracts/position. I guess thats better than investing in some of these banks :-) BTW, it looks like the markets are hanging near the November lows but holding so far (Dow was in the high 7k range all last week). With the negative headline news regarding layoffs, bank failures, etc, it seems only a matter of time that the lows will have to be tested.
Have a good weekend everyone.
Saturday, January 17, 2009
Weekly recap - Slow start to the new year
The markets and UT stock initially exploded out the gate in the new year but has made a complete reversal with the DOW, Nasdaq, and S&P now down 5.6, 3, and 5.8% respectively. UT had been up as much as 18% at $2.18 but now down 26 cents or 14%. UTs Q4 has closed so there is not much news as shareholders await for the results in Feb. Here are a few highlights (lowlights) from other company news.
Nortel bankruptcy - With deteriorating performance and huge debt loads, Nortel "rewarded" long time shareholders/employees with a New year's present by filing for bankruptcy. http://www.reuters.com/article/topNews/idUSTRE50C7RV20090114?feedType=RSS&feedName=topNews Six months ago, I lost money in Nortel buying in the $7 range and quickly unloading in the $6 range right after their earnings call. A couple of months before that, their management team was very upbeat in their analyst meeting projecting 4% operating margins and low single digit revenue growth. Their highly paid CEO Mike Z (from GE six sigma or whatever management crap the business people are learning) has even one upped UT performance by now filing for bankruptcy. My main frustration however was not shorting the crap out of Nortel after the earnings call six months ago. Their CEO seriosuly sounded like a football jock that has his head cut off. Talk about a true cave man. While UT balance sheet is very good compared to Nortel, the company continues to lose a lot of money and shareholders should continue to be concerned about management's actions/inactions. Nortel has $2.4 Billion in cash and around $10b in revenue. And they filed for bankruptcy and won't even pay employees that recently signed termination contracts. It is sad when management continues to get hefty salaries while shareholders get nada.........BTW, there seems to be existing employees that have started a Facebook site for Nortel called, "I still believe".......sheesh. http://www.allaboutnortel.com/
Sonus Networks - Another outstanding telecom equipment provider that has shareholders interests at heart - NOT. Their stock is down to $1.38, down from $4-5 range this year and $8s just last year. They have recently cut more costs but have actually given 25% shareholder Legatum a couple of board seats. Really nice of them. Good luck to Legatum and other shareholders. Atleast, they will have a say on trying to turn around another "great" management team.
Citigroup/Bank of America - These companies traded in the $50 range in 2007 and now at $3.5 (C) and $7 (BAC) showing how great managers US companies really do have. Does it take all these business degrees and "experience" to run these companies to the ground? And how about the management/BOD at Sandisk, Yahoo, Take Two and other companies that have amazingly received mega buyout premiums the last year and walked away! Really amazing....
Palm - On a brighter note, Palm's turnaround has had significant traction. They had hired former Apple Podfather John Rubinstein and he has managed to introduce a new operating system and new products. Previous rumors of Apple buying Palm is resurfacing as well with Jobs health and synergies of the two companies. Palm stock has gone from $9 to $1 back to $8 in less than six months! I tip my hat to Mr. Rubinstein for achieving their turnaround since he was hired in 2007. Wasn't that the year UT failed to sell itself and hired Blackmore. Yup, UTs turnaround from 2004 continues as the stock languishes in the $1s and management continues to promise a near term goal of returning the company to profitability.
With no good options, I'm still a believer (at $1.59) just like Nortel shareholders believed to the very end. Hope this one ends up better. Sad.
Have a good weekend everyone.
Nortel bankruptcy - With deteriorating performance and huge debt loads, Nortel "rewarded" long time shareholders/employees with a New year's present by filing for bankruptcy. http://www.reuters.com/article/topNews/idUSTRE50C7RV20090114?feedType=RSS&feedName=topNews Six months ago, I lost money in Nortel buying in the $7 range and quickly unloading in the $6 range right after their earnings call. A couple of months before that, their management team was very upbeat in their analyst meeting projecting 4% operating margins and low single digit revenue growth. Their highly paid CEO Mike Z (from GE six sigma or whatever management crap the business people are learning) has even one upped UT performance by now filing for bankruptcy. My main frustration however was not shorting the crap out of Nortel after the earnings call six months ago. Their CEO seriosuly sounded like a football jock that has his head cut off. Talk about a true cave man. While UT balance sheet is very good compared to Nortel, the company continues to lose a lot of money and shareholders should continue to be concerned about management's actions/inactions. Nortel has $2.4 Billion in cash and around $10b in revenue. And they filed for bankruptcy and won't even pay employees that recently signed termination contracts. It is sad when management continues to get hefty salaries while shareholders get nada.........BTW, there seems to be existing employees that have started a Facebook site for Nortel called, "I still believe".......sheesh. http://www.allaboutnortel.com/
Sonus Networks - Another outstanding telecom equipment provider that has shareholders interests at heart - NOT. Their stock is down to $1.38, down from $4-5 range this year and $8s just last year. They have recently cut more costs but have actually given 25% shareholder Legatum a couple of board seats. Really nice of them. Good luck to Legatum and other shareholders. Atleast, they will have a say on trying to turn around another "great" management team.
Citigroup/Bank of America - These companies traded in the $50 range in 2007 and now at $3.5 (C) and $7 (BAC) showing how great managers US companies really do have. Does it take all these business degrees and "experience" to run these companies to the ground? And how about the management/BOD at Sandisk, Yahoo, Take Two and other companies that have amazingly received mega buyout premiums the last year and walked away! Really amazing....
Palm - On a brighter note, Palm's turnaround has had significant traction. They had hired former Apple Podfather John Rubinstein and he has managed to introduce a new operating system and new products. Previous rumors of Apple buying Palm is resurfacing as well with Jobs health and synergies of the two companies. Palm stock has gone from $9 to $1 back to $8 in less than six months! I tip my hat to Mr. Rubinstein for achieving their turnaround since he was hired in 2007. Wasn't that the year UT failed to sell itself and hired Blackmore. Yup, UTs turnaround from 2004 continues as the stock languishes in the $1s and management continues to promise a near term goal of returning the company to profitability.
With no good options, I'm still a believer (at $1.59) just like Nortel shareholders believed to the very end. Hope this one ends up better. Sad.
Have a good weekend everyone.
Tuesday, January 6, 2009
Revised 2009 Estimates
I talked with Barry Hutton today and got some clarification on the bookings for 2008 with regards to the PAS infra. Book to bill for PAS infra was around 0.2 for 2008. PAS handsets were around 1.0. This shows the rapid decline in PAS infra orders but does highlight the bookings in other areas finally replacing PAS in a material way.
Previously, I had estimated around $711m in core bookings (without CDMA handsets) based on the previous 4 quarters in bookings and PCD information provided by the company. If we assume that PAS infra had sales of around $180m in 2008, bookings would be around $36m. Subtracting this from $711m would result in $675m in bookings that I will use to estimate 2009 revenues. I will use a 25% reduction in PAS infra revenue to be recognized in 2009 but this has to be added to the $675m. So, $675m+0.75*$180m = $810m. CDMA hanset sales of $35m/quarter could continue until mid June and I will assume will be replaced with China CDMA sales. That will add $140m in revenues resulting in around $950m. I will use 27% GMs for the non-CDMA handset/non infra PAS GMs, 45% for PAS infra, 5 and 10% GMs for the CDMA handset sales outside/inside China. Gross profit estimates are now $675m*.27 + $135m*.45 + $70m*.05 + $70m*.1 = $254m in gross profits.
I had previously estimated $295m in opex for 2009 so the operating loss could be around $40m for the year, much less than my previous worse case scenarios. There are a lot of variables above so take the estimate with a grain of salt and you can do your own model with different GMs, different revenues for handsets, factor in some revenue may be multi-year, etc.
What the above shows is the company NOT being profitable in 2009. While "everyone" already assumes this, it shows the miscalculations that even "new" management has to face up to now. On the positive side, cash burn will probably be limited and give the company additional time to build up bookings in non-PAS areas.
Here's to waiting another year for sustainable profitability. BTW, thanks to Tigre/Shadow (I just caught up reading their gazillion postings) for discussing the technical issues and potential markets for UT. Talking to another investor the last couple of days, there is no question its been frustrating seeing the losses year after year (not to mention the stock price) but with a negative enterprise value, growing core businesses, little market cap, there still seems a lot of potential for this old dog.....Transport network product, Russia, iptv, China handset market, worldwide iptv growth, etc etc.......Have a good evening.
Previously, I had estimated around $711m in core bookings (without CDMA handsets) based on the previous 4 quarters in bookings and PCD information provided by the company. If we assume that PAS infra had sales of around $180m in 2008, bookings would be around $36m. Subtracting this from $711m would result in $675m in bookings that I will use to estimate 2009 revenues. I will use a 25% reduction in PAS infra revenue to be recognized in 2009 but this has to be added to the $675m. So, $675m+0.75*$180m = $810m. CDMA hanset sales of $35m/quarter could continue until mid June and I will assume will be replaced with China CDMA sales. That will add $140m in revenues resulting in around $950m. I will use 27% GMs for the non-CDMA handset/non infra PAS GMs, 45% for PAS infra, 5 and 10% GMs for the CDMA handset sales outside/inside China. Gross profit estimates are now $675m*.27 + $135m*.45 + $70m*.05 + $70m*.1 = $254m in gross profits.
I had previously estimated $295m in opex for 2009 so the operating loss could be around $40m for the year, much less than my previous worse case scenarios. There are a lot of variables above so take the estimate with a grain of salt and you can do your own model with different GMs, different revenues for handsets, factor in some revenue may be multi-year, etc.
What the above shows is the company NOT being profitable in 2009. While "everyone" already assumes this, it shows the miscalculations that even "new" management has to face up to now. On the positive side, cash burn will probably be limited and give the company additional time to build up bookings in non-PAS areas.
Here's to waiting another year for sustainable profitability. BTW, thanks to Tigre/Shadow (I just caught up reading their gazillion postings) for discussing the technical issues and potential markets for UT. Talking to another investor the last couple of days, there is no question its been frustrating seeing the losses year after year (not to mention the stock price) but with a negative enterprise value, growing core businesses, little market cap, there still seems a lot of potential for this old dog.....Transport network product, Russia, iptv, China handset market, worldwide iptv growth, etc etc.......Have a good evening.
Sunday, January 4, 2009
Weekly Recap - 33% loss for 2008
The stock closed 2008 at $1.85, off 90 cents or 33% for the year. While the number was in line with the markets, this was disappointing since the stock has been on a downtrend for years and had been in the $5s as late as July, when it was up over 100% for the year. For those investors left in UT, the hope is that the recent round of opex cuts will finally bring the company to profitability and that its overall revenue has hit an inflection point.
India IPTV - There were some IPTV news from BSNL but related to Smart Digivision. UT management has been upbeat on India iptv hypint their market share but it seems there is also other options out there.
http://timesofindia.indiatimes.com/Business/BSNL_offers_IPTV_services/articleshow/3920544.cms
ZTE/Huawei Growth in 2009 - Both ZTE and Huawei are still positive on growth for 2009. Based on 3G licenses being finally issued and continue expansion overseas, it looks like both will acheive revenue growth even in a tough 2009. http://www.lightreading.com/document.asp?doc_id=169567 "The Chinese government estimates that the country's mobile carriers will spend around $29 billion on 3G-related capex next year. " UT will try to make up lost PAS handset sales with some CDMA handset sales in China.
2009 Estimates for UT - Fellow shareholder Shadow puts forth his estimates for 2009, http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=156943&mid=156976&tof=9&rt=2&frt=2&off=1 He writes:
So, let's take a look at possible overall sales increase for 2009. Using data from 10Q's and transcribed quarterly conference calls, bookings for non-PCD obtained were $150 million in Q1, $188 million in Q2, $175 million in Q3 and $189 million in Q4 (estimated using book to bill of 1.1 and sales of $172 million obtained by subtracting Korea PCD sales of $53 million from total sales estimate of $225 million given by company). So, total bookings in 2008 should be about $702 million and I assume all of these bookings will be taken as sales in 2008. Many of these bookings represent initial sales for multiyear contracts and that is why Peter Blackmore is confident bookings in 2009 will be an additional 10+%. I assume none of the bookings are for PAS infrastructure which had sales of approximately $210 million in 2008. Assuming a drop of 33% in these sales for 2009 still leaves an additional $140 million of sales for 2009. So total sales estimate for 2009 now would be $702 million + $140 million = $842 million which represents a 28% gain ($185 million) over 2008 core sales. With gross margins of 31% these added sales will result in another $57 million of gross profit, putting the company in a position of becoming profitable depending on taxes and other one time losses, write-offs, etc. I have assumed PAS handset sales for 2009 were included in the booking contracts and they are presumed to decline in 2009 but those sales would be replaced by sales of other core products. Non-PAS handset sales in China are not included in the above data and could be significant. UTSI was one of many companies that was awarded a contract for the recent CMMB handsets bought by SARFT for the initial launch of those mobile TV networks in China.http://www.cn-c114.net/578/a372930.html
The core assumptions in Shadow's estimates are the following:
1. Core PAS infra bookings were logged years ago. Only PAS handsets are included in new bookings in 2008.
2. Most bookings in 2008 will result in 2009 revenues.
3. PAS infra sales will drop 1/3 in 2009.
4. Non-PAS handsets not included in his estimates.
5. Gross margins of 31%.
I've already given my "guestimates" so will just comment on Shadow's main assumptions. I generally agree (or atleast hope) that #1 is correct and that most bookings in 2008 does not include PAS infra. However, I don't think most bookings in 2008 will convert to 2009 sales as management has consistently stated the multi-year nature of some of the contracts. I think PAS infra will drop less than 1/3 in 2009. Overall, from #1-3, my estimates are in the $700m+ range rather then Shadow's $840m. I did add non-PAS handset (outside China) to bring revenue in the $800m range but don't know the size of non-PAS handset sales in China (a big wildcard). Also, 31% GMs seems very high to assume. Overall, the two main questions are the PAS infra backlog (and if it is included in 2008 bookings) and how well CDMA sales in China will perform (enough only to make up PAS handset sales loss or much more?).
I have yet to break down 2008 company performance line item by line item (from expectations in 2007) but the stock declined 33% and the company did not reach revenue/expense metrics targetted so obviously it was a disappointment. The question (or hope) is will the divestitures, opex cuts, focus/wins on iptv/ngn/broadband result in the long awaited sustainable profitability/business model or just too little too late (as fellow shareholder Tigre writes below).
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=156922&mid=156946&tof=16&rt=2&frt=2&off=1
Have a good week/year everyone.
India IPTV - There were some IPTV news from BSNL but related to Smart Digivision. UT management has been upbeat on India iptv hypint their market share but it seems there is also other options out there.
http://timesofindia.indiatimes.com/Business/BSNL_offers_IPTV_services/articleshow/3920544.cms
ZTE/Huawei Growth in 2009 - Both ZTE and Huawei are still positive on growth for 2009. Based on 3G licenses being finally issued and continue expansion overseas, it looks like both will acheive revenue growth even in a tough 2009. http://www.lightreading.com/document.asp?doc_id=169567 "The Chinese government estimates that the country's mobile carriers will spend around $29 billion on 3G-related capex next year. " UT will try to make up lost PAS handset sales with some CDMA handset sales in China.
2009 Estimates for UT - Fellow shareholder Shadow puts forth his estimates for 2009, http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=156943&mid=156976&tof=9&rt=2&frt=2&off=1 He writes:
So, let's take a look at possible overall sales increase for 2009. Using data from 10Q's and transcribed quarterly conference calls, bookings for non-PCD obtained were $150 million in Q1, $188 million in Q2, $175 million in Q3 and $189 million in Q4 (estimated using book to bill of 1.1 and sales of $172 million obtained by subtracting Korea PCD sales of $53 million from total sales estimate of $225 million given by company). So, total bookings in 2008 should be about $702 million and I assume all of these bookings will be taken as sales in 2008. Many of these bookings represent initial sales for multiyear contracts and that is why Peter Blackmore is confident bookings in 2009 will be an additional 10+%. I assume none of the bookings are for PAS infrastructure which had sales of approximately $210 million in 2008. Assuming a drop of 33% in these sales for 2009 still leaves an additional $140 million of sales for 2009. So total sales estimate for 2009 now would be $702 million + $140 million = $842 million which represents a 28% gain ($185 million) over 2008 core sales. With gross margins of 31% these added sales will result in another $57 million of gross profit, putting the company in a position of becoming profitable depending on taxes and other one time losses, write-offs, etc. I have assumed PAS handset sales for 2009 were included in the booking contracts and they are presumed to decline in 2009 but those sales would be replaced by sales of other core products. Non-PAS handset sales in China are not included in the above data and could be significant. UTSI was one of many companies that was awarded a contract for the recent CMMB handsets bought by SARFT for the initial launch of those mobile TV networks in China.http://www.cn-c114.net/578/a372930.html
The core assumptions in Shadow's estimates are the following:
1. Core PAS infra bookings were logged years ago. Only PAS handsets are included in new bookings in 2008.
2. Most bookings in 2008 will result in 2009 revenues.
3. PAS infra sales will drop 1/3 in 2009.
4. Non-PAS handsets not included in his estimates.
5. Gross margins of 31%.
I've already given my "guestimates" so will just comment on Shadow's main assumptions. I generally agree (or atleast hope) that #1 is correct and that most bookings in 2008 does not include PAS infra. However, I don't think most bookings in 2008 will convert to 2009 sales as management has consistently stated the multi-year nature of some of the contracts. I think PAS infra will drop less than 1/3 in 2009. Overall, from #1-3, my estimates are in the $700m+ range rather then Shadow's $840m. I did add non-PAS handset (outside China) to bring revenue in the $800m range but don't know the size of non-PAS handset sales in China (a big wildcard). Also, 31% GMs seems very high to assume. Overall, the two main questions are the PAS infra backlog (and if it is included in 2008 bookings) and how well CDMA sales in China will perform (enough only to make up PAS handset sales loss or much more?).
I have yet to break down 2008 company performance line item by line item (from expectations in 2007) but the stock declined 33% and the company did not reach revenue/expense metrics targetted so obviously it was a disappointment. The question (or hope) is will the divestitures, opex cuts, focus/wins on iptv/ngn/broadband result in the long awaited sustainable profitability/business model or just too little too late (as fellow shareholder Tigre writes below).
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=156922&mid=156946&tof=16&rt=2&frt=2&off=1
Have a good week/year everyone.
Wednesday, December 31, 2008
Improving Technicals
First of all, Happy New Year to everyone. I think its fair to say, it was a very tough year for the market and another disappointing year for UT. In the next couple of days, I will post on the negative and positive events for UT and recap some of the predictions/expectations shareholders had at the start of the year. For the last few weeks/months, I've been looking at UTs chart and tracking the 50 day SMA. The stock had been under the 50-day for months now but is showing some flattening out pattern and "threatening" to break above the 50-day:-)
http://finance.yahoo.com/q/ta?s=UTSI&t=2y&l=on&z=l&q=l&p=m50&a=&c=
If you pull a 2-year chart, the stock was under the 50-day from the start of 2007 all the way to September 2007 until it broke above the 50-day and had a brief spike to $5 in late 2007. Around May of this year, the stock made its major move for the year doubling from under $3 to just under $6 staying above the 50-day. Once it broke down, however, it has been all downhill. Several attempts at crossing above the 50-day at the $3.5 and $2.5 level failed. If the stock can closed above the 50-day for a few days, that may be a good sign that it can move to the 200-day average in the $3-3.5 level in early 2009. And IF it breaks the 200 day to the upside, .......(ok I'm getting a little ahead of myself :-)
Have a good year everyone!
http://finance.yahoo.com/q/ta?s=UTSI&t=2y&l=on&z=l&q=l&p=m50&a=&c=
If you pull a 2-year chart, the stock was under the 50-day from the start of 2007 all the way to September 2007 until it broke above the 50-day and had a brief spike to $5 in late 2007. Around May of this year, the stock made its major move for the year doubling from under $3 to just under $6 staying above the 50-day. Once it broke down, however, it has been all downhill. Several attempts at crossing above the 50-day at the $3.5 and $2.5 level failed. If the stock can closed above the 50-day for a few days, that may be a good sign that it can move to the 200-day average in the $3-3.5 level in early 2009. And IF it breaks the 200 day to the upside, .......(ok I'm getting a little ahead of myself :-)
Have a good year everyone!
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