The monumental collapse of the stock price to 70 cents indicates the company is reaching its final days. It was hard to imagine going lower from the $2 range early last year but a drop to 70 cents is still another significant leg down.
Fellow shareholder Techbroker has been following the company's operations in China closely and posted the culture that led to the company's success and eventual downfall. He writes today:
"Although it was written in 2006, the article possibly gives the best answers in regarding why UT is a failed company, and why Huawei does otherwise. The author did an excellent job in providing objective analysis of UT's culture, management, and history.
In short, UT is the worst managed company (if these is a word 'management' in the company in author's words) in the industry. On the other hand, Huawei spent TWO critical, difficult, and painful years working on its management during the late 1990s. UT realized the problem around the same time (around 2000), but the issue has never got improved, if not worse.
At the end, the author says that it might be a little early to claim that UT is a failed company, although many people in the industry think so then. It might be true that it was a little too early to claim UT is a dead company in 2006. However, it might be a little over due to announce that this company is doom to fail in 2009."
Here is the translation of the article.
http://translate.google.com/translate?prev=_t&hl=en&ie=UTF-8&u=http%3A%2F%2Finfo.china.alibaba.com%2Fnews%2Fdetail%2Fv5003013-d5746465.html&sl=zh-CN&tl=en&history_state0=
My posting last night regarding the balance sheet was a reflection of the street's valuation on the company as it continues to lose money. While it is an explanation of the current valuation of the company, it doesn't paint an accurate picture of the potential valuation of the company to an acquirer. It also doesn't represent an accurate picture of the potential valuation of the company if it can execute like all long term investors had hoped. As a balance to the negative 2006 article, I will repost a October 2008 article documenting an interview with Manish Matta, senior director of marketing at UTStarcom.
http://asia.tmcnet.com/topics/india/articles/44293-utstarcom-discusses-indias-growing-broadband-market.htm
"Also, the issue in India is not technology, but lack of consumer awareness of the benefits and applications enabled by broadband. Consumers are increasingly becoming aware of the applications that can be enabled by broadband. At UTStarcom, we are providing leading edge applications via broadband. For instance, UTStarcom was the first to launch IPTV in India and today we have deployed 4 out of the 5 commercial IPTV contracts in India. IPTV is being enabled over broadband network and UTStarcom remains agnostic to the type of access technology that the operator may have deployed. However, we strongly believe that applications like IPTV, which enable personalization, interactive services and social networking for consumers, will drive the demand for broadband. Broadband users in India will exceed 300 million users in the next decade and we are currently at the tipping point of the growth phase."
MM: Our customers work with us primarily for three reasons: our focus on technology innovation, our solution vision and our culture. Let me elaborate a bit on each.
UTStarcom’s DNA is “technology innovation” - our customers, which include various Tier 1 and Tier 2 service providers globally, look upon us to provide cost-effective multimedia solutions and applications that will continually improve how people interact and communicate. Living up to our motto of providing “A World of Better Communication,” UTStarcom has led the market with technology innovations that have revolutionized customer experience. UTStarcom has been the first to market with technologies like IPDSLAM, GEPON and most recently IPTV which have all changed the way people communicate and interact. The focus has been on providing applications that are adapting to the changing needs of the consumers. IPTV has potential to completely change India’s communication landscape as it provides a host of new IP-based value add applications like video calling, digital signage, distance learning, social networking and IP surveillance, amongst others, besides broadcast TV, time-shift TV, VOD (video on demand), etc. UTStarcom was the first to market with IPTV in India and currently provides IPTV solutions to customers like Aksh, MTNL, BSNL (News - Alert), Bharti and UTL in India.
The second reason stated is our solution vision and focus. As a company, we focus on three key areas – Broadband, Next Generation Networks (News - Alert) (NGN) and IPTV. Each of these can be highly complicated and cost intensive for our customers, the service providers. To ease the burden, we have focused our development efforts on ensuring a seamless interworking of all our solutions in Broadband, NGN and IPTV. The network management system (NMS), back end systems (BES) and the operations support systems (OSS) are designed to work together such that we can enable services like remote configuration, integrated billing, etc. for all our customers for all our solutions. So our customers who deploy and provision multiple solutions from UTStarcom inherently benefit from a significant operating cost (OPEX) reduction which is a recurring saving.
The third reason is our culture. “Customer Focus” is one of the integral core values for UTStarcom. Our success inherently lies in the success of our customers. We do not vie for every opportunity in the markets we address – we have a cross functional evaluation team that scrutinizes every opportunity to ensure some key metrics are met before taking on new customers and/or opportunities. Our stated objective is to work with a limited number of significant opportunities in each region so that we are able to satisfy the demands of each of our customers. Once the project is accepted, we work with our customer to deliver the applications and services that can help them differentiate their services in a cost effective manner. This sets us apart from others.
MM: UTStarcom has been a leader in broadband for two years running, and we are now clear leaders in IPTV as well. As industry leaders in BB and IPTV, not only do we have the largest market share, but we consider it our responsibility to help the market grow, and act as a catalyst for growth of both BB and IPTV. We hope to maintain this leadership position, and will work closely with different service providers to drive adoption of both BB and IPTV in the country. Our aim would be to deliver the benefits of IPTV to the country and help bridge the digital divide by making TV as an information and product tool apart from providing superior form of entertainment. We hope to leverage on our global leadership in SoftSwitch and NGN to establish similar position of leadership in India for SoftSwitch.
We are also working to increase India’s contribution to the global operations of UTStarcom. For example we already have extension of our Global R&D team of BB based in Gurgaon, India, and the Escalation Centre for Asia Pacific is also based out of Gurgaon. This year we have established Centre of Excellence for IPTV in Gurgaon, India, and over the coming years we hope to contribute more to the global IPTV product line of UTStarcom from India.
Techbroker's article shows the disarray and inefficiencies that the company has had up to 2006. The company has continued losses the following years and the balance sheet has deteriorated further. PAS sales is down to $19m/quarter and losses in India (despite the market share gains and leadership position) have further reduced confidence in the company. The Indian article does show a small (and I emphasize small) glimmer of hope. The market will eventually decide if this is the late stage of collapse or the early stage of recovery. I am only an individual investor that see substantially more value at this stage seeing the company broken up or sold. I could also see the potential for an even higher valuation if there is a full turnaround. However, at the present time, the company has not defended the stock or provided any tangible reason to think that the current valuation is incorrect.
Saturday, March 14, 2009
Friday, March 13, 2009
Balance Sheet - Plan C?
The latest company summary balance sheet can be seen from this yahoo link:
http://finance.yahoo.com/q/bs?s=UTSI
Net tangible assets/shareholder equity has gone down to $466.8m, down from about $539m due to the restructuring costs/operating losses in the fourth quarter. Based on 124.8m shares, this works out to $3.74/share.
Year after year, the company's stated goal has been to return to sustainable profitability. The latest earnings report and projections for continued losses throughout this year, coupled with the major revenue shortfall has led to revised earnings projections from the street to $1.25/share and .52/share losses in 2009/2010 respectively. If we simply subtract this from the $3.74/share, we get $1.97/share.
Property/plant/equipment is on the books for $175m or $1.4/share. Lets say this is worthless at this stage. Subtracting this leads to 57 cents/share.
Without looking at other assets and liabilities, if the company stays at present course, the tangible book value (without property/plant/equipment) will be 57 cents/share. This quick evaluation is simplistic but nevertheless not very appealing to shareholders hoping for much higher prices.
The problem with our "hope" last year was the company's estimates to break even by early 2009 (via Blackmore's famous expense metrics target delivered in 2007) and the "hope" that the company can indeed ramp up several hundred million in revenue to bridge the profitability gap. Now, we know this is way off and not possible until sometime in 2010.
The above quick evaluation is the operating scenario. Here are the alternatives that could lead to a higher tangible valuation and hence share price.
Monetization of the real estate - How much is that asset really worth? Its not generating rental/lease income and there are upkeep costs so if the company can monetize this, that will lead to higher valuation, potentially say $100-150m, or $0.8/share to $1.25/share. This would be huge to say the least.
Retained "earnings" - $841.5m and counting in losses caried forward. To a profitable company that can offset those losses, it could be worth as much as 1/3 of that or $280.5m. I don't know the tax laws but its been mentioned this could be valuable to some other company.
R&D and SG&A expenditures - The company spent $26m on R&D and $46m on SG&A. This is down from the previous year of $40m & $76m. For the next two years (the time period with the expected losses), lets say they will spend atleast $180m on R&D and $160m on SG&A. Part of these expenditures could be eliminated by a much larger company that has overlapping business. Ericsson is spending $5b/year on R&D for the next 5 years and targets the same broadband, NGN, iptv markets. Huawei has revenues in the $15b range (Techbroker mentioned up to $30b but I can't confirm). Anyway, there should be substantial savings in terms of R&D and SG&A in a consolidation.
PCD retained performance money - The company could earn an additional $50m by the end of 2010. I am not sure how/if the company has reflected this under assets.
Competitors higher margins - Aside from the cost side, an even more appealing reason to acquire UT is to eliminate competition, gain market share and increase margins. Maybe, if the company was to sell itself, their customers who value them as a standalone company to keep prices low, might actually give them some profitable contracts....maybe)
Accounts payable - There is still $432.8m in accounts payable on the books. If UTs plan is to sell the company, it could use part of its $300m+ cash to pay part of this off early for a substantial discount, thereby increasing the tangible book value.
There are possibly other items that would boost UTs value to an acquirer rather than continue being an ongoing concern.
Of course, I would have rather had the company get to break even/be profitable and then look for a suitor but the continued losses and current stock price makes that possibility very much less likely.
A few years ago, Siebel sold out to Oracle for $5.85b. At the time, Siebel had a ton of cash as well and profitable but it was probably the best decision for the shareholders. Oracle also bought People Soft to get the customer base (although it paid a much higher premium).
The street obviously does not believe UT can turn around, be profitable and increase shareholder value via the operational route. Therefore, shareholders should engage management/board to really look at shareholder value. While the company has no debt, it has massive losses ahead of it and does not have the scale that their competitors have. What it has are tangible assets/benefits that could be unlocked at this stage that are multiples of what the current share price show.
Plan C - I have had plenty of discussions with other shareholders on cost cuts and every alternative out there but I think we may need to put incentives for the company to seek strategic alternatives at this stage. Hong Lu still has over 3m shares that were worth $18m just 8 months ago. Now, its barely above $2m. That should be incentive enough for him to seek a sale. For others, the employee stock option is at $3.26 so they will not get anything much if the sale price is not significantly higher than that. I don't have a specific incentive plan but at this stage and looking at continued losses and deterioration of the balance sheet, why not atleast work on incentive clauses for a sale of the company at certain price points.
This is another case where the company is worth more dead than alive. That is what the market is telling shareholders and the company. If you have not done so, please send a note to management reiterating your concern with shareholder value and the viability of the company going forward. This sense of urgency must come from shareholders at this stage.
Have a good weekend.
http://finance.yahoo.com/q/bs?s=UTSI
Net tangible assets/shareholder equity has gone down to $466.8m, down from about $539m due to the restructuring costs/operating losses in the fourth quarter. Based on 124.8m shares, this works out to $3.74/share.
Year after year, the company's stated goal has been to return to sustainable profitability. The latest earnings report and projections for continued losses throughout this year, coupled with the major revenue shortfall has led to revised earnings projections from the street to $1.25/share and .52/share losses in 2009/2010 respectively. If we simply subtract this from the $3.74/share, we get $1.97/share.
Property/plant/equipment is on the books for $175m or $1.4/share. Lets say this is worthless at this stage. Subtracting this leads to 57 cents/share.
Without looking at other assets and liabilities, if the company stays at present course, the tangible book value (without property/plant/equipment) will be 57 cents/share. This quick evaluation is simplistic but nevertheless not very appealing to shareholders hoping for much higher prices.
The problem with our "hope" last year was the company's estimates to break even by early 2009 (via Blackmore's famous expense metrics target delivered in 2007) and the "hope" that the company can indeed ramp up several hundred million in revenue to bridge the profitability gap. Now, we know this is way off and not possible until sometime in 2010.
The above quick evaluation is the operating scenario. Here are the alternatives that could lead to a higher tangible valuation and hence share price.
Monetization of the real estate - How much is that asset really worth? Its not generating rental/lease income and there are upkeep costs so if the company can monetize this, that will lead to higher valuation, potentially say $100-150m, or $0.8/share to $1.25/share. This would be huge to say the least.
Retained "earnings" - $841.5m and counting in losses caried forward. To a profitable company that can offset those losses, it could be worth as much as 1/3 of that or $280.5m. I don't know the tax laws but its been mentioned this could be valuable to some other company.
R&D and SG&A expenditures - The company spent $26m on R&D and $46m on SG&A. This is down from the previous year of $40m & $76m. For the next two years (the time period with the expected losses), lets say they will spend atleast $180m on R&D and $160m on SG&A. Part of these expenditures could be eliminated by a much larger company that has overlapping business. Ericsson is spending $5b/year on R&D for the next 5 years and targets the same broadband, NGN, iptv markets. Huawei has revenues in the $15b range (Techbroker mentioned up to $30b but I can't confirm). Anyway, there should be substantial savings in terms of R&D and SG&A in a consolidation.
PCD retained performance money - The company could earn an additional $50m by the end of 2010. I am not sure how/if the company has reflected this under assets.
Competitors higher margins - Aside from the cost side, an even more appealing reason to acquire UT is to eliminate competition, gain market share and increase margins. Maybe, if the company was to sell itself, their customers who value them as a standalone company to keep prices low, might actually give them some profitable contracts....maybe)
Accounts payable - There is still $432.8m in accounts payable on the books. If UTs plan is to sell the company, it could use part of its $300m+ cash to pay part of this off early for a substantial discount, thereby increasing the tangible book value.
There are possibly other items that would boost UTs value to an acquirer rather than continue being an ongoing concern.
Of course, I would have rather had the company get to break even/be profitable and then look for a suitor but the continued losses and current stock price makes that possibility very much less likely.
A few years ago, Siebel sold out to Oracle for $5.85b. At the time, Siebel had a ton of cash as well and profitable but it was probably the best decision for the shareholders. Oracle also bought People Soft to get the customer base (although it paid a much higher premium).
The street obviously does not believe UT can turn around, be profitable and increase shareholder value via the operational route. Therefore, shareholders should engage management/board to really look at shareholder value. While the company has no debt, it has massive losses ahead of it and does not have the scale that their competitors have. What it has are tangible assets/benefits that could be unlocked at this stage that are multiples of what the current share price show.
Plan C - I have had plenty of discussions with other shareholders on cost cuts and every alternative out there but I think we may need to put incentives for the company to seek strategic alternatives at this stage. Hong Lu still has over 3m shares that were worth $18m just 8 months ago. Now, its barely above $2m. That should be incentive enough for him to seek a sale. For others, the employee stock option is at $3.26 so they will not get anything much if the sale price is not significantly higher than that. I don't have a specific incentive plan but at this stage and looking at continued losses and deterioration of the balance sheet, why not atleast work on incentive clauses for a sale of the company at certain price points.
This is another case where the company is worth more dead than alive. That is what the market is telling shareholders and the company. If you have not done so, please send a note to management reiterating your concern with shareholder value and the viability of the company going forward. This sense of urgency must come from shareholders at this stage.
Have a good weekend.
Wednesday, March 11, 2009
Sense of Urgency
The markets have regained most of the losses last week and UT stock is down 2 cents so far this week after surffering a 31% decline last week. It seems that almost everyday, there is a company coming out and defending their stock. The only thing we've seen from UT are the insider (tax) sales at 70-93 cents! This is sickening for shareholders and a total lack of a sense of urgency from the company/management.
An updated "earnings" estimate for 2009 and 2010 (from yahoo) are for losses of $1.25/share and 52 cents/share respectively. Revenue is at $556m and $668m. And as we've seen, the company hasn't exactly been meeting expectations, no matter how low they are. In any case, is a company operating at a loss EVERY quarter since 2004 and projected to continue to at least 2010 even a viable business?
With still around $270m in cash after this current quarter's massive $50m loss (does this even bother the company anymore?) and a book value in the $4 range, it really is time for shareholders to demand action from the management/board now before the asset base is eroded further. Companies such as Ericsson have $5 Billion/year R&D budget and their competitors such as Huawei have revenues in the $15-20 Billion. How can UT compete at this stage? The board has not or cannot come up with ways to enhance or even preserve shareholder value. Is this not the time to demand an explanation from the board on why they are not doing their fudiciary duty to shareholders?
Today, I participated in a productive conference call with other shareholders and there will be action taken. However, I am writing tonight to ask all shareholders to send an email to management/board to demand action to address the stock price, their still enormous cost base, and lack of plans to get to profitability. A quick survey of the probable revenues and gross margins show at the minimum, they would have to cut expenses to $40m/quarter or lower, which is way below the company's target of $60m by Q4 this year. Shareholders need to demand a significant change in the way the company operates its business. If the company cannot or will not do it, then it means the business is really not viable and we need to face the sad reality of salvaging the remaining shareholder value.
If you are a current shareholder, I ask that you send an email to Peter Blackmore, Barry Hutton, and the board of directors indicating your frustrations and support/demand for change. Add the number of shares that you own and please copy me on the email.
peter.blackmore@utstar.com
barry.hutton@utstar.com
directors@utstar.com
My email is tim_94305@yahoo.com
Have a good evening.
PS. Last year, I had a list of about 75-80 people in the exploratory group. If you were not part of the group and want to be included in the email list, let me know as well.
An updated "earnings" estimate for 2009 and 2010 (from yahoo) are for losses of $1.25/share and 52 cents/share respectively. Revenue is at $556m and $668m. And as we've seen, the company hasn't exactly been meeting expectations, no matter how low they are. In any case, is a company operating at a loss EVERY quarter since 2004 and projected to continue to at least 2010 even a viable business?
With still around $270m in cash after this current quarter's massive $50m loss (does this even bother the company anymore?) and a book value in the $4 range, it really is time for shareholders to demand action from the management/board now before the asset base is eroded further. Companies such as Ericsson have $5 Billion/year R&D budget and their competitors such as Huawei have revenues in the $15-20 Billion. How can UT compete at this stage? The board has not or cannot come up with ways to enhance or even preserve shareholder value. Is this not the time to demand an explanation from the board on why they are not doing their fudiciary duty to shareholders?
Today, I participated in a productive conference call with other shareholders and there will be action taken. However, I am writing tonight to ask all shareholders to send an email to management/board to demand action to address the stock price, their still enormous cost base, and lack of plans to get to profitability. A quick survey of the probable revenues and gross margins show at the minimum, they would have to cut expenses to $40m/quarter or lower, which is way below the company's target of $60m by Q4 this year. Shareholders need to demand a significant change in the way the company operates its business. If the company cannot or will not do it, then it means the business is really not viable and we need to face the sad reality of salvaging the remaining shareholder value.
If you are a current shareholder, I ask that you send an email to Peter Blackmore, Barry Hutton, and the board of directors indicating your frustrations and support/demand for change. Add the number of shares that you own and please copy me on the email.
peter.blackmore@utstar.com
barry.hutton@utstar.com
directors@utstar.com
My email is tim_94305@yahoo.com
Have a good evening.
PS. Last year, I had a list of about 75-80 people in the exploratory group. If you were not part of the group and want to be included in the email list, let me know as well.
Saturday, March 7, 2009
Viability of the company - Plan B
The stock closed at 70 cents this week, and hit a low of 64 cents on Friday. Down another 62% this year to a market cap of less than $90m, the street is telling us this is not a viable business going forward. Lets look at some of the ugly numbers/facts.
1. The company is projecting revenues in the $120-130m for Q1 and a loss of $50m. For a company with a market cap less than $100m, that is staggering.
2. The company is projecting continued losses for atleast the next 4 quarters and is not projecting breakeven/profitability until 2010 at the earliest. Since 2004, they have been predicting profitability a year out.
3. S&P has a $1/share target price and Jefferies has an even lower $.75 target. S&P notes the company will probably lose $200m more in cash in 2009 bringing cash levels to the $125m at the end of the year, and hence their $1 price target.
4. Company head count is still over 4300 after this recent headcount reduction and opex at best will be down to the $60m by Q4 of 2009.
With the stock in the 60-70 cent range, the company has not come out and discussed the stock price or shown any sense of urgency. The cycle of cutting cost and being behind the curve doesn't seem to end. This is even more disturbing because of the current state of the world economy and their competitive position.
How can the company get to breakeven when they so far could not when they had much higher PAS sales, China markets were booming (stock market went from 1k to 6k), and competitors ZTE/Huawei were much smaller?
Management and the board could not turn the ship around and unfortunately for shareholders, it is up to us to salvage what is left. Should we continue to "hope" that they can turn it around and risk looking at a situation where their cash is below $100m, revenues even lower, and options much worse? At the current stock price, the street has already made up its mind. The company is not viable and we shareholders need to act now.
I first talked with Peter during the 2007 November shareholder meeting and discussed with the management/board the background of the failed strategic alternatives. Basically, the company could not find a buyer that would offer an acceptable amount for the entire company and have it close, citing the bad economic environment/real estate problems. It was bizarre because this was in late 2006/early 2007. But then again, who would buy it when they had all the filing/investigation issues ongoing and yet to be announced. The only viable revenue stream was PAS so essentially they were asking somebody to pay atleast $1.2b (lets say $10) for PCD and the technology. In any case, if they broke it apart even then, shareholders would have been better off with $10 or even $8 or $6.
Throughout 2008, the stock was already in the $2+ range so the issue was still can the company be competitive and get back to profitability. Management was very confident in achieving their expense metrics and increasing the revenue base despite repeated questions on the PAS decline. Barton had a "plan" for 2009 and beyond that supposedely took into account PAS declines and expenses would only be cut incrementally. It was always two steps forward and one step back for them. Barton was so important that his yearly compensation was around $3m! The board vehemently defended his salary to shareholders last March and a few months later he was gone.
The above is just a sample of events (and as I summarized for Blackmore last March), it goes way back to 2004 and Barton in 2005 with all the failed projections. Barton always insisted they "met" his projections quarterly. Yes, they did because after they met expectations for one quarter, they projected such a massive shortfall the next! Sound familiar?
Anyway, when I formed the "exploratory" group to enhance shareholder value, we had good traction at the beginning and the company was able to sell PCD, improve performance for a quarter (they actually announced exceeding estimates ahead), and the stock shot up to almost $6. While many called for "Plan B" at the time, we were operating under "Plan A" because that was most logical at that stage and most institutions were happy to see if the company can still turn around (some had just bought in the $2s and were obviously happy with the price increases). I myself was hoping that UT can atleast get to breakeven and negotiate a sale when the stock was much north of $5.
With the turn of events last year and material changes to the markets/world economy, and obviously with the stock price, those hopes are gone and we shareholders must now transition to "Plan B". I again reiterate my tremendous disappointment that we must do this. It ends my hopes that the company can turn it around but in order to maximize shareholder value at this stage....
With the help of other institutional holders, we are gathering the shareholders for discussions on how to proceed. We definitely want to meet with Peter and the board when he gets back from China (he has a two week trip plan).
To all the shareholders out there, I understand your pain and the institutions that are on board share your pain and we will try to do whats best for shareholder value, something unfortunately the management and board have failed all of us.
I end this post by asking for all of your support in the group. The retail shareholders make up a significant amount of the outstanding shares and your voice must be heard.
I can be reached at tim_94305@yahoo.com if you want to send a private message. Currently we are contacting institutions in the top 15 holdings but welcome any institutional holder that share our frustration.
Have a good weekend.
1. The company is projecting revenues in the $120-130m for Q1 and a loss of $50m. For a company with a market cap less than $100m, that is staggering.
2. The company is projecting continued losses for atleast the next 4 quarters and is not projecting breakeven/profitability until 2010 at the earliest. Since 2004, they have been predicting profitability a year out.
3. S&P has a $1/share target price and Jefferies has an even lower $.75 target. S&P notes the company will probably lose $200m more in cash in 2009 bringing cash levels to the $125m at the end of the year, and hence their $1 price target.
4. Company head count is still over 4300 after this recent headcount reduction and opex at best will be down to the $60m by Q4 of 2009.
With the stock in the 60-70 cent range, the company has not come out and discussed the stock price or shown any sense of urgency. The cycle of cutting cost and being behind the curve doesn't seem to end. This is even more disturbing because of the current state of the world economy and their competitive position.
How can the company get to breakeven when they so far could not when they had much higher PAS sales, China markets were booming (stock market went from 1k to 6k), and competitors ZTE/Huawei were much smaller?
Management and the board could not turn the ship around and unfortunately for shareholders, it is up to us to salvage what is left. Should we continue to "hope" that they can turn it around and risk looking at a situation where their cash is below $100m, revenues even lower, and options much worse? At the current stock price, the street has already made up its mind. The company is not viable and we shareholders need to act now.
I first talked with Peter during the 2007 November shareholder meeting and discussed with the management/board the background of the failed strategic alternatives. Basically, the company could not find a buyer that would offer an acceptable amount for the entire company and have it close, citing the bad economic environment/real estate problems. It was bizarre because this was in late 2006/early 2007. But then again, who would buy it when they had all the filing/investigation issues ongoing and yet to be announced. The only viable revenue stream was PAS so essentially they were asking somebody to pay atleast $1.2b (lets say $10) for PCD and the technology. In any case, if they broke it apart even then, shareholders would have been better off with $10 or even $8 or $6.
Throughout 2008, the stock was already in the $2+ range so the issue was still can the company be competitive and get back to profitability. Management was very confident in achieving their expense metrics and increasing the revenue base despite repeated questions on the PAS decline. Barton had a "plan" for 2009 and beyond that supposedely took into account PAS declines and expenses would only be cut incrementally. It was always two steps forward and one step back for them. Barton was so important that his yearly compensation was around $3m! The board vehemently defended his salary to shareholders last March and a few months later he was gone.
The above is just a sample of events (and as I summarized for Blackmore last March), it goes way back to 2004 and Barton in 2005 with all the failed projections. Barton always insisted they "met" his projections quarterly. Yes, they did because after they met expectations for one quarter, they projected such a massive shortfall the next! Sound familiar?
Anyway, when I formed the "exploratory" group to enhance shareholder value, we had good traction at the beginning and the company was able to sell PCD, improve performance for a quarter (they actually announced exceeding estimates ahead), and the stock shot up to almost $6. While many called for "Plan B" at the time, we were operating under "Plan A" because that was most logical at that stage and most institutions were happy to see if the company can still turn around (some had just bought in the $2s and were obviously happy with the price increases). I myself was hoping that UT can atleast get to breakeven and negotiate a sale when the stock was much north of $5.
With the turn of events last year and material changes to the markets/world economy, and obviously with the stock price, those hopes are gone and we shareholders must now transition to "Plan B". I again reiterate my tremendous disappointment that we must do this. It ends my hopes that the company can turn it around but in order to maximize shareholder value at this stage....
With the help of other institutional holders, we are gathering the shareholders for discussions on how to proceed. We definitely want to meet with Peter and the board when he gets back from China (he has a two week trip plan).
To all the shareholders out there, I understand your pain and the institutions that are on board share your pain and we will try to do whats best for shareholder value, something unfortunately the management and board have failed all of us.
I end this post by asking for all of your support in the group. The retail shareholders make up a significant amount of the outstanding shares and your voice must be heard.
I can be reached at tim_94305@yahoo.com if you want to send a private message. Currently we are contacting institutions in the top 15 holdings but welcome any institutional holder that share our frustration.
Have a good weekend.
Saturday, February 21, 2009
Weekly Recap - Another All-time Low Closing
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.
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.
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.
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