Here is a 6 month chart with the 20 and 50 day overlay.
http://finance.yahoo.com/q/ta?s=UTSI&t=6m&l=on&z=l&q=b&p=m50,m20&a=&c=
The initial cross back at 90 cents was a prelude to a nice run to $2.43, close to the November 2008 highs.
Now, the stock sits right at the 50 day with the 20 day trending up and coming up fast. I had commented in the past about the 20 day moving average. The stock was comfortably above the 20 day on its run up but broke down around the $2 area, subsequently reaching $1.35, which interestingly enough was the launch from the low $1 range. For trading, the 20 day is a farily good indicator and you should be long as it is above that. The bears had a nice attack early Friday but failed to bring it down. A few weeks ago, the 50 day was around $1.8 and $1.83/1.84 was the high just after the shareholder meeting. Now, that it has gone down slightly, the breakout point is here. Next week could be the long overdue breakout as the stock is incredibly cheap.
Just some gibberish technicals for traders out there. I'd like to see more volume for more confirmation from a technical standpoint. I'll post more on the earnings call later this weekend.
Saturday, August 8, 2009
Thursday, August 6, 2009
Q2 2009 Report
Here are notes I took from the conference call.
The company highlighted the cash balance at the end of the quarter at $276m. Cash usage in the first half of $38m. "Good" progress in the restructuring with 1100 cuts in June and July. Further cuts in Q3 and completed in Q4. In Q4, manufacturing will be outsourced.
Bookings - No book to bill or numbers given. Peter had mentioned to detail this and instead not even book to bill was given. Peter mentioned good demand in iptv and expected to have good bookings in 2nd half based on sales channels. Again, no hard numbers, which is disappointing.
Q2 Revenue was $80m, which consisted of no Korea based handset revenue so mostly "core" revenue. I am confused why there was no handset revenue and yet some final inventory sales in Q3. Margins were negative due to several charges highlighted in the PR. Stripping out these charges, the GMs were about 20% (breakdown later).
Wins in the Quarter - IPTV expansion contract with China Telecom in provinces including Fujian, Hainan, Shanghai and Zhejiang. IPTV win with CCTV in Hunan. PDSN expansion contract in 10 provinces (35% market leader ahead of Cisco/Starent and the Chinese competitors). Some milestones included the mobile IPTV win, start of upgrade of STB from version 1.0 to 2.0 (software upgrade), "Dual SP" upgrade for CT (not sure what that is), IP Signage/advertising, Pilot project for SMIC for intertactive TV/"ITV" cable solution. Some new entertainment features implemented in IPTV for India. No subscriber update count for
IPTV.
Broadband - MSAN win with PLDT, BSNL/Bharti, continued product evaluations with Softbank with initial pilot orders for their TN product. Commercially deployed GEPON in 25 cities in 11 provinces in China. Advance negotiations in Q4 for BSNL Phase III contract to be awarded in late Q3, probably in Q4. Got professional service contracts with CT and China Unicom (multi-year contracts that can further relationships).
Recap restructuring progress and summaring focus on IP products.
The Q2 charge of $28m was for the 1850 people already let go (1100 people) and the ones identified. A smaller charge in Q3 for the rest. While the charge is taken, cash will be used in Q3/Q4 as mentioned previously.
Mentioned monetizing the Hangzhou building (nothing new).
Viraj talked about the business unit breakdown.
MCBU (IPTV/NGN) - $39m revenue and 31% gross margin. Later learned first India iptv revenue finally realized this quarter.
Broadband - $14m and 5% GMs. Lower revenue due to exit of lower margin business (note: Revenue from Phase I/II not recognized although cash is collected).
Services - $14m and 39% GMs.
Handsets - $13m (negative GMS - Most in China/no Korea designed handsets).
Peter talked about rest of 2009... talked about Hong Lu's contribution and wishes him luck in his new role (not sure if anything really changed there). Board is seeking to add people with expertise in the local markets (thats been discussed so often before and very late in this regard).
Blackmore spends more than 50% in China (and another 20% travelling is my guess)
NO 3rd quarter guidance due to the restructuring.
Reiterated 2010 business model of $350m in revenue, high 20s GMs and under $100m in opex. This will be added to by deferred revenue from the India contracts.
Q&A - Broadband GMs of 5% this quarter (whats up with that anyway when they talked about 20% last year). How can they achieve the higher company GMs with such a low broadband GM. This was an excellent question and Peter had a reasonable answer. Peter is expecting their TN product with Softbank to have much higher margins and contribute more revenue. The margins from BSNL is the low one but others in India (Bharti, Tata, Reliance) have larger GMs. Other Asian broadband contracts are much higher. GEPON contracts will be selected so that margins can be optimized (they will not go after every tender out there). Peter talked about India iptv mostly starting this year and still at the very early stages.
Peter discussed iptv pricing and said their infrastructure products are made of mostly 3rd party equipment and their software (which gives them higher margins). STB has GMs in the teens and cost $50. The upgrade coming up will be mostly software upgrades.
Not a lot of questions but Peter mentioned having discussions with Shareholders tomorrow. I should get additional feedback tomorrow after those talks.
Commentary - It wasn't a pretty quarter. The negatives included no detailed info on bookings, no iptv subscriber count, no announcement of the partner, no Q3 guidance. The positives included the company has ample cash with $276m. Subtract $45m for restructuring and you have $231m. OPEX for this quarter without restructuring was about $43m ($16m in R&D and $27m in SG&A). Weren't they targetting to get OPEX under $60m by Q4 when they talked with investors at the end of Feb. Core revenue of $80m was not bad with half in MCBU. Without PAS, it shows IPTV is doing well with the business unit having 31% GMs. So, OPEX for Q3/Q4 should rapidly going down as well. Any more writedowns in Q3/Q4? Handsets are mostly gone so...There are still those Phase I/II payments at about $25m/quarter so cash balance by the end of the year should be well over $200m. By early 2010, OPEX will be down to under $25m/quarter. Peter talked AGAIN about exceeding the breakeven revenue and bookings expected to do well in the 2nd half. The book value is down to about $2.55/share and projected to go lower. I anticipate the stock to edge closer and fill the gap to the book value and ultimately exceed it as it gets closer to 2010 and bookings are clarified. For now, the negative quarterly reports dominate the headlines and the company doesn't use any funds in defense of the stock price. Peter has done a good job in the expense cuts (which we have been asking for a LONG time) and there is progress in the "core business". The credibility is low as again they chose NOT to give color to bookings, guidance, etc.
The company highlighted the cash balance at the end of the quarter at $276m. Cash usage in the first half of $38m. "Good" progress in the restructuring with 1100 cuts in June and July. Further cuts in Q3 and completed in Q4. In Q4, manufacturing will be outsourced.
Bookings - No book to bill or numbers given. Peter had mentioned to detail this and instead not even book to bill was given. Peter mentioned good demand in iptv and expected to have good bookings in 2nd half based on sales channels. Again, no hard numbers, which is disappointing.
Q2 Revenue was $80m, which consisted of no Korea based handset revenue so mostly "core" revenue. I am confused why there was no handset revenue and yet some final inventory sales in Q3. Margins were negative due to several charges highlighted in the PR. Stripping out these charges, the GMs were about 20% (breakdown later).
Wins in the Quarter - IPTV expansion contract with China Telecom in provinces including Fujian, Hainan, Shanghai and Zhejiang. IPTV win with CCTV in Hunan. PDSN expansion contract in 10 provinces (35% market leader ahead of Cisco/Starent and the Chinese competitors). Some milestones included the mobile IPTV win, start of upgrade of STB from version 1.0 to 2.0 (software upgrade), "Dual SP" upgrade for CT (not sure what that is), IP Signage/advertising, Pilot project for SMIC for intertactive TV/"ITV" cable solution. Some new entertainment features implemented in IPTV for India. No subscriber update count for
IPTV.
Broadband - MSAN win with PLDT, BSNL/Bharti, continued product evaluations with Softbank with initial pilot orders for their TN product. Commercially deployed GEPON in 25 cities in 11 provinces in China. Advance negotiations in Q4 for BSNL Phase III contract to be awarded in late Q3, probably in Q4. Got professional service contracts with CT and China Unicom (multi-year contracts that can further relationships).
Recap restructuring progress and summaring focus on IP products.
The Q2 charge of $28m was for the 1850 people already let go (1100 people) and the ones identified. A smaller charge in Q3 for the rest. While the charge is taken, cash will be used in Q3/Q4 as mentioned previously.
Mentioned monetizing the Hangzhou building (nothing new).
Viraj talked about the business unit breakdown.
MCBU (IPTV/NGN) - $39m revenue and 31% gross margin. Later learned first India iptv revenue finally realized this quarter.
Broadband - $14m and 5% GMs. Lower revenue due to exit of lower margin business (note: Revenue from Phase I/II not recognized although cash is collected).
Services - $14m and 39% GMs.
Handsets - $13m (negative GMS - Most in China/no Korea designed handsets).
Peter talked about rest of 2009... talked about Hong Lu's contribution and wishes him luck in his new role (not sure if anything really changed there). Board is seeking to add people with expertise in the local markets (thats been discussed so often before and very late in this regard).
Blackmore spends more than 50% in China (and another 20% travelling is my guess)
NO 3rd quarter guidance due to the restructuring.
Reiterated 2010 business model of $350m in revenue, high 20s GMs and under $100m in opex. This will be added to by deferred revenue from the India contracts.
Q&A - Broadband GMs of 5% this quarter (whats up with that anyway when they talked about 20% last year). How can they achieve the higher company GMs with such a low broadband GM. This was an excellent question and Peter had a reasonable answer. Peter is expecting their TN product with Softbank to have much higher margins and contribute more revenue. The margins from BSNL is the low one but others in India (Bharti, Tata, Reliance) have larger GMs. Other Asian broadband contracts are much higher. GEPON contracts will be selected so that margins can be optimized (they will not go after every tender out there). Peter talked about India iptv mostly starting this year and still at the very early stages.
Peter discussed iptv pricing and said their infrastructure products are made of mostly 3rd party equipment and their software (which gives them higher margins). STB has GMs in the teens and cost $50. The upgrade coming up will be mostly software upgrades.
Not a lot of questions but Peter mentioned having discussions with Shareholders tomorrow. I should get additional feedback tomorrow after those talks.
Commentary - It wasn't a pretty quarter. The negatives included no detailed info on bookings, no iptv subscriber count, no announcement of the partner, no Q3 guidance. The positives included the company has ample cash with $276m. Subtract $45m for restructuring and you have $231m. OPEX for this quarter without restructuring was about $43m ($16m in R&D and $27m in SG&A). Weren't they targetting to get OPEX under $60m by Q4 when they talked with investors at the end of Feb. Core revenue of $80m was not bad with half in MCBU. Without PAS, it shows IPTV is doing well with the business unit having 31% GMs. So, OPEX for Q3/Q4 should rapidly going down as well. Any more writedowns in Q3/Q4? Handsets are mostly gone so...There are still those Phase I/II payments at about $25m/quarter so cash balance by the end of the year should be well over $200m. By early 2010, OPEX will be down to under $25m/quarter. Peter talked AGAIN about exceeding the breakeven revenue and bookings expected to do well in the 2nd half. The book value is down to about $2.55/share and projected to go lower. I anticipate the stock to edge closer and fill the gap to the book value and ultimately exceed it as it gets closer to 2010 and bookings are clarified. For now, the negative quarterly reports dominate the headlines and the company doesn't use any funds in defense of the stock price. Peter has done a good job in the expense cuts (which we have been asking for a LONG time) and there is progress in the "core business". The credibility is low as again they chose NOT to give color to bookings, guidance, etc.
Saturday, August 1, 2009
Product Lineup
While the company has addressed one side of the business equation to profitability by targetting a lowered expense rate under $100m/year, the bookings/revenue side doesn't show clarity even after years of churning out products. The most reliable/consistent revenue source came from PAS infra/handsets and their PCD handsets. Both of those areas are winding down to almost zero. PAS peaked around 2004 and the search for new revenue streams started way before that. Big investments and hope in 3G (WCDMA), Wimax, Softbank, and handsets failed/disappointed badly. A $2.5B revenue company at one point, UT has scaled back drastically and positioned itself to break even with $350m in yearly revenues. How doable is this? What products do they have? Over the last few years, there are various products thrown out that gave hope. The size of the markets were large but consistency of revenue and wins were lacking. Here is a smattering of products that the company is relying on to generate revenue in the future.
IPTV Infra (Basic) - By all accounts, this business has done well ramping to a subscriber base of 1.32m mostly in China. The problem is that UT has invested so much in their end-to-end system that the revenue generated so far has not justified the cost. Blackmore mentioned last year, “Our view is that these two product areas, NGN and IPTV are at the beginning of their life cycles and bookings can ramp fast. We are very pleased with the momentum they are gaining in their respective markets and believe the revenue for each of these product lines can grow in excess of 80% in 2008.” Its interesting that now, Blackmore makes the point that IPTV/NGN softswitch are mature in terms of their investments.
IPTV (cable) - The initial win was with Markwell in Taiwan. That was announced back in December of 2007 and just went "live" this year. Other cable wins in China were recent as well.
(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.
IPTV (digital signage, security) - There has been about 8 wins in digital signage and a couple in surveilance. Again, new revenue sources but size is small.
IPTV (mobile/iptv phones) - UTStarcom, Inc. (Nasdaq: UTSI) has been selected as the only technology supplier for the first Mobile Television (TV) system across Hainan province, driven by China Telecom's (NYSE: CHA) Hainan branch. This is the first large-scale Mobile TV system in China to adopt UTStarcom's end-to-end RollingStream(R) platform. The deployment is scheduled to go live on May 17, 2009, as an extension of the existing Internet Protocol Television (IPTV) service that Hainan Telecom and UTStarcom have been delivering since 2006. http://www.lightreading.com/document.asp?doc_id=175419
UT is now focusing handset efforts towards iptv. Given the general CDMA market's low margins, high working capital/inventory risks, charges even just recently, this is probably a good switch.
NGN/FMC - Blackmore mentions on one of last year's earnings call, “Focusing on our NGN solution, this is designed to support the growing number of advanced voice and data services as we see tremendous growth in Internet traffic and the end of life of traditional TDM switches. We’ve designed our mSwitch to allow the provision of next generation services but also significantly reducing operating expenses of current products. mSwitch supports multiple call types over all access technologies and currently supports over 60 million NGN customers globally. While PLDT is our largest network transformation project to date, our success there is winning us new customers worldwide. For example, last year a major European carrier, Tiscali in Italy asked us to supply them with our MSAN equipment. And just prior to year end, the carrier asked us to replace their entire TDM switching network with our softswitch. This is obviously a very key strategic decision for Tiscali and a very strategic win for us. We are currently implementing this project with them. In quarter four, we also won our first NGN softswitch in Taiwan. Other recent notable contracts include Brasil Telecom, where our softswitch is supporting applications for fixed mobile convergence and IPTV, with TOT in Thailand, and also recently Nextel in Argentina. It is clear that this technology is gaining momentum and we believe we have the best performing softswitch on the market.”
Broadband (India) - The main revenue(cash) source lately has been from the BSNL contract in India (Phase I/II). We've heard about the recent extension of Phase II and possibly Phase III by year's end. From all accounts, India broadband is a consistent revenue source (although margins are low).
GEPON- "UTStarcom Deploys Largest GEPON Network in the World for Japan's Softbank" That was in 2004! http://www.redorbit.com/news/technology/90954/utstarcom_deploys_largest_gepon_network_in_the_world_for_japans/index.html
Over the years, there were wins in Pakistan (Sept 2007) http://lw.pennnet.com/display_article/305689/13/ARTCL/none/XNEWS/Bell-&-Tell-installs-UTStarcom-GEPON-in-Pakistan/?dcmp=LWDENL_ARCH
, Goa in India (May 2007), http://lw.pennnet.com/display_article/293392/13/ARTCL/Display/none/United-Telecom-picks-UTStarcom-for-Indian-GEPON/?dcmp=LWDENL_ARCH
China (July 2008)...The latest update in the last earnings call from Lu: "Moving on to broadband, we’re very pleased to be beating and are breaking through in our GEPON business in China. For example, we’re working with the China Telecom for GEPON contracts in the Jiangsu, Zhejiang, and Fujian provinces. We’re also looking at the expansion contract with the China Telecom for gigabit EPON in Ningxia Province and are planning the trial with the Hunan Province and Jiangxi Province. With China Netcom, we are expanding our GEPON business in the Heilongjiang, Shandong and Hunan provinces. We are pursuing enterprise opportunity for gigabit EPON and have won a small, but important contract with China’s State Administration of Radio, Film and TV in the Vinan Province."
Recently, Blackmore announced they were on the short list for 15 more provinces as they topped testing in 3 of 4 categories. Here is a recent article (June 12, 2009) on EPON in China..."World's larget EPON tender?"
8:55 AM -- China Unicom Ltd. (NYSE: CHU) is believed to have issued a tender for EPON equipment to support the rollout of 11 million high-speed fiber access broadband lines, according to a report from Interfax China.
If true, this is further evidence that China's EPON market is hotting up fast, and that Asia/Pacific's preference for EPON is ongoing, though China Telecom Corp. Ltd. (NYSE: CHA) is also checking out GPON's potential. (See China Telecom Uses AlcaLu's GPON.)
China Unicom is believed to have built out around 100,000 EPON lines so far, substantially less than China Telecom's 4 million lines at the close of 2008, according to Chinese vendor ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763). (See ZTE Secures $15B, Highlights R&D.)
http://www.lightreading.com/blog.asp?blog_sectionid=752&doc_id=177920
PSDN - UT got 40% of the latest tender beating out Cisco/Starent. (The Packet Data Serving Node, or PDSN, is a component of a CDMA2000 mobile network . It acts as the connection point between the Radio Access and IP networks. This component is responsible for managing PPP sessions between the mobile provider's core IP network and the mobile station).
Transport Network (TN) - There has been build up of this product since last year on the analyst meeting. Recently, the company disclosed trials with Softbank and China Mobile to name a few. However, there has been no wins yet.
----------------------------------------------
The company's investments in the above products have gone as far back as early this decade. As mentioned, PAS peaked back in 2004 so the company has thrown a lot of resources into various products and only now seeing some payoff. For years, investors have been telling the company to CUT costs because the revenues were not coming even though they had products (WCDMA trials went very well for example but 3G licenses were not issued until recently). So, now that the company has cut costs, there is concern about developing future products and maintaining customers. While management credibility is low and their performance is reflected in their stock (even today, it ranks as one of the worse performing US listed "China" stocks), I cannot argue with the cost cuts as I see their product line as being adequate. The timing of bookings and revenue are still questionable but initial wins and positions indicate there are enough products to support the new expense base. The company currently generates 80% of their revenue from 20 customers (compared to Starent having two customers make up 85% of revenue for example). The company's product line and depth of development over the years cannot be replicated with the current market cap. (I wonder what valuation they would get if they just become public with say $200m in cash, own their own building, have the above product line/customer wins, and projected to breakeven/become profitable in the near term).
It is a very unusual situation but the question remains can they convert the previous years investments/positions into bookings/revenues to become profitable and grow the business. One of the biggest negatives is their credibility/past performance and that is NOT easy to overcome after so many years so we will have to see.....
Have a good weekend.
IPTV Infra (Basic) - By all accounts, this business has done well ramping to a subscriber base of 1.32m mostly in China. The problem is that UT has invested so much in their end-to-end system that the revenue generated so far has not justified the cost. Blackmore mentioned last year, “Our view is that these two product areas, NGN and IPTV are at the beginning of their life cycles and bookings can ramp fast. We are very pleased with the momentum they are gaining in their respective markets and believe the revenue for each of these product lines can grow in excess of 80% in 2008.” Its interesting that now, Blackmore makes the point that IPTV/NGN softswitch are mature in terms of their investments.
IPTV (cable) - The initial win was with Markwell in Taiwan. That was announced back in December of 2007 and just went "live" this year. Other cable wins in China were recent as well.
(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.
IPTV (digital signage, security) - There has been about 8 wins in digital signage and a couple in surveilance. Again, new revenue sources but size is small.
IPTV (mobile/iptv phones) - UTStarcom, Inc. (Nasdaq: UTSI) has been selected as the only technology supplier for the first Mobile Television (TV) system across Hainan province, driven by China Telecom's (NYSE: CHA) Hainan branch. This is the first large-scale Mobile TV system in China to adopt UTStarcom's end-to-end RollingStream(R) platform. The deployment is scheduled to go live on May 17, 2009, as an extension of the existing Internet Protocol Television (IPTV) service that Hainan Telecom and UTStarcom have been delivering since 2006. http://www.lightreading.com/document.asp?doc_id=175419
UT is now focusing handset efforts towards iptv. Given the general CDMA market's low margins, high working capital/inventory risks, charges even just recently, this is probably a good switch.
NGN/FMC - Blackmore mentions on one of last year's earnings call, “Focusing on our NGN solution, this is designed to support the growing number of advanced voice and data services as we see tremendous growth in Internet traffic and the end of life of traditional TDM switches. We’ve designed our mSwitch to allow the provision of next generation services but also significantly reducing operating expenses of current products. mSwitch supports multiple call types over all access technologies and currently supports over 60 million NGN customers globally. While PLDT is our largest network transformation project to date, our success there is winning us new customers worldwide. For example, last year a major European carrier, Tiscali in Italy asked us to supply them with our MSAN equipment. And just prior to year end, the carrier asked us to replace their entire TDM switching network with our softswitch. This is obviously a very key strategic decision for Tiscali and a very strategic win for us. We are currently implementing this project with them. In quarter four, we also won our first NGN softswitch in Taiwan. Other recent notable contracts include Brasil Telecom, where our softswitch is supporting applications for fixed mobile convergence and IPTV, with TOT in Thailand, and also recently Nextel in Argentina. It is clear that this technology is gaining momentum and we believe we have the best performing softswitch on the market.”
Broadband (India) - The main revenue(cash) source lately has been from the BSNL contract in India (Phase I/II). We've heard about the recent extension of Phase II and possibly Phase III by year's end. From all accounts, India broadband is a consistent revenue source (although margins are low).
GEPON- "UTStarcom Deploys Largest GEPON Network in the World for Japan's Softbank" That was in 2004! http://www.redorbit.com/news/technology/90954/utstarcom_deploys_largest_gepon_network_in_the_world_for_japans/index.html
Over the years, there were wins in Pakistan (Sept 2007) http://lw.pennnet.com/display_article/305689/13/ARTCL/none/XNEWS/Bell-&-Tell-installs-UTStarcom-GEPON-in-Pakistan/?dcmp=LWDENL_ARCH
, Goa in India (May 2007), http://lw.pennnet.com/display_article/293392/13/ARTCL/Display/none/United-Telecom-picks-UTStarcom-for-Indian-GEPON/?dcmp=LWDENL_ARCH
China (July 2008)...The latest update in the last earnings call from Lu: "Moving on to broadband, we’re very pleased to be beating and are breaking through in our GEPON business in China. For example, we’re working with the China Telecom for GEPON contracts in the Jiangsu, Zhejiang, and Fujian provinces. We’re also looking at the expansion contract with the China Telecom for gigabit EPON in Ningxia Province and are planning the trial with the Hunan Province and Jiangxi Province. With China Netcom, we are expanding our GEPON business in the Heilongjiang, Shandong and Hunan provinces. We are pursuing enterprise opportunity for gigabit EPON and have won a small, but important contract with China’s State Administration of Radio, Film and TV in the Vinan Province."
Recently, Blackmore announced they were on the short list for 15 more provinces as they topped testing in 3 of 4 categories. Here is a recent article (June 12, 2009) on EPON in China..."World's larget EPON tender?"
8:55 AM -- China Unicom Ltd. (NYSE: CHU) is believed to have issued a tender for EPON equipment to support the rollout of 11 million high-speed fiber access broadband lines, according to a report from Interfax China.
If true, this is further evidence that China's EPON market is hotting up fast, and that Asia/Pacific's preference for EPON is ongoing, though China Telecom Corp. Ltd. (NYSE: CHA) is also checking out GPON's potential. (See China Telecom Uses AlcaLu's GPON.)
China Unicom is believed to have built out around 100,000 EPON lines so far, substantially less than China Telecom's 4 million lines at the close of 2008, according to Chinese vendor ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763). (See ZTE Secures $15B, Highlights R&D.)
http://www.lightreading.com/blog.asp?blog_sectionid=752&doc_id=177920
PSDN - UT got 40% of the latest tender beating out Cisco/Starent. (The Packet Data Serving Node, or PDSN, is a component of a CDMA2000 mobile network . It acts as the connection point between the Radio Access and IP networks. This component is responsible for managing PPP sessions between the mobile provider's core IP network and the mobile station).
Transport Network (TN) - There has been build up of this product since last year on the analyst meeting. Recently, the company disclosed trials with Softbank and China Mobile to name a few. However, there has been no wins yet.
----------------------------------------------
The company's investments in the above products have gone as far back as early this decade. As mentioned, PAS peaked back in 2004 so the company has thrown a lot of resources into various products and only now seeing some payoff. For years, investors have been telling the company to CUT costs because the revenues were not coming even though they had products (WCDMA trials went very well for example but 3G licenses were not issued until recently). So, now that the company has cut costs, there is concern about developing future products and maintaining customers. While management credibility is low and their performance is reflected in their stock (even today, it ranks as one of the worse performing US listed "China" stocks), I cannot argue with the cost cuts as I see their product line as being adequate. The timing of bookings and revenue are still questionable but initial wins and positions indicate there are enough products to support the new expense base. The company currently generates 80% of their revenue from 20 customers (compared to Starent having two customers make up 85% of revenue for example). The company's product line and depth of development over the years cannot be replicated with the current market cap. (I wonder what valuation they would get if they just become public with say $200m in cash, own their own building, have the above product line/customer wins, and projected to breakeven/become profitable in the near term).
It is a very unusual situation but the question remains can they convert the previous years investments/positions into bookings/revenues to become profitable and grow the business. One of the biggest negatives is their credibility/past performance and that is NOT easy to overcome after so many years so we will have to see.....
Have a good weekend.
Thursday, July 23, 2009
Chinese 3G Investment, IPTV phone, and Ericsson
China's 3G investment - "China's top three telecommunication operators, China Telecom, China Mobile and China Unicom, invested 80 billion yuan to boost the third-generation (3G) network so far this year, the Ministry of Industry and Information Technology said Wednesday." "The ministry expected the three operators would invest 170 billion yuan (24.87 billion U.S dollars) in 3G network construction this year. "
http://english.sina.com/business/2009/0722/257615.html
So far, subscriber numbers for 3G has been low. "According to the article, China's 3 mobile operators have targeted 50 million 3G subscribers by the end of this year. But since the issuance of 3G licenses in Jan 7 this year, subscribers of all kinds have not reached 3 m under the most optimistic estimate. Of that total, more than a million use 3G cards or 3G laptops. Among the handset users, .74m are on China Mobile's TD-SCDMA network by the end of May, including users acquired during early trials and during the Olympics last year when free give-aways and other promotions were in place. There are only .1+ m users on China Telecom's 3G service. China Unicom now aims for .2m users for its WCDMA service by the end of Oct. In stark contrast, the total population of mobile subs in China is 600m right now. Average monthly uptake in mobile subs in Q1 this year is 9.6m in China. Clearly, the initial growth of 3G has not lived up to market potential and expectation. "
http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_U/threadview?m=tm&bn=27187&tid=160363&mid=160363&tof=8&rt=1&frt=1&off=1
The 3G handsets cost $300-450 so they are not cheap.
UT's mobile iptv- UTStarcom, Inc. (Nasdaq: UTSI) has been selected as the only technology supplier for the first Mobile Television (TV) system across Hainan province, driven by China Telecom's (NYSE: CHA) Hainan branch. This is the first large-scale Mobile TV system in China to adopt UTStarcom's end-to-end RollingStream(R) platform. The deployment is scheduled to go live on May 17, 2009, as an extension of the existing Internet Protocol Television (IPTV) service that Hainan Telecom and UTStarcom have been delivering since 2006.
http://www.lightreading.com/document.asp?doc_id=175419
CMMB- Shanghai. May 20. INTERFAX-CHINA - China's three telecom operators are accelerating their plans to roll out mobile TV services in order to gain ground in the forthcoming 3G era, with China Mobile the favorite to win among both analysts and consumers.
Although the 3G networks deployed by operators have the potential to provide streaming TV services, all three operators plan to rely mainly on the China-developed China Multimedia Mobile Broadcasting (CMMB) mobile TV standard to deliver their mobile TV services to both their 2G and 3G customers.
On May 19, China Mobile became the first telecom operator to sign a deal with China Satellite Mobile Broadcasting Co. Ltd. (CSMB), the national operator of CMMB, allowing China Mobile's CMMB-enabled handsets to access the CMMB network, according to Shen Hongbin, general manager of TiMi Technology Co. Ltd., a chip manufacturer and the developer of CMMB.
http://tmt.interfaxchina.com/news/1741
Commentary: It is interesting that UTStarcom, known for its low cost PAS handsets, has now switched gears targetting the higher end handset market and focusing on iptv. While the market is not large compared to the overall 600m mobile/handset market in China, investments by operators in 3G, iptv, and their goal to increase overall revenue could make UTs startegy pay off. The number of handset suppliers number in the 30s but UT can leverage their advantage in iptv to carve a nice market share in iptv enabled handsets. Handsets using CMMB (see above) will be competition but UT can offer more from their iptv system. Also, note that May starting dates are very close. This is a nice consumer product that UT can build on (and they have 1.32m iptv subscribers to market the handsets to already).
Ericsson- Back in 2006 (and maybe earlier), Ericsson was discussed as a potential buyer of UTStarcom. Ericsson has been a major acquirer and has targetted IPTV as one of its important areas of growth. Ericsson has acquired other companies since such as Redback Networks but its expansion hunger continues. The company is projected to spend $25B in R&D over 5 years and recently made inroads in China (I've discussed their India business previously).
"Recently, L.M. Ericsson (ERIC) (Analyst Report) received fiber-to-the home (FTTH) equipment contracts from all of China Mobile, China Unicom, and China Telecom. Ericsson’s GPON (Gigabit Passive Optical Network) technology will be used for high-speed internet access and high-definition IPTV services in 9 Chinese provinces."
http://seekingalpha.com/article/150148-anticipating-china-s-broadband-boom?source=yahoo
Here is a note on Ericsson's IPTV strategy: "Ericsson characterized the existing IPTV systems as First Generation and stated that its conversations with IPTV operators indicate that they have strong concerns about the ability of these systems to scale. Ericsson told me that it thinks that many of these systems will top out at 500 thousand IPTV subscribers. It expects that moving to a second genreation of IPTV systems will create major opportunities for it."
http://telcotv-view.blogspot.com/2008/08/ericssons-iptv-strategy.html
The author commented: "There is no question that Ericsson is late to the IPTV party. Its acquisition of Tandberg clearly gives it a strong presence in the market but not as a full service provider.It will be interesting to see if its view of the market will pan out. Personally, I think it will be much more difficult for Ericsson, or any other large full service system supplier, to break into the market at this time. "
Today, Ericsson threw its hat in the bidding for Nortel's CDMA/LTE assets. "The Swedish giant confirmed Thursday morning that it is "going to participate in the auction for Nortel's CDMA and LTE access" assets, and confirmed it had submitted an initial pre-auction bid by the end-of-Tuesday deadline, but did not disclose any further details."
http://www.lightreading.com/document.asp?doc_id=179571&
Ericsson+UT still makes sense.
IPTV and its related revenue streams (handsets, mobile/fixed infra, advertising/digital signage/commerce/education, etc) are still in the very early stage. UTs wins in India, Taiwan, and China have barely scratched the surface and some are just going live now. Thats both frustrating and shows the potential growth in the future.......
http://english.sina.com/business/2009/0722/257615.html
So far, subscriber numbers for 3G has been low. "According to the article, China's 3 mobile operators have targeted 50 million 3G subscribers by the end of this year. But since the issuance of 3G licenses in Jan 7 this year, subscribers of all kinds have not reached 3 m under the most optimistic estimate. Of that total, more than a million use 3G cards or 3G laptops. Among the handset users, .74m are on China Mobile's TD-SCDMA network by the end of May, including users acquired during early trials and during the Olympics last year when free give-aways and other promotions were in place. There are only .1+ m users on China Telecom's 3G service. China Unicom now aims for .2m users for its WCDMA service by the end of Oct. In stark contrast, the total population of mobile subs in China is 600m right now. Average monthly uptake in mobile subs in Q1 this year is 9.6m in China. Clearly, the initial growth of 3G has not lived up to market potential and expectation. "
http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_U/threadview?m=tm&bn=27187&tid=160363&mid=160363&tof=8&rt=1&frt=1&off=1
The 3G handsets cost $300-450 so they are not cheap.
UT's mobile iptv- UTStarcom, Inc. (Nasdaq: UTSI) has been selected as the only technology supplier for the first Mobile Television (TV) system across Hainan province, driven by China Telecom's (NYSE: CHA) Hainan branch. This is the first large-scale Mobile TV system in China to adopt UTStarcom's end-to-end RollingStream(R) platform. The deployment is scheduled to go live on May 17, 2009, as an extension of the existing Internet Protocol Television (IPTV) service that Hainan Telecom and UTStarcom have been delivering since 2006.
http://www.lightreading.com/document.asp?doc_id=175419
CMMB- Shanghai. May 20. INTERFAX-CHINA - China's three telecom operators are accelerating their plans to roll out mobile TV services in order to gain ground in the forthcoming 3G era, with China Mobile the favorite to win among both analysts and consumers.
Although the 3G networks deployed by operators have the potential to provide streaming TV services, all three operators plan to rely mainly on the China-developed China Multimedia Mobile Broadcasting (CMMB) mobile TV standard to deliver their mobile TV services to both their 2G and 3G customers.
On May 19, China Mobile became the first telecom operator to sign a deal with China Satellite Mobile Broadcasting Co. Ltd. (CSMB), the national operator of CMMB, allowing China Mobile's CMMB-enabled handsets to access the CMMB network, according to Shen Hongbin, general manager of TiMi Technology Co. Ltd., a chip manufacturer and the developer of CMMB.
http://tmt.interfaxchina.com/news/1741
Commentary: It is interesting that UTStarcom, known for its low cost PAS handsets, has now switched gears targetting the higher end handset market and focusing on iptv. While the market is not large compared to the overall 600m mobile/handset market in China, investments by operators in 3G, iptv, and their goal to increase overall revenue could make UTs startegy pay off. The number of handset suppliers number in the 30s but UT can leverage their advantage in iptv to carve a nice market share in iptv enabled handsets. Handsets using CMMB (see above) will be competition but UT can offer more from their iptv system. Also, note that May starting dates are very close. This is a nice consumer product that UT can build on (and they have 1.32m iptv subscribers to market the handsets to already).
Ericsson- Back in 2006 (and maybe earlier), Ericsson was discussed as a potential buyer of UTStarcom. Ericsson has been a major acquirer and has targetted IPTV as one of its important areas of growth. Ericsson has acquired other companies since such as Redback Networks but its expansion hunger continues. The company is projected to spend $25B in R&D over 5 years and recently made inroads in China (I've discussed their India business previously).
"Recently, L.M. Ericsson (ERIC) (Analyst Report) received fiber-to-the home (FTTH) equipment contracts from all of China Mobile, China Unicom, and China Telecom. Ericsson’s GPON (Gigabit Passive Optical Network) technology will be used for high-speed internet access and high-definition IPTV services in 9 Chinese provinces."
http://seekingalpha.com/article/150148-anticipating-china-s-broadband-boom?source=yahoo
Here is a note on Ericsson's IPTV strategy: "Ericsson characterized the existing IPTV systems as First Generation and stated that its conversations with IPTV operators indicate that they have strong concerns about the ability of these systems to scale. Ericsson told me that it thinks that many of these systems will top out at 500 thousand IPTV subscribers. It expects that moving to a second genreation of IPTV systems will create major opportunities for it."
http://telcotv-view.blogspot.com/2008/08/ericssons-iptv-strategy.html
The author commented: "There is no question that Ericsson is late to the IPTV party. Its acquisition of Tandberg clearly gives it a strong presence in the market but not as a full service provider.It will be interesting to see if its view of the market will pan out. Personally, I think it will be much more difficult for Ericsson, or any other large full service system supplier, to break into the market at this time. "
Today, Ericsson threw its hat in the bidding for Nortel's CDMA/LTE assets. "The Swedish giant confirmed Thursday morning that it is "going to participate in the auction for Nortel's CDMA and LTE access" assets, and confirmed it had submitted an initial pre-auction bid by the end-of-Tuesday deadline, but did not disclose any further details."
http://www.lightreading.com/document.asp?doc_id=179571&
Ericsson+UT still makes sense.
IPTV and its related revenue streams (handsets, mobile/fixed infra, advertising/digital signage/commerce/education, etc) are still in the very early stage. UTs wins in India, Taiwan, and China have barely scratched the surface and some are just going live now. Thats both frustrating and shows the potential growth in the future.......
Saturday, July 11, 2009
Focus on Blackmore and China
The biggest news for UT during the first half of the year was the restructuring that took place taking their employee count from the mid-4000 level to under 2000. This will result in an OPEX run-rate of less than $100m going into 2010.
Let me highlight a few metrics from the Q1 report:
IPTV slowdown - Total subscriber for UT only increased by 50k in Q1.
China revenue - Total revenue of $50m and this included some handsets/PAS.
Softbank/Japan revenue - $6m.
India/others - $20m
About a year ago, UTs quarterly OPEX still hovered around $120-130m. The company sold "non-core" businesses and closed/merged others but basically the revenue lost was mainly from handsets/PAS and show that the previous year's "investments" and the company's projections of the ramp in growth of non-PAS/non-handset businesses was way off.
Here are a couple of articles showing the growth in ZTE/Huawei over the years as well as expected growth in the China telecom market in the next few years.
"Huawei and ZTE benefit from the fact that the Chinese government holds stakes in dozens of local phone companies. It is not surprising that these telcos increasingly buy much of their infrastructure from homegrown companies. Financially, China's telecom suppliers also benefit (like some struggling U.S. companies today) from tax rebates and R&D grants. But what really irks rivals are the government's low- to no-interest "loans" that needn't be repaid, and the deep discounts local companies get on the energy and raw materials they purchase from other Chinese companies. According to public filings, this year ZTE received a credit line from the government of nearly $15 billion. Beijing bestowed $10 billion on Huawei in 2004."
http://money.cnn.com/2009/06/23/technology/china_telecom_latin_america.fortune/index.htm?postversion=2009062505
"If the Pyramid team's projections are accurate, China Mobile is on course for annual revenues of more than $110 billion in 2014, up from nearly $70 billion in 2009.
China Mobile's position will be underpinned by a 7.4 percent compound annual growth rate (CAGR) in mobile subscriptions that, Pyramid's analysts estimate, will see the Chinese mobile market hitting the 1 billion subscriber milestone in 2012, and reaching 1.1 billion in 2014, when the mobile penetration rate will hit 80 percent, compared with 52 percent at the end of 2008."
http://www.lightreading.com/document.asp?doc_id=178855
Ericsson Scores GPON Wins in China - http://www.lightreading.com/document.asp?doc_id=178813
---------------------------------------------------------------
I talked with shareholders this week, some of whom had conversations with Peter Blackmore. The discussions centered on similar long time issues but also on how well position UT is to compete in the China market. Blackmore's tenure started when the stock was in the mid $5s and while he has simplified the company and reduced OPEX, there are major issues on credibility and ability to ramp up "core" revenues (or even bookings at this stage). This is an important issue because the center of growth in the telecom world will still be China/India. Does UT have a viable wireless strategy? It gave up on 3G/WCDMA, wimax, and now most of its handset plans. Its main strength from a technological point of view is iptv and broadband (GEPON/TN).
From the same article above,
"Both operators have already been offering packages using various combinations of voice, data, and IPTV services, and now with the new line of services acquired, they can offer quadruple plays at an attractive price point to high-end users," notes Yu.
Indeed, both telcos have been rolling out fiber aggressively since 2007 and continue to do so. Pyramid predicts that FTTH will increase at a CAGR of 104 percent between 2009 and 2014, taking the number of users from 1.5 million to 50.8 million.
The number of UT employees even after the restructuring will still be around 2000. This is still much more than other companies such as Sonus, Infinera, Starent, Sigma Designs, etc.
I had campaigned recently to remove Lu because of the performance of the company over the last few years and if Blackmore was on the ballot, I would have campaigned to remove him as well. Its all about performance after all.
Despite the bad performance over the last few years, I actually feel more optimistic now because the cost base (whether it was by choice or forced on the company) has been reset to realistic revenue projections without hoping for a major ramp. Investors are correct to bash management and point to focusing on their own compensation/job security. The flip side is they took a major hit by doing the last restructuring. They are maintaining a net cash balance larger than anytime during the last 4-5 years and the OPEX will be down to the lowest level.
Like most shareholders, I am frustrated with the stock price and the indifference the company seems to have on it. However, I have to look at the base assets/numbers/growth projections of their markets. I believe that Softbank will increase their orders materially in the coming years. I believe that the iptv/fiber market in China (alone) should be able to grow materially and produce sustained profits. I believe there will be significant demand-driven growth in the coming years that will reward the company that has reset their cost base to 1/5th the expenses it had in 2008. Ultimately, this will power the stock price much higher.
Will this happen overnight.......No. The company has to show by bookings and growth of their core business that even this current target expense is realistic/optimal. One last note. The volume the last couple of days has been the lowest ever showing a wait and see attitude from investors. The price has also declined as the market has gone down 4 weeks in a row. Without news from the company, it doesn't seem the stock can gain traction but I do like the way the first half has played out for UT.
Have a good weekend.
Let me highlight a few metrics from the Q1 report:
IPTV slowdown - Total subscriber for UT only increased by 50k in Q1.
China revenue - Total revenue of $50m and this included some handsets/PAS.
Softbank/Japan revenue - $6m.
India/others - $20m
About a year ago, UTs quarterly OPEX still hovered around $120-130m. The company sold "non-core" businesses and closed/merged others but basically the revenue lost was mainly from handsets/PAS and show that the previous year's "investments" and the company's projections of the ramp in growth of non-PAS/non-handset businesses was way off.
Here are a couple of articles showing the growth in ZTE/Huawei over the years as well as expected growth in the China telecom market in the next few years.
"Huawei and ZTE benefit from the fact that the Chinese government holds stakes in dozens of local phone companies. It is not surprising that these telcos increasingly buy much of their infrastructure from homegrown companies. Financially, China's telecom suppliers also benefit (like some struggling U.S. companies today) from tax rebates and R&D grants. But what really irks rivals are the government's low- to no-interest "loans" that needn't be repaid, and the deep discounts local companies get on the energy and raw materials they purchase from other Chinese companies. According to public filings, this year ZTE received a credit line from the government of nearly $15 billion. Beijing bestowed $10 billion on Huawei in 2004."
http://money.cnn.com/2009/06/23/technology/china_telecom_latin_america.fortune/index.htm?postversion=2009062505
"If the Pyramid team's projections are accurate, China Mobile is on course for annual revenues of more than $110 billion in 2014, up from nearly $70 billion in 2009.
China Mobile's position will be underpinned by a 7.4 percent compound annual growth rate (CAGR) in mobile subscriptions that, Pyramid's analysts estimate, will see the Chinese mobile market hitting the 1 billion subscriber milestone in 2012, and reaching 1.1 billion in 2014, when the mobile penetration rate will hit 80 percent, compared with 52 percent at the end of 2008."
http://www.lightreading.com/document.asp?doc_id=178855
Ericsson Scores GPON Wins in China - http://www.lightreading.com/document.asp?doc_id=178813
---------------------------------------------------------------
I talked with shareholders this week, some of whom had conversations with Peter Blackmore. The discussions centered on similar long time issues but also on how well position UT is to compete in the China market. Blackmore's tenure started when the stock was in the mid $5s and while he has simplified the company and reduced OPEX, there are major issues on credibility and ability to ramp up "core" revenues (or even bookings at this stage). This is an important issue because the center of growth in the telecom world will still be China/India. Does UT have a viable wireless strategy? It gave up on 3G/WCDMA, wimax, and now most of its handset plans. Its main strength from a technological point of view is iptv and broadband (GEPON/TN).
From the same article above,
"Both operators have already been offering packages using various combinations of voice, data, and IPTV services, and now with the new line of services acquired, they can offer quadruple plays at an attractive price point to high-end users," notes Yu.
Indeed, both telcos have been rolling out fiber aggressively since 2007 and continue to do so. Pyramid predicts that FTTH will increase at a CAGR of 104 percent between 2009 and 2014, taking the number of users from 1.5 million to 50.8 million.
The number of UT employees even after the restructuring will still be around 2000. This is still much more than other companies such as Sonus, Infinera, Starent, Sigma Designs, etc.
I had campaigned recently to remove Lu because of the performance of the company over the last few years and if Blackmore was on the ballot, I would have campaigned to remove him as well. Its all about performance after all.
Despite the bad performance over the last few years, I actually feel more optimistic now because the cost base (whether it was by choice or forced on the company) has been reset to realistic revenue projections without hoping for a major ramp. Investors are correct to bash management and point to focusing on their own compensation/job security. The flip side is they took a major hit by doing the last restructuring. They are maintaining a net cash balance larger than anytime during the last 4-5 years and the OPEX will be down to the lowest level.
Like most shareholders, I am frustrated with the stock price and the indifference the company seems to have on it. However, I have to look at the base assets/numbers/growth projections of their markets. I believe that Softbank will increase their orders materially in the coming years. I believe that the iptv/fiber market in China (alone) should be able to grow materially and produce sustained profits. I believe there will be significant demand-driven growth in the coming years that will reward the company that has reset their cost base to 1/5th the expenses it had in 2008. Ultimately, this will power the stock price much higher.
Will this happen overnight.......No. The company has to show by bookings and growth of their core business that even this current target expense is realistic/optimal. One last note. The volume the last couple of days has been the lowest ever showing a wait and see attitude from investors. The price has also declined as the market has gone down 4 weeks in a row. Without news from the company, it doesn't seem the stock can gain traction but I do like the way the first half has played out for UT.
Have a good weekend.
Friday, July 3, 2009
2009 Shareholder Meeting Recap
I attended the shareholder meeting on June 25 at UTs Alameda office. Aside from myself, there was only one other shareholder that attended (last year there were about 10 shareholders). Peter Blackmore, Viraj Patel, Thomas Toy, Luis Dominguez, Susan Marsch, and Hong Lu were present (among others).
The meeting had three main components: Voting results, Prepared remarks from the CEO, and Q&A.
Voting results – Both directors and PricewaterhourseCoopers were re-elected/ratified. No details were given.
Prepared Remarks from the CEO – Peter Blackmore gave a brief overview of the company discussing the divestiture/closing of PCD and other non-core businesses, significant cash position, and fundamental change to the company simplifying its operations. He discussed the company’s market leadership in the China iptv market, specifically iptv signage. He talked about leveraging the company’s R&D to specific markets. Peter highlighted the India broadband market talking about the potential 200m broadband users, adding even if it was just half of that, it will be a huge market and UT is in good position. He mentioned the limited broadband market in China (position in China is not strong). There are also good opportunities with Softbank. As a recap, they had outsourced manufacturing and consolidated back office functions in China and targeting less than $100m in yearly operating expenses.
Q&A (Since there were only the two of us and the other shareholder had only one question, I had an opportunity to ask multiple questions as time permitted)
1. I first commented that for the last 4-5 years the company has not had an operating profit. Even when Barton was hired in 2005, the company’s near term goals then was to return the company to sustainable profitability. However, every year, the company falls short and does a restructuring. My question was directed to the board and asked if there is a point (limitation) to this cycle (especially in light of the latest significant cuts) that the company is better off sold or partner with other companies. I mentioned that the street is obviously concerned with the magnitude of the cuts and the company’s ability to operate.
Peter, being on the BOD, answered that their goal was to return to profitability as fast as possible and they had sufficient resources still. They could always ramp up in the future if needed and their R&D was targeted (as mentioned in the presentation). Thomas Toy added that the company is always willing to consider outside offers and mentioned there are not many companies in Silicon Valley that has 2000 employees.
As a follow-up, I asked if they were confident that they have more than enough resources and can operate with 2000 people, then why didn’t they make the cuts to 2000 people last year? (After all, we did meet with them last year talking about cost cuts). Peter mentioned the revenue projections for 2009 was off and we proceeded to the next question.
2. The second question came from the other shareholder and dealt with the company’s material weaknesses and ongoing concern from their auditors. Blackmore mentioned that they will end the year with a strong cash position and a pointed to the business model to get to profitability as addressing (hopefully) the ongoing concern. Regarding the material weakness, he mentioned there were still two that Viraj Patel is in charge of resolving.
3. My second question was addressed to Hong Lu. Since Peter was the CEO and the company had hired a China CEO as well, what, IF ANY, was Hong Lu’s day to day role? Hong mentioned that he was Executive chairman so he was still part of the management team. He is based in China, meets with customers, and continues to plan the company’s strategy. He added that he gets up early everyday and works with Peter very well. I followed up by saying that other shareholders I’ve talked to want him to be around since he is the founder and probably knows the company better than anyone BUT the issue here is there are two high priced executives acting as CEOs. I added that I would love to have 10 more people but this company simply cannot afford the cost. Hong responded by saying they are constantly looking into executive pay and that if shareholders were not happy, they obviously have a vote.
4. The next question was about the lack of revenue growth last year that led to the cuts at the end of the year and this year. Peter had talked about needing to ramp several hundred million to get to breakeven/profitability (without PCD and before PAS collapsed). I asked what those revenues he was expecting (what areas) and if those revenues are lost or just delayed. Peter answered that a major shortfall was the Korean designed handsets and that led to the winding down/shutdown. Peter also noted all areas in and outside China experienced a slowdown. I asked how the handset shortfall could be the main contributor since they kept on saying recently it had low margins anyway. How would that shortfall be the reason for closing a $130m profit gap anyway. Peter mentioned the lack of profit and loss was substantial if added up and again there was general slowdown in the world markets and hit all areas of operation.
5. Moving on to this year’s bookings. After the restructuring announcements, Peter had announced a breakeven point of $350m and that bookings in Q1 were good and Q2 was on track in China and ahead outside of China. I asked Peter that this doesn’t mean anything to investors as they don’t know what it means when the company says it has good bookings or tracking ahead? For all we know I said, your target is to lose $20m in 2010. Peter re-iterated their intention to get to profitability and that bookings were good in Q1 and Q2 but obviously they will have to wait for Q3/Q4. This is where it gets a little interesting. I said how can bookings in Q1 be good when core bookings were only about $65m. Annualized, this is only $260m, well below the $350m to breakeven. Peter was surprised and said that must be revenue and not bookings in Q1. I kind of looked at Barry to see if the numbers he gave was not correct. “I” tried to explain that the bookings in Q1 was $140m but half of that was in handsets so not part of the core (it was really weird since Peter was looking at Barry and there was some confusion). A day later, I was still trying to follow up with Barry and the resolution is they will try to give clearer information on Q2. I really hope so since it is the company directing investors to be patient and look at bookings and then still expect investors to guess and make assumptions on what a book to bill number applies to. Very confusing and unnecessary.
6. Next question was about the recent rumors about a Chinese handset maker/investor and that Merrill Lynch was hired. Peter mentioned that he doesn’t comment on rumors. I asked then if Merrill Lynch was recently hired. Again, they can’t comment only to say that Merrill Lynch is their ongoing advisor.
I could have asked a lot more questions but time was “up” and Peter mentioned if there were other questions, we could always schedule another call.
After the formal Q&A, I still had a chance to discuss certain topics as Blackmore, Lu, Toy, Dominguez, Barry, Viraj exchanged some small talk/greetings.
Share buy back – they are still against this. They commented the best thing for the stock is to get to profitability. I think most would agree BUT its hard when they haven’t been profitable in 5 years. I threw in a comment that they need to do some insider buying.
Peter mentioned that they can now (based on the restructured operations) get to profitability with just a little bit of core ramp. Isn’t this what shareholders had been asking for the last few years since the major ramp has not occurred.
IPTV- I mentioned that in Q1, China added 250k subscribers but UT added only 50k total (mostly in China but still low). Peter re-iterated they still had over 50% of the China iptv markets.
I asked Viraj Patel when the interim title goes away and he mentioned that we’ll see and they had a lot of work ahead of them first.
I missed asking Luis Dominguez anything.
The conversation with Toy was about a sale of the company but they can probably get a higher price if they get this thing turned around first.
In the parking lot, I even got to talk with Lu’s assistant and she was describing the sadness in seeing the company this way after the last few years. She mentioned how she understood shareholders losses as she bought stock in her employee account at $14 or higher as well. After I told her what I and other shareholders have lost, I think that ended that conversation. I reiterated my point that Lu has benefited from the company for years and needs to show leadership by sharing in some of the pain by cutting his salary significantly. Lu also has the most to gain from a higher share price.
BTW, this year’s food was also a disappointment. Just some cookies and drinks as compared to last year’s appetizers (budget cut?).
The above Q&A is obviously paraphrased but should capture the essence of the meeting. There really wasn’t anything materially new in terms of the operations of the company. I didn’t really expect anything new but wanted to share some of the investor’s concerns/questions with the board and other executives that are new or not aware of investor’s day to day issues. I’ll limit my comments to the above rather than make a big positive or negative statement. I won’t play psychologist and try to interpret various items/comments. It really comes down to performance and what they report anyway.
Have a great 4th of July weekend to everyone.
The meeting had three main components: Voting results, Prepared remarks from the CEO, and Q&A.
Voting results – Both directors and PricewaterhourseCoopers were re-elected/ratified. No details were given.
Prepared Remarks from the CEO – Peter Blackmore gave a brief overview of the company discussing the divestiture/closing of PCD and other non-core businesses, significant cash position, and fundamental change to the company simplifying its operations. He discussed the company’s market leadership in the China iptv market, specifically iptv signage. He talked about leveraging the company’s R&D to specific markets. Peter highlighted the India broadband market talking about the potential 200m broadband users, adding even if it was just half of that, it will be a huge market and UT is in good position. He mentioned the limited broadband market in China (position in China is not strong). There are also good opportunities with Softbank. As a recap, they had outsourced manufacturing and consolidated back office functions in China and targeting less than $100m in yearly operating expenses.
Q&A (Since there were only the two of us and the other shareholder had only one question, I had an opportunity to ask multiple questions as time permitted)
1. I first commented that for the last 4-5 years the company has not had an operating profit. Even when Barton was hired in 2005, the company’s near term goals then was to return the company to sustainable profitability. However, every year, the company falls short and does a restructuring. My question was directed to the board and asked if there is a point (limitation) to this cycle (especially in light of the latest significant cuts) that the company is better off sold or partner with other companies. I mentioned that the street is obviously concerned with the magnitude of the cuts and the company’s ability to operate.
Peter, being on the BOD, answered that their goal was to return to profitability as fast as possible and they had sufficient resources still. They could always ramp up in the future if needed and their R&D was targeted (as mentioned in the presentation). Thomas Toy added that the company is always willing to consider outside offers and mentioned there are not many companies in Silicon Valley that has 2000 employees.
As a follow-up, I asked if they were confident that they have more than enough resources and can operate with 2000 people, then why didn’t they make the cuts to 2000 people last year? (After all, we did meet with them last year talking about cost cuts). Peter mentioned the revenue projections for 2009 was off and we proceeded to the next question.
2. The second question came from the other shareholder and dealt with the company’s material weaknesses and ongoing concern from their auditors. Blackmore mentioned that they will end the year with a strong cash position and a pointed to the business model to get to profitability as addressing (hopefully) the ongoing concern. Regarding the material weakness, he mentioned there were still two that Viraj Patel is in charge of resolving.
3. My second question was addressed to Hong Lu. Since Peter was the CEO and the company had hired a China CEO as well, what, IF ANY, was Hong Lu’s day to day role? Hong mentioned that he was Executive chairman so he was still part of the management team. He is based in China, meets with customers, and continues to plan the company’s strategy. He added that he gets up early everyday and works with Peter very well. I followed up by saying that other shareholders I’ve talked to want him to be around since he is the founder and probably knows the company better than anyone BUT the issue here is there are two high priced executives acting as CEOs. I added that I would love to have 10 more people but this company simply cannot afford the cost. Hong responded by saying they are constantly looking into executive pay and that if shareholders were not happy, they obviously have a vote.
4. The next question was about the lack of revenue growth last year that led to the cuts at the end of the year and this year. Peter had talked about needing to ramp several hundred million to get to breakeven/profitability (without PCD and before PAS collapsed). I asked what those revenues he was expecting (what areas) and if those revenues are lost or just delayed. Peter answered that a major shortfall was the Korean designed handsets and that led to the winding down/shutdown. Peter also noted all areas in and outside China experienced a slowdown. I asked how the handset shortfall could be the main contributor since they kept on saying recently it had low margins anyway. How would that shortfall be the reason for closing a $130m profit gap anyway. Peter mentioned the lack of profit and loss was substantial if added up and again there was general slowdown in the world markets and hit all areas of operation.
5. Moving on to this year’s bookings. After the restructuring announcements, Peter had announced a breakeven point of $350m and that bookings in Q1 were good and Q2 was on track in China and ahead outside of China. I asked Peter that this doesn’t mean anything to investors as they don’t know what it means when the company says it has good bookings or tracking ahead? For all we know I said, your target is to lose $20m in 2010. Peter re-iterated their intention to get to profitability and that bookings were good in Q1 and Q2 but obviously they will have to wait for Q3/Q4. This is where it gets a little interesting. I said how can bookings in Q1 be good when core bookings were only about $65m. Annualized, this is only $260m, well below the $350m to breakeven. Peter was surprised and said that must be revenue and not bookings in Q1. I kind of looked at Barry to see if the numbers he gave was not correct. “I” tried to explain that the bookings in Q1 was $140m but half of that was in handsets so not part of the core (it was really weird since Peter was looking at Barry and there was some confusion). A day later, I was still trying to follow up with Barry and the resolution is they will try to give clearer information on Q2. I really hope so since it is the company directing investors to be patient and look at bookings and then still expect investors to guess and make assumptions on what a book to bill number applies to. Very confusing and unnecessary.
6. Next question was about the recent rumors about a Chinese handset maker/investor and that Merrill Lynch was hired. Peter mentioned that he doesn’t comment on rumors. I asked then if Merrill Lynch was recently hired. Again, they can’t comment only to say that Merrill Lynch is their ongoing advisor.
I could have asked a lot more questions but time was “up” and Peter mentioned if there were other questions, we could always schedule another call.
After the formal Q&A, I still had a chance to discuss certain topics as Blackmore, Lu, Toy, Dominguez, Barry, Viraj exchanged some small talk/greetings.
Share buy back – they are still against this. They commented the best thing for the stock is to get to profitability. I think most would agree BUT its hard when they haven’t been profitable in 5 years. I threw in a comment that they need to do some insider buying.
Peter mentioned that they can now (based on the restructured operations) get to profitability with just a little bit of core ramp. Isn’t this what shareholders had been asking for the last few years since the major ramp has not occurred.
IPTV- I mentioned that in Q1, China added 250k subscribers but UT added only 50k total (mostly in China but still low). Peter re-iterated they still had over 50% of the China iptv markets.
I asked Viraj Patel when the interim title goes away and he mentioned that we’ll see and they had a lot of work ahead of them first.
I missed asking Luis Dominguez anything.
The conversation with Toy was about a sale of the company but they can probably get a higher price if they get this thing turned around first.
In the parking lot, I even got to talk with Lu’s assistant and she was describing the sadness in seeing the company this way after the last few years. She mentioned how she understood shareholders losses as she bought stock in her employee account at $14 or higher as well. After I told her what I and other shareholders have lost, I think that ended that conversation. I reiterated my point that Lu has benefited from the company for years and needs to show leadership by sharing in some of the pain by cutting his salary significantly. Lu also has the most to gain from a higher share price.
BTW, this year’s food was also a disappointment. Just some cookies and drinks as compared to last year’s appetizers (budget cut?).
The above Q&A is obviously paraphrased but should capture the essence of the meeting. There really wasn’t anything materially new in terms of the operations of the company. I didn’t really expect anything new but wanted to share some of the investor’s concerns/questions with the board and other executives that are new or not aware of investor’s day to day issues. I’ll limit my comments to the above rather than make a big positive or negative statement. I won’t play psychologist and try to interpret various items/comments. It really comes down to performance and what they report anyway.
Have a great 4th of July weekend to everyone.
Tuesday, June 16, 2009
India
Here are some articles that relate to UT in India I quickly pulled from a couple of websites:
No cuts in India - Company’s India MD, Vijay Yadav confirmed to TelecomTiger that India operations will remain largely unaffected by the move. “ We continue to report strong growth in the broadband and IPTV market in India. It means that the India operations will remain unaffected by the announced job cuts,” said the MD.
UTStarcom’s India headcount totals around 125-150. Though the employee strength might appear to be small, the company is consistently consolidating its position in the broadband market including IPTV infrastructure in India with regular contracts from state-run PSUs BSNL and MTNL.
http://www.telecomtiger.com/fullstory.aspx?storyid=6353
BSNL Extension Contract - "In the first phase, UTStarcom deployed 1.3mn broadband subscriber lines for BSNL with an additional 1.1mn broadband subscriber lines during the second phase. With the new expansion phase, UTStarcom will deploy its B1000 multi-service access node (MSAN) solution throughout India to add approximately 475,000 ports of capacity to BSNL's existing broadband network."
http://www.iptv-news.com/iptv_news/may_09_2/bsnl_extends_utstarcom_contract
Aksh-BSNL - Commenting on the launch, Dr. K.S. Choudhari, MD, Aksh Optifibre Ltd, said, “This launch is a testament of the spread and growing popularity of icontrol IPTV in India. Aksh believes in expanding mediums of entertainment at competitive pricing through this breakthrough technology of IPTV service. This expansion of the service to multiple cities highlights the growing popularity of the real power of interactivity. With the launch in Agra we have reached a footprint of 15 cities in the country already and plan to increase it to 22 in the next 30 days”
BSNL - Chennai - BSNL’s Chennai circle subsidiary, Chennai Telephones and Smart Digivsion Pvt. Ltd. announced the launch of Myway BSNL IPTV services.
http://www.telecomtiger.com/fullstory.aspx?storyid=5962 (UT mentioned in the Q1 call about BSNL deployment in Chennai).
Bharti-Airtel -While one agrees that broadband sector is still at an infancy stage in India and the market dynamics will certainly change post introduction of wireless broadband services in the country, Bharti Airtel is expected to continue to be among the top performers in the field complimented by its position as an integrated telecom player which will help it to offer wireline as well as wireless broadband services.
http://www.telecomtiger.com/fullstory.aspx?pagenum=2&storyid=6378 (Bharti Airtel is the leader in mobile in India...UT could introduce their mobile iptv solutions in India in the future)
----------------------------------------------------
During the Initiatives call, Blackmore commented on the bookings outside China and that it was above expectations (whatever that means). UTs strategic position in India has generated some costly sales in the past (low margins/losses). The iptv subscriber numbers have been very low. However, broadband seems to show a lot of promise while iptv deployments are now taking place. The lowered cost base in 2010 plus the early cycle nature of UTs products in high growth tech space/countries should get them to profitability. The company credibility is non-existant and shareholder confidence is very low. The company has to prove they can execute and deliver bookings but the ramp in core bookings in India (low compared to all the other revenues before) should start making a bigger impact and lead to some enthusiasm in the coming months and set the stage for 2010.
Its easy to get discouraged with the disappointments but the main question is can UT ramp the core revenues in light of the targetted cost base in 2010. The company obviously had to cut costs in light of the slow ramp of "core products", divestitures/wind-downs of handsets (mostly), and almost complete loss of PAS. Some people may not understand why I and other shareholders are positive (or even say I'm always positive) but after years of worrying about the loss of PAS, the high expenses, and slow ramp of "core" products (or maybe unrealistic growth expectations), its really good to know the company can realistically "outperform" going forward and the focus would be on the core products.
No cuts in India - Company’s India MD, Vijay Yadav confirmed to TelecomTiger that India operations will remain largely unaffected by the move. “ We continue to report strong growth in the broadband and IPTV market in India. It means that the India operations will remain unaffected by the announced job cuts,” said the MD.
UTStarcom’s India headcount totals around 125-150. Though the employee strength might appear to be small, the company is consistently consolidating its position in the broadband market including IPTV infrastructure in India with regular contracts from state-run PSUs BSNL and MTNL.
http://www.telecomtiger.com/fullstory.aspx?storyid=6353
BSNL Extension Contract - "In the first phase, UTStarcom deployed 1.3mn broadband subscriber lines for BSNL with an additional 1.1mn broadband subscriber lines during the second phase. With the new expansion phase, UTStarcom will deploy its B1000 multi-service access node (MSAN) solution throughout India to add approximately 475,000 ports of capacity to BSNL's existing broadband network."
http://www.iptv-news.com/iptv_news/may_09_2/bsnl_extends_utstarcom_contract
Aksh-BSNL - Commenting on the launch, Dr. K.S. Choudhari, MD, Aksh Optifibre Ltd, said, “This launch is a testament of the spread and growing popularity of icontrol IPTV in India. Aksh believes in expanding mediums of entertainment at competitive pricing through this breakthrough technology of IPTV service. This expansion of the service to multiple cities highlights the growing popularity of the real power of interactivity. With the launch in Agra we have reached a footprint of 15 cities in the country already and plan to increase it to 22 in the next 30 days”
BSNL - Chennai - BSNL’s Chennai circle subsidiary, Chennai Telephones and Smart Digivsion Pvt. Ltd. announced the launch of Myway BSNL IPTV services.
http://www.telecomtiger.com/fullstory.aspx?storyid=5962 (UT mentioned in the Q1 call about BSNL deployment in Chennai).
Bharti-Airtel -While one agrees that broadband sector is still at an infancy stage in India and the market dynamics will certainly change post introduction of wireless broadband services in the country, Bharti Airtel is expected to continue to be among the top performers in the field complimented by its position as an integrated telecom player which will help it to offer wireline as well as wireless broadband services.
http://www.telecomtiger.com/fullstory.aspx?pagenum=2&storyid=6378 (Bharti Airtel is the leader in mobile in India...UT could introduce their mobile iptv solutions in India in the future)
----------------------------------------------------
During the Initiatives call, Blackmore commented on the bookings outside China and that it was above expectations (whatever that means). UTs strategic position in India has generated some costly sales in the past (low margins/losses). The iptv subscriber numbers have been very low. However, broadband seems to show a lot of promise while iptv deployments are now taking place. The lowered cost base in 2010 plus the early cycle nature of UTs products in high growth tech space/countries should get them to profitability. The company credibility is non-existant and shareholder confidence is very low. The company has to prove they can execute and deliver bookings but the ramp in core bookings in India (low compared to all the other revenues before) should start making a bigger impact and lead to some enthusiasm in the coming months and set the stage for 2010.
Its easy to get discouraged with the disappointments but the main question is can UT ramp the core revenues in light of the targetted cost base in 2010. The company obviously had to cut costs in light of the slow ramp of "core products", divestitures/wind-downs of handsets (mostly), and almost complete loss of PAS. Some people may not understand why I and other shareholders are positive (or even say I'm always positive) but after years of worrying about the loss of PAS, the high expenses, and slow ramp of "core" products (or maybe unrealistic growth expectations), its really good to know the company can realistically "outperform" going forward and the focus would be on the core products.
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