Almost every day, there is news regarding "dissident" shareholders complaining about a company's poor performance and low stock price. In today's Wall Street Journal's Money & Investing front page, there is a good article on increased demands by shareholders to place shareholders on the boards to look after their investments.
http://online.wsj.com/article/SB120752758923593685.html?mod=mkts_main_news_hs_h
Since it is an online article, access is a problem but here are some info:
In the first quarter, 30 U.S. companies ceded seats to dissidents without proxy fights, up from 23 in the same period last year and nine in 2006, according to data tracker FactSet SharkWatch. A surprising fact is that only 32% of the cases that activist investors targeted even went to a shareholder vote last year, down from 61% in 2001.
Here is an article that discusses the O'Charley's case discussed in the WSJ:
http://www.tennessean.com/apps/pbcs.dll/article?AID=/20080314/BUSINESS01/803140384/1003/NEWS01
As I mentioned in a previous post, we are not in a proxy battle (yet) and I am undergoing some standard background checks so that my candidacy will be evaluated by the board. There are some that have doubts on whether we can accomplish much through this process. Some want to nominate 2 board members. Some want a direct proxy battle from the beginning. I want to emphasize that this is really the beginning of this process and I encourage people to communicate their ideas and suggestions. I am surprise that there has not been a proxy battle but then again, the comapny has not filed financials in a while (last year) and maybe a lot of funds just gave up already and sold out. Newer buyers may be happy that the stock is above $3. That is sad because when the stock was first spiraling towards $3 in late July/August 2007, the company was "concern" enough to have an emergency cc.
Monday, April 7, 2008
Sunday, April 6, 2008
"Make your case Tim!!!!"
A fellow shareholder s_gator03 states..
" Tim is definately the man for the common shareholder to get on the Board " Is it possible he is taking advantage of this mess to benefit personally? I'm not saying he is but I would like to know what's in it for us holders to help him. How do we know he doesn’t become one of them and its business as usual after wards? Make your case Tim!!!!
Love you enthusiasm in the stock. There should be more passion from shareholders and management/BOD. The effort I have made as a shareholder is what I think other retail shareholders would like to have in the companies they invest or plan to invest in. The fact is retail shareholders have less information and less clout in dealing with the companies they invest in. Through the blog, message boards, the group shareholder meetings (cc) etc, I have tried to harness the resources of shareholders to provide shareholders with the information to make more informed decisions with their money (or whats left of it).
It is true that I will personally benefit if put in the board but it was not my grand scheme to lose hundreds of thousands of dollars over the last few years to get myself a "chance" for a board seat. If I am on the board, I can be 100x more effective in what I have done so far, which I think is NOT business as usual. I will not be able to prevent secular downtrends in certain lines of businesses (PAS) but you can be sure that there is someone INSIDE that will not keep shareholders in the dark for months at a time (remember the PR about strategic options not resulting in anything and Wu being dismissed etc etc) and not inform investors when there has been material differences in the guidance and/or operational performances.
The other sad reality is that this company is not Apple which gets a lot of press and have major shareholders demanding performance. Every little move in other companies is well documented. Even Apple computer for example had to come out and defend their 10 million (calendar year) iphone guidance when it was questioned. Here, UT could drop 10 to 15% and nobody blinks an eye or offers an explanation. A rumor could start and no one would defend the stock.
Being a shareholder that has endured this downtrend and heard all the ways it can be turned around, I can bring that perspective to all the discussions. I'm sure there are good reasons that we don't know that management has not implemented some of this. But it doesn't help shareholders that don't know. Typical board members are pre-occupied with other companies that they serve in or their primary jobs. I can say this is my primary focus and will continue to harness the resources that is the shareholders of the company. Rather than losing major shareholders, I can have serious discussions with all the institutional shareholders and they can have confidence that their concerns will be addressed.
"How do we know he doesn’t become one of them and its business as usual after wards?"
When talking with the executive search firm, they ARE looking for someone with typical backgrounds and experiences to sit in the board. The last thing as a shareholder I want is for them to select another person that thinks its a "reward" to be on a board and not do a #@%#@%%^ thing for the shareholders and watch the shareprice slide 90%. (sorry for the spelling :-)
Anyway, the BOD "thing" is just one thing I and the other shareholders are thinking to enhance shareholder value. There are plenty of other ideas/moves to consider, plan, and do.
" Tim is definately the man for the common shareholder to get on the Board " Is it possible he is taking advantage of this mess to benefit personally? I'm not saying he is but I would like to know what's in it for us holders to help him. How do we know he doesn’t become one of them and its business as usual after wards? Make your case Tim!!!!
Love you enthusiasm in the stock. There should be more passion from shareholders and management/BOD. The effort I have made as a shareholder is what I think other retail shareholders would like to have in the companies they invest or plan to invest in. The fact is retail shareholders have less information and less clout in dealing with the companies they invest in. Through the blog, message boards, the group shareholder meetings (cc) etc, I have tried to harness the resources of shareholders to provide shareholders with the information to make more informed decisions with their money (or whats left of it).
It is true that I will personally benefit if put in the board but it was not my grand scheme to lose hundreds of thousands of dollars over the last few years to get myself a "chance" for a board seat. If I am on the board, I can be 100x more effective in what I have done so far, which I think is NOT business as usual. I will not be able to prevent secular downtrends in certain lines of businesses (PAS) but you can be sure that there is someone INSIDE that will not keep shareholders in the dark for months at a time (remember the PR about strategic options not resulting in anything and Wu being dismissed etc etc) and not inform investors when there has been material differences in the guidance and/or operational performances.
The other sad reality is that this company is not Apple which gets a lot of press and have major shareholders demanding performance. Every little move in other companies is well documented. Even Apple computer for example had to come out and defend their 10 million (calendar year) iphone guidance when it was questioned. Here, UT could drop 10 to 15% and nobody blinks an eye or offers an explanation. A rumor could start and no one would defend the stock.
Being a shareholder that has endured this downtrend and heard all the ways it can be turned around, I can bring that perspective to all the discussions. I'm sure there are good reasons that we don't know that management has not implemented some of this. But it doesn't help shareholders that don't know. Typical board members are pre-occupied with other companies that they serve in or their primary jobs. I can say this is my primary focus and will continue to harness the resources that is the shareholders of the company. Rather than losing major shareholders, I can have serious discussions with all the institutional shareholders and they can have confidence that their concerns will be addressed.
"How do we know he doesn’t become one of them and its business as usual after wards?"
When talking with the executive search firm, they ARE looking for someone with typical backgrounds and experiences to sit in the board. The last thing as a shareholder I want is for them to select another person that thinks its a "reward" to be on a board and not do a #@%#@%%^ thing for the shareholders and watch the shareprice slide 90%. (sorry for the spelling :-)
Anyway, the BOD "thing" is just one thing I and the other shareholders are thinking to enhance shareholder value. There are plenty of other ideas/moves to consider, plan, and do.
Friday, April 4, 2008
Weekly recap - close above $3
I did not get a chance to post on the blog during the week but did have a few postings on the yahoo message boards regarding various issues. There were a few informative posts from Shadow, Tigre, Techbroker and others that people may want to check out. Here are a few random bullet items for the week.
- The stock closed at $3.01, which just happens to be the price when I started the blog back in November 12, 2007. During the past 5 months, the stock has traded from a low of $2.23 to a high of $3.42. Since Aug, 2007, the company has not reported operational improvements as reflected in the financials but the company's assets and other developments were enough to balance the bear market that has developed since then. As a comparison, Nortel was $18 and now $8; Sigma Designs was $54 and now $23.5; Motorola was $16 and now under $10.
- Hong Lus 300k shares - Another reminder that the sacrifices from management/BOD and the shareholders are NOT equal. As Flipocrat (another suffering shareholder for years) has mentioned repeatedly, management/BOD keep getting their compensation (and at the reduced prices, higher share count) while shareholders are faced with bad options. This is VERY depressing whenever I think about this and one of the major reasons that shareholders must demand performance and a true sense of urgency.
- IPTV update in Brazil - http://www.iptv-news.com/content/view/1781/66/ "We are using NEC as the systems integrator over a UTStarcom platform – pretty much everything was supplied by UTStarcom, including the set-top boxes. In Brasilia the service is working well, with no major technical issues." "We do have extension plans beyond Brasilia and also for linear broadcasting, but we would like an indication from the regulatory body that we can provide a full service before we commit tens of millions of dollars. In Brasilia it is working well and our subscribers are very excited about it." I think this sums up the state of IPTV in a lot of UT deployments in terms of expansion issues and potential if the issues are resolved.
- PCD products/comments from analyst - A good friend and fellow Shareholder Bien had dinner this week with Hamed Khorsand (BWS Financial), one of the remaining analysts that follow UTStarcom. During the week, UT introduced some PCD products and Hamed put out the following note on UT. "UTStarcom (UTSI- Buy Rating) has introduced two new handsets at the CTIA 2008 conference. The handsets allow for wider bandwidth use compared to previous models putting the handsets in compliance with 3G requirements. The CDMA phones would be able to operate on the 800MHz, 1900MHz, and advanced wireless spectrum bands. UTSI has been making a bigger push into the US handset market over the past two years. The market share gains have been noticeable in the revenues UTSI is reporting. The fourth quarter results were higher than expected for UTSI due to the handset business. We are anticipating revenues from their IPTV solution to provide earnings growth in 2008 while revenues get a boost from the handset business. The market seems to be in wait and see mode with the Company, as UTSI tries to improve operating margins. A hint of progress could provide the shares with the necessary support in moving above the $3 level." It is worth noting Hamed has a $6 price target (due to the current environment) but believes the business is worth $10. During the discussion, Hamed was upbeat regarding the PCD business and has it valued at greater than $500m. He was less upbeat with the value of the current NGN wins but believes there is tremendous growth in iptv later this year.
- Update on my board nomination - About two weeks ago, I was nominated to the board and we filed the initial paperwork. I then sent an email to Peter Blackmore informing him of our intentions and asked for feedback. Since this was a board issue, he would have to get back to me. The corporate by-laws allow shareholders to nominate people to the board but there is a lengthy process to even be deemed qualified to be put on the proxy. The existing board can disqualify my nomination even before shaerholders have a say in this. Anyway, this week, I talked with Susan Marsch, UT corporate secretary. I wanted to discuss the entire process and various scenarios (if put on the ballot or not). If put on the ballot, I wanted to find out what it would take to get elected. At this time, she is not even sure if it takes a majority or a plurality. However, the first step is for me to get interviewed by an executive search firm. I had a one-hour discussion with the same executive search firm that brought them Peter Blackmore. I was not excited by the prospect of defending my credentials to the same board that has overseen a 90% loss on the shareprice over the last few years. Nevertheless, this is just a step in the process and obviously, they don't want an ex-con being on the ballot either. Some background on myself. While I am proud of my educational (PhD in engineering from Stanford and author of numerous technical papers) and professional accomplishments (registered engineer in the State of Washington and California), I have never been a corporate officer of a company or served as CEO, CFO or been a board member. During the discussion, the "only" things I can bring to the board are the following (a) relentless pursuit of shareholder value with shareholders in mind with every decision/discussion I will have, (b) support and trust of the shareholder community and the fact I have paid for every single share I have, (c) the mindset that a board member serves shareholders, and (d) frustration and disappointments on every mis-step/bad news /lack of communication that other shareholders have felt. I think I can also communicate and provide leadership when needed but all of these are "soft" intangibles unlike the "solid, experience" track record of the current board members and other traditional candidates. As I told the interviewer, I would not be interested in any other board position but UTStarcom and only because of this unique situation. Anyway, I believe the recruiter is unbiased to all of this and sees my passion. As part of the background check, I will have to provide 6 references and sign release forms for the background checks. At the end of the process, it may lead to a rejection by the board and we will need to pursue other alternatives then. Other alternatives would include nominating other more qualified candidate(s), support/withdrawing support for current board members, challenging the disqualification, meeting with management/BOD to discuss other demands/alternatives. As you can see, it is not a simple process and everything we've done so far has not resulted in an increase in the share price. I do think there has been some positives such as better communication with management, better understanding of the company (strengths/weaknesses/potential/challenges), and more information to shareholders. Personally, I would like to serve on the board because it would be a tremendous opportunity to work from inside to watch over our investments. It is truly a frustrating experience hoping they will do the right things. Anyway, it is still a long process and I wanted to point out that just because I don't post doesn't mean I and other shareholders are not doing what they can or thinking about this 24/7.
- Blog posting - If somehow given the chance to go on the ballot and be elected or if the board is "forced" to accept me :-), will I be able to continue to post? This week, I found out that Nortel CTO John Roese actually has his own blog. I guess with the proper disclaimers, it is possible. http://blogs.nortel.com/ctoblog/2008/03/28/the-transformation-of-rd-at-nortel/ On a side note, what I have found out in life is if you are performing at a high level and proud of your accomplishments you would be very happy and welcome people to question your work. I sensed that with Peter Blackmore from the very beginning. He just seems confident and the right operational person to turn this around.
- Better off? - Tigre (a well respected and very informed poster/shareholder) commented that since I thought things are better now compared to 2006, I would not have a sense of urgency and that if shareholders thought this was the case, then management would be happy and not have a sense of urgency. This could NOT be further from the truth. While some things are better, I also believe the management/BOD are not operating under a sense of urgency. While some companies have a hiccup of a quarter here or there, it will take this company up to 4 years to get back to profitability and get their cost base right. The stock is at $3 so I am not sure why shareholders would be happy (unless you bought at $2.5). No, this is a nightmare for a lot of shareholders and I have read most of the posts for the past few years and some very heartfelt ones that shareholders have emailed me directly. While I see the huge potential, there is a long road ahead we must remain vigilant.
- Buy - All I can say is if I am elected, you better buy all you can :-)
Have a good weekend everyone. I'm sure I'll post some more in the weekend.
Sunday, March 30, 2008
IPTV (cable), NGN, Strategic Study, and Current Share Price
Why doesn’t UT cut expenses significantly more? Why is Blackmore resisting the temptation to cut quicker and get to profitability? Why are they spending most of their R&D in IPTV and NGN? Why is Tim negative in one post and more positive/downright bullish on another (like this one)? Why do I have a $10 year-end target when the stock started the year at $2.75 and why do I and other longs think it will go much higher in the future when it seems so bleak right now?
Let me go back to 2006 again when the company decided to go into a strategic alternative study and was considering to sell itself. Director Thomas Toy mentioned that the board thought the company ($6-7 in early 2006) was undervalued and that PAS decline was a concern and that was why they decided to seek strategic alternatives. I am still confused about the entire strategic alternative study. What valuation where they looking for and did they really believe they could get a good offer then? In late 2006, they were not filing financials and had an ongoing options investigation and nine material weaknesses. They were about to lose $1/share for the year AND instead of being profitable in 2007 as guided (a year plus before that), they were going to lose almost $200m. The convertible bond was not resolved. There were no Gemdale or Infinera stock gains and obviously no IPTV/NGN wins like they do now. According to Toy, they also saw signs of the sub-prime mess that may make any deals hard to close. That was also the time they were writing down $32 million in India and PCD had not improved as it has now. With that situation, why did they feel that $6-7 was undervalued and how much more can they expect to receive? Now, if they felt the situation was really that bad then and had to sell, then why didn’t they sell even if it was a less than an ideal offer or even sell separate parts and get what they can. Why would they then continue spending and ending up losing $200m in 2007? Anyway, this post will show why maybe the management is much more confident than the street is and what the future is in store for UT shareholders. Maybe the problem is a lack of communication or maybe there is just no one listening anymore.
The major hope for UT has always been IPTV with telecom carriers. There were always timing issues because of broadband penetration, regulatory, content and other issues. Slowly but surely, we have seen tangible expansion in China (up to 500k UT subscribers), multiple (3) wins in India (update: http://www.telecomtiger.com/fullstory.aspx?storyid=1148&passfrom=vasstory ), Brazil, and Sri-Lanka. The other potential customer segment in IPTV for UT is cable. We saw the Taiwan win and now are hearing about Hong Kong. Those wins show that UT has a system capable of working for cable companies and can take advantage of this major market. In Korea for example, telcos are waiting for an enforcement ordnance that will allow them to broadcast TV services. Currently, Korean Telecom (KT) has 150k iptv subscribers, Hanaro Telecom has 800k+ subscribers, and LG Dacom has over 200k subscribers. These are currently VOD services only. But these numbers pale in comparison to the 14m on the cable TV platform. This is true in most cases where cable dwarfs iptv from telcos.
From BWS financial last March 20 discussing Sigma designs, “There was news overnight from Taiwanese cable company Vastar Cable intending to begin trials of a HD IPTV service, Vee TV. The demand for top quality high definition service would translate in Sigma Designs (SIGM- Hold Rating) having an edge in receiving this contract. The significance of the news is not who the customer, but the kind of customer Vastar is. Vastar would be the second cable company in Taiwan who has elected to go with an IPTV platform. The first was Markwell Industrial, which chose SIGM. We believe cable companies on a worldwide basis would slowly start to transition to an IPTV platform. We have stated before how Comcast (CMCSA- No Rating) could begin trials in early 2009. The inclusion of cable companies into the IPTV market would create a market opportunity several times larger than telecom carriers alone. Investors should not underestimate the growth of IPTV. The technology remains in its infancy..”
Blackmore added on the last earnings call..” And interestingly Markwell is also our first win with a cable TV operator and we see additional opportunities with that class of carrier.”
While IPTV grabs the headlines, UTs NGN is making tremendous progress. From the last earnings call, Blackmore mentions, “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.”
From the latest IPTV news magazine (http://cde.cerosmedia.com/1L47cbd2e382f89012.cde ), FastWeb of Italy is spending 2 Billion Euros over the next 4 years to complete its NGN to deliver voice, data, and video over IP. We don’t know the size of the contract win with Tiscali (smaller than FastWeb and Telecom Italia) but the multiple wins (Philippines, Italy, Taiwan, Brasil, Thailand, and Argentina) does show significant activity in a very short time frame.
Blackmore adds, “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.”
There was also the hiring of former Alcatel-Lucent executive Diego Martinez. "Based in UTStarcom's regional headquarters in Sunrise, Florida, Martinez will lead the company's sales efforts in Central America, Latin America (CALA) and North America while overseeing an extensive team of sales, engineering and support professionals in more than 30 countries."
Wait a minute. Is this a company that is going BK or have liquidity problems? I see Krispy Kreme closing up some shops and Borders having certain liquidity problems but UT....unless it is a misprint, they just hired a person from Alcatel-Lucent to oversee professionals in 30 countries!
With all the activity in iptv (telcoms and cable providers) and NGN, improvements in PCD/broadband revs/margins, all the financials filed, the accounting system about to be fixed, material weaknesses down to 3, gains in Gemdale/Infinera appeared and actually booked, CB paid off in full, expenses to be further cut, profitability at the end of the year, isn’t it in much better shape than in 2006 when the price traded from $6-7 (even before any ramp up to a possible sale $8-11 high in Oct 2006)?
The lack of communication or maybe no one is listening is also a problem. During our meeting with them, they mentioned going on investment road shows to tell their side of the story. The markets seem very large and they have plenty of strategic wins to showcase their products. It is apparent the street is discounting the company’s previous mis-steps, don’t think management can execute and expenses are still way too high that any positive developments (contract wins) are not signficant at this stage. Shareholders are giving up and the stock continues to languish. The strategic study back in 2006 was really questionable at best. With the current positives, doesn’t management/board think the share price is so much more undervalued than it was then? That’s why I’m both more frustrated and more optimistic at the same time. Lets hope for better communication from management and that they get out and talk about what THEY are seeing in the markets and the major opportunities (size) going forward.
Just some thoughts I had to post before going to bed......good night or is it morning already?
Let me go back to 2006 again when the company decided to go into a strategic alternative study and was considering to sell itself. Director Thomas Toy mentioned that the board thought the company ($6-7 in early 2006) was undervalued and that PAS decline was a concern and that was why they decided to seek strategic alternatives. I am still confused about the entire strategic alternative study. What valuation where they looking for and did they really believe they could get a good offer then? In late 2006, they were not filing financials and had an ongoing options investigation and nine material weaknesses. They were about to lose $1/share for the year AND instead of being profitable in 2007 as guided (a year plus before that), they were going to lose almost $200m. The convertible bond was not resolved. There were no Gemdale or Infinera stock gains and obviously no IPTV/NGN wins like they do now. According to Toy, they also saw signs of the sub-prime mess that may make any deals hard to close. That was also the time they were writing down $32 million in India and PCD had not improved as it has now. With that situation, why did they feel that $6-7 was undervalued and how much more can they expect to receive? Now, if they felt the situation was really that bad then and had to sell, then why didn’t they sell even if it was a less than an ideal offer or even sell separate parts and get what they can. Why would they then continue spending and ending up losing $200m in 2007? Anyway, this post will show why maybe the management is much more confident than the street is and what the future is in store for UT shareholders. Maybe the problem is a lack of communication or maybe there is just no one listening anymore.
The major hope for UT has always been IPTV with telecom carriers. There were always timing issues because of broadband penetration, regulatory, content and other issues. Slowly but surely, we have seen tangible expansion in China (up to 500k UT subscribers), multiple (3) wins in India (update: http://www.telecomtiger.com/fullstory.aspx?storyid=1148&passfrom=vasstory ), Brazil, and Sri-Lanka. The other potential customer segment in IPTV for UT is cable. We saw the Taiwan win and now are hearing about Hong Kong. Those wins show that UT has a system capable of working for cable companies and can take advantage of this major market. In Korea for example, telcos are waiting for an enforcement ordnance that will allow them to broadcast TV services. Currently, Korean Telecom (KT) has 150k iptv subscribers, Hanaro Telecom has 800k+ subscribers, and LG Dacom has over 200k subscribers. These are currently VOD services only. But these numbers pale in comparison to the 14m on the cable TV platform. This is true in most cases where cable dwarfs iptv from telcos.
From BWS financial last March 20 discussing Sigma designs, “There was news overnight from Taiwanese cable company Vastar Cable intending to begin trials of a HD IPTV service, Vee TV. The demand for top quality high definition service would translate in Sigma Designs (SIGM- Hold Rating) having an edge in receiving this contract. The significance of the news is not who the customer, but the kind of customer Vastar is. Vastar would be the second cable company in Taiwan who has elected to go with an IPTV platform. The first was Markwell Industrial, which chose SIGM. We believe cable companies on a worldwide basis would slowly start to transition to an IPTV platform. We have stated before how Comcast (CMCSA- No Rating) could begin trials in early 2009. The inclusion of cable companies into the IPTV market would create a market opportunity several times larger than telecom carriers alone. Investors should not underestimate the growth of IPTV. The technology remains in its infancy..”
Blackmore added on the last earnings call..” And interestingly Markwell is also our first win with a cable TV operator and we see additional opportunities with that class of carrier.”
While IPTV grabs the headlines, UTs NGN is making tremendous progress. From the last earnings call, Blackmore mentions, “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.”
From the latest IPTV news magazine (http://cde.cerosmedia.com/1L47cbd2e382f89012.cde ), FastWeb of Italy is spending 2 Billion Euros over the next 4 years to complete its NGN to deliver voice, data, and video over IP. We don’t know the size of the contract win with Tiscali (smaller than FastWeb and Telecom Italia) but the multiple wins (Philippines, Italy, Taiwan, Brasil, Thailand, and Argentina) does show significant activity in a very short time frame.
Blackmore adds, “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.”
There was also the hiring of former Alcatel-Lucent executive Diego Martinez. "Based in UTStarcom's regional headquarters in Sunrise, Florida, Martinez will lead the company's sales efforts in Central America, Latin America (CALA) and North America while overseeing an extensive team of sales, engineering and support professionals in more than 30 countries."
Wait a minute. Is this a company that is going BK or have liquidity problems? I see Krispy Kreme closing up some shops and Borders having certain liquidity problems but UT....unless it is a misprint, they just hired a person from Alcatel-Lucent to oversee professionals in 30 countries!
With all the activity in iptv (telcoms and cable providers) and NGN, improvements in PCD/broadband revs/margins, all the financials filed, the accounting system about to be fixed, material weaknesses down to 3, gains in Gemdale/Infinera appeared and actually booked, CB paid off in full, expenses to be further cut, profitability at the end of the year, isn’t it in much better shape than in 2006 when the price traded from $6-7 (even before any ramp up to a possible sale $8-11 high in Oct 2006)?
The lack of communication or maybe no one is listening is also a problem. During our meeting with them, they mentioned going on investment road shows to tell their side of the story. The markets seem very large and they have plenty of strategic wins to showcase their products. It is apparent the street is discounting the company’s previous mis-steps, don’t think management can execute and expenses are still way too high that any positive developments (contract wins) are not signficant at this stage. Shareholders are giving up and the stock continues to languish. The strategic study back in 2006 was really questionable at best. With the current positives, doesn’t management/board think the share price is so much more undervalued than it was then? That’s why I’m both more frustrated and more optimistic at the same time. Lets hope for better communication from management and that they get out and talk about what THEY are seeing in the markets and the major opportunities (size) going forward.
Just some thoughts I had to post before going to bed......good night or is it morning already?
Saturday, March 29, 2008
"Large Startup" and Chuck E Cheese
During the Q3 earnings CC, Peter Blackmore made the following statement, “In some ways, you have to think of UTStarcom today as a large startup. Our previous technologies such as PAS have declining revenues, but we do have many strong technologies to take their place but they are early in their lifecycle and in customer acceptance.”
Those two simple words “large startup” brings amazement, frustration, anguish, hope, reason (explanation), expectations, clarity, confusion, potential, and many other descriptions to UTStarcom’s shareholders and their impressions of the past and current situation. How many startups can compete against General Motors, Microsoft, Google, Altria, General Electric and other leaders in various fields? But, how many would even have the resources or the sensibility to even attempt? Yet, here is UTStarcom competing against the Alcatel Lucents, Siemens, Ericsson, ZTE, Huawei, Nortel and others with their own end-to-end iptv system (no less) and full suite of NGN/broadband, and wireless products. Not only do they compete in those areas but UT even has a handset division! For the most part, it even manufactures its own products and is not “fab-less” like a Rambus or other purely design companies. If you take out PCD and PAS, the company’s revenues for 2008 would be less than $500m. That compares to Alcatel Lucent’s $26b for example. The incredible thing is that UT is actually technologically ahead in some areas and is winning contracts. But what is the cost? The company has used their initial seed money from the ipo/stock sales (in an old article, Lu was even proud NOT to use the initial cash horde because the business was funding itself) and significant PAS profits (and now PCD profits) to build up their arsenal and compete up to now. Huawei and ZTE have done it but does UT have a sustainable competitive advantage to be an all things to all customers? The result of this is a sub $3 share price and shareholders bearing all the downside to get to this stage. Normally, when a company is a startup and goes for an ipo, it will already have become profitable (this was different from before but now most ipos have to be profitable). It would have identified its target markets and have gotten the cost base right. It would have significant cash resources relative to its working capital requirements. It would have high margins and growth rates that would justify an ipo and shareholder enthusiasm.
After 14 or maybe 16 consecutive unprofitable quarters, UT may breakeven and turn slightly profitable. It is debatable whether they would have gotten the cost base right even then. PCD and PAS would still be subsidizing the other core businesses. It IS a significant accomplishment to get to breakeven/profitability under the circumstances but it would not justify the billions in lost shareholder value. Even if it gets there, is there a future for this company 5 years down the line? How many companies survive that long without durable/competitive advantages? The board/management decided in 2006 that it was time to look for an exit strategy and then reversed course and “re-started” again when it could not get a reasonable exit plan. What value does the board think this company can get to? The confusion and suffering of shareholders are not like any startup and I hope Peter and the “newer” managers understand the shareholder’s pain and confusion.
In the group’s quest to protect and unlock shareholder value, there are a LOT of ideas being discussed and have been discussed over the years from asset sales, expense reduction, focusing on core expertise/markets. I think most shareholders know the keys to higher valuations such as higher GMs, profitability, and growth in product areas/markets. UTStarcom definitely has value but does it have the ingredients for attaining significantly higher value to even come close to justifiying the last few years of investments? If not, does it have leadership that will have a reasonable exit strategy? (Toy did mention the company felt that $7 was undervalued back in 2006 and decided to go for a strategic study). Do they have plans to get it back to $10, 15, 20, or 25? Ridiculous to think of a price you say? If you don’t have a goal, you will NOT get there. One of the proposals I discussed back in June 2007 and others have probably discussed earlier was spinning off the iptv/ngn/broadband division.
http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_U/threadview?bn=27187&tid=135521&mid=135521
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=139152&mid=139152&tof=-1&rt=2&frt=2&off=1
It is funny to read previous posts and realize how off some of the numbers were (that’s another problem when we didn’t have the financials).
There has been a lot of news regarding Motorola selling and now spinning off their handset division. The problem with selling/spinning off that division is if anybody actually wants it. What are prospects for revenue growth there? That business unit lost $1.2 billion and how much more money do they have to inject to get it to profitability. The unit’s market share is also in decline. Is it feasible to let go off the brand name? Anyway, lots of problems when spinning off the “bad” part of the company.
At a certain point, UT’s iptv/ngn have to stand on its own. It cannot be done now because the revenues are nowhere close to matching the expenses and the equity markets are not good. The PCD (resale and or total) could be sold. PAS is in decline but can maintain profitability. The broadband group has lower margins and lower growth than iptv/ngn. If the iptv/ngn can be spun off in the future, it would give shareholders a vehicle that could appreciate and recoup some of the losses from the previous years. The remaining businesses can maintain profitability but it will be separate from the iptv/ngn pure-play that can make it more attractive for a future sale as well. It is funny to read other shareholders complain about the performance of other companies and read how they can unlock value. UT, compared to Motorola or other companies, has much more value that can be unlocked. It definitely has the frustrated shareholders (whats left anyway). Getting to profitability is an important step (and after 14-16 quarters…) but hardly an impressive accomplishment that shareholders will praise (unless you bought at $2-3) after all the promises/hope of the last few years. What matters most is shareholder value and the stock price that people can exit at. That is the only metric that counts and for those that have sold at massive losses already, the management/board has already failed them. So, in the end, call it a large startup or a large failure or a large turnaround candidate, it comes down to good leadership, strategy and execution that will determine the shareprice. Shareholders are fed up of excuses for bad results.
On a side note, I see some posters giving up on the stock (understandable) and some have given up on the trust for businesses generating wealth for shareholders in general. For me, very few businesses will fail but most companies that have good products/management can turn it around and the US markets will roar back again. I personally will go to Chuck E Cheese with my family/two year old and spend some money. Have a good weekend everyone!
Those two simple words “large startup” brings amazement, frustration, anguish, hope, reason (explanation), expectations, clarity, confusion, potential, and many other descriptions to UTStarcom’s shareholders and their impressions of the past and current situation. How many startups can compete against General Motors, Microsoft, Google, Altria, General Electric and other leaders in various fields? But, how many would even have the resources or the sensibility to even attempt? Yet, here is UTStarcom competing against the Alcatel Lucents, Siemens, Ericsson, ZTE, Huawei, Nortel and others with their own end-to-end iptv system (no less) and full suite of NGN/broadband, and wireless products. Not only do they compete in those areas but UT even has a handset division! For the most part, it even manufactures its own products and is not “fab-less” like a Rambus or other purely design companies. If you take out PCD and PAS, the company’s revenues for 2008 would be less than $500m. That compares to Alcatel Lucent’s $26b for example. The incredible thing is that UT is actually technologically ahead in some areas and is winning contracts. But what is the cost? The company has used their initial seed money from the ipo/stock sales (in an old article, Lu was even proud NOT to use the initial cash horde because the business was funding itself) and significant PAS profits (and now PCD profits) to build up their arsenal and compete up to now. Huawei and ZTE have done it but does UT have a sustainable competitive advantage to be an all things to all customers? The result of this is a sub $3 share price and shareholders bearing all the downside to get to this stage. Normally, when a company is a startup and goes for an ipo, it will already have become profitable (this was different from before but now most ipos have to be profitable). It would have identified its target markets and have gotten the cost base right. It would have significant cash resources relative to its working capital requirements. It would have high margins and growth rates that would justify an ipo and shareholder enthusiasm.
After 14 or maybe 16 consecutive unprofitable quarters, UT may breakeven and turn slightly profitable. It is debatable whether they would have gotten the cost base right even then. PCD and PAS would still be subsidizing the other core businesses. It IS a significant accomplishment to get to breakeven/profitability under the circumstances but it would not justify the billions in lost shareholder value. Even if it gets there, is there a future for this company 5 years down the line? How many companies survive that long without durable/competitive advantages? The board/management decided in 2006 that it was time to look for an exit strategy and then reversed course and “re-started” again when it could not get a reasonable exit plan. What value does the board think this company can get to? The confusion and suffering of shareholders are not like any startup and I hope Peter and the “newer” managers understand the shareholder’s pain and confusion.
In the group’s quest to protect and unlock shareholder value, there are a LOT of ideas being discussed and have been discussed over the years from asset sales, expense reduction, focusing on core expertise/markets. I think most shareholders know the keys to higher valuations such as higher GMs, profitability, and growth in product areas/markets. UTStarcom definitely has value but does it have the ingredients for attaining significantly higher value to even come close to justifiying the last few years of investments? If not, does it have leadership that will have a reasonable exit strategy? (Toy did mention the company felt that $7 was undervalued back in 2006 and decided to go for a strategic study). Do they have plans to get it back to $10, 15, 20, or 25? Ridiculous to think of a price you say? If you don’t have a goal, you will NOT get there. One of the proposals I discussed back in June 2007 and others have probably discussed earlier was spinning off the iptv/ngn/broadband division.
http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_U/threadview?bn=27187&tid=135521&mid=135521
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=139152&mid=139152&tof=-1&rt=2&frt=2&off=1
It is funny to read previous posts and realize how off some of the numbers were (that’s another problem when we didn’t have the financials).
There has been a lot of news regarding Motorola selling and now spinning off their handset division. The problem with selling/spinning off that division is if anybody actually wants it. What are prospects for revenue growth there? That business unit lost $1.2 billion and how much more money do they have to inject to get it to profitability. The unit’s market share is also in decline. Is it feasible to let go off the brand name? Anyway, lots of problems when spinning off the “bad” part of the company.
At a certain point, UT’s iptv/ngn have to stand on its own. It cannot be done now because the revenues are nowhere close to matching the expenses and the equity markets are not good. The PCD (resale and or total) could be sold. PAS is in decline but can maintain profitability. The broadband group has lower margins and lower growth than iptv/ngn. If the iptv/ngn can be spun off in the future, it would give shareholders a vehicle that could appreciate and recoup some of the losses from the previous years. The remaining businesses can maintain profitability but it will be separate from the iptv/ngn pure-play that can make it more attractive for a future sale as well. It is funny to read other shareholders complain about the performance of other companies and read how they can unlock value. UT, compared to Motorola or other companies, has much more value that can be unlocked. It definitely has the frustrated shareholders (whats left anyway). Getting to profitability is an important step (and after 14-16 quarters…) but hardly an impressive accomplishment that shareholders will praise (unless you bought at $2-3) after all the promises/hope of the last few years. What matters most is shareholder value and the stock price that people can exit at. That is the only metric that counts and for those that have sold at massive losses already, the management/board has already failed them. So, in the end, call it a large startup or a large failure or a large turnaround candidate, it comes down to good leadership, strategy and execution that will determine the shareprice. Shareholders are fed up of excuses for bad results.
On a side note, I see some posters giving up on the stock (understandable) and some have given up on the trust for businesses generating wealth for shareholders in general. For me, very few businesses will fail but most companies that have good products/management can turn it around and the US markets will roar back again. I personally will go to Chuck E Cheese with my family/two year old and spend some money. Have a good weekend everyone!
Sunday, March 23, 2008
Recap of Exploratory group meeting with management/BOD (3)
PAS - Management indicated there was an increase in PAS handset demand this quarter but this is just a blip. As I mentioned in another section, most of the R&D is in iptv/ngn and very little in PAS. PAS is still very profitable and Lu had mentioned in a previous cc that they will be able to maintain PAS profitability. As PAS declines, SG&A associated with PAS should decline as well. During the last CC, they had mentioned the new sales model was working well and margins would be maintained (and actually improve slightly) for 2008. A few months ago, I checked the capex spending of CT/CN and PAS was now down to about 5% for 2008 so this is very low on their priority list. The flip side is they should be increasing their spending on IPTV. During the November shareholder meeting, management had put up a chart on PAS bookings and revenues expected for 2008 and it was on a steady decline. This is still what they expect and Barton mentioned he was conservative on his PAS revenue model for 2009.
Softbank/Japan - Since the Japan Telecom contract that was booked in 2005, little or no news has come out of Japan. Revenues from Japan has dropped to $70m in 2007 from $137m and $479m in 2006 and 2005 respectively. Softbank's purchase of Vodaphone's wireless division has refocused their strategy. Coupled with the iptv regulations, this has hurt UT in Japan. I asked management if 2007 rev was the bottom and how their Japan book to bill looked. Management mentioned that book to bill was above 1 (although it was not a quick answer so maybe they were not very sure). The encouraging thing was that the older equipment now has to be replaced so new contracts are up coming. Management also mentioned that the relationship with Softbank is very good and doesn't prevent them from getting new customers. However, it is just difficult to do so because of long term relationships that already exist with other potential customers and their vendors. They did indicate they were looking into a second customer to smooth out the revenue stream in Japan (again, nothing really concrete).
OEMs/tie ups - Nothing new to report.
Building in China/Sale of Gemdale/Infinera - Management mentioned that China regulations are consistently changing and they are just learning what they can and cannot do. I have reported in the blog previously what Chesha mentioned regarding subleasing some extra space and the special hitech tax status that prevents them from selling the building. Mortgaging the building is also possible but I think they are more focused on leasing at this stage. There is no question that the building is very valuable and even at the last appraisal was worth $180m (thats just for the Hangzhou building). The sale of Gemdale holdings came up in the discussion as well and Barton mentioned they sold this as fast as they could. They sold about 10% in November, about 50% in December and the remaining 40% in January (approximately). I didn't go into the sale of infinera but Chesha had mentioned they sold that as fast as they could as well. I'm a bit confused about the infinera because they only got a little over $11/share. During the first day after the lockout period, they could have sold this on Dec 20, 4 million shares traded above $20 (Infinera trades less than a million shares before that) so there were people unloading already. The stock declined steadily but slowly for the next few weeks until hitting $10 and even $9. I'm not a great trader but it was just very disappointing to only get $11/share (close to the ipo price) when I thought they could get closer to $20. They had over 700k shares of Infinera so that was about $6m more that they may have gotten.
Just a general comment. I do not know all the details obviously regarding the building, gemdale/infinera sales, CB interest payments/additional payments (no call option to pay it off so they had to pay the special interest rates and wait until March). The company says they did the best that they could under the circumstances and certain regulations in China were not known or changing or just coming in but it seems "bad luck" or "bad results" consistently surround the company. They also mentioned they hire the top accounting firms, the top planning firms, etc but the end result is all-time share low prices. I hope our luck changes :-)
Strategy in US/cable companies - I've touched upon this in other sections but basically they are not focusing on the US now and it takes time for trials/qualifications. For some reason, we didn't discuss the cable companies but I believe this is gaining steam with Markwell and other cable companies are looking into iptv (not necessarily UT systems however). Check the sigma designs board for a ton of iptv news, some applicable to UT and their part of the woods.
Writedowns - There was nothing to report (good)
Wimax - They won a $600m 2-year contract with BSNL in India !!!!!.....oops just kidding (getting close to April fools day). They did say they won one in Taiwan. (maybe I was just dreaming about that one too).
Profitability - There was a LOT of discussion on expenses because it ties into profitability. Based on the meeting, somehow I feel they are more confident about getting to profitability in Q4 2008. Now, Q1 2009 may be back to losses due to seasonality but overall, I think they were fairly comfortable with Q4 2008 and overall 2009 profitability (after being questioned on expenses, different business units, cost cutting everywhere, etc for 3 hours, they seemed to hold their ground). ALL previous guidance by Barton for profitability has been way off but his recent quarterly estimates (not for profitability of course) turned out to be very conservative so under all the roundabout information and hunches and psycho-analysis and checking the magic 8-ball, it does seem they WILL get to profitability by Q4 2008.
There are probably things that I missed (I didn't take notes down) and would add an addendum if other shareholders that were there point out something. But thats basically, the various things we discussed and got responses for. I once again would like to thank Chesha, Fran, Peter, and Thomas Toy for accomodating the group for 3 hours. I hope the information presented helps out all shareholders out there. Obviously, management cannot release a PR and write like I can but again some of the info I put are my own opinions and not FACT.
Summary - A lot of people had been waiting for the recap post and were asking for my first impressions. As you can see with the amount of information (some positive/some negative), it would not have been good to jump in and post right away. After the meeting, I was drained and did not feel particulary upbeat. Maybe it was the all-time low stock price. Maybe it was rehashing all the past mis-steps and hearing the reasons for some of the mis-steps. Maybe it was the helpless feeling of hoping that this time they CAN turn it around. The meeting was no doubt productive and the stock looks incredibly cheap here (as it has for a while now). I will let people just read the recap and decide for themselves. I personally will keep my shares for a long time. Here is something I posted earlier today which sums up my optimistic view on why it can turn around now.
EVERY move costs time, effort, money, and management focus. Thats why it is essential to FOCUS on the turnaround and not be wishy washy. Identify the key CORE (higher margin/growth opportunities) and monetize the rest. While we are not seeing it in the stock price, there has been significant milestones reached since Peter has arrived. Obviously, it is not one person but that one person can bring the necessary change that others can rally behind and then everyone has a purpose and unified goal. With that, great things can happen.
Softbank/Japan - Since the Japan Telecom contract that was booked in 2005, little or no news has come out of Japan. Revenues from Japan has dropped to $70m in 2007 from $137m and $479m in 2006 and 2005 respectively. Softbank's purchase of Vodaphone's wireless division has refocused their strategy. Coupled with the iptv regulations, this has hurt UT in Japan. I asked management if 2007 rev was the bottom and how their Japan book to bill looked. Management mentioned that book to bill was above 1 (although it was not a quick answer so maybe they were not very sure). The encouraging thing was that the older equipment now has to be replaced so new contracts are up coming. Management also mentioned that the relationship with Softbank is very good and doesn't prevent them from getting new customers. However, it is just difficult to do so because of long term relationships that already exist with other potential customers and their vendors. They did indicate they were looking into a second customer to smooth out the revenue stream in Japan (again, nothing really concrete).
OEMs/tie ups - Nothing new to report.
Building in China/Sale of Gemdale/Infinera - Management mentioned that China regulations are consistently changing and they are just learning what they can and cannot do. I have reported in the blog previously what Chesha mentioned regarding subleasing some extra space and the special hitech tax status that prevents them from selling the building. Mortgaging the building is also possible but I think they are more focused on leasing at this stage. There is no question that the building is very valuable and even at the last appraisal was worth $180m (thats just for the Hangzhou building). The sale of Gemdale holdings came up in the discussion as well and Barton mentioned they sold this as fast as they could. They sold about 10% in November, about 50% in December and the remaining 40% in January (approximately). I didn't go into the sale of infinera but Chesha had mentioned they sold that as fast as they could as well. I'm a bit confused about the infinera because they only got a little over $11/share. During the first day after the lockout period, they could have sold this on Dec 20, 4 million shares traded above $20 (Infinera trades less than a million shares before that) so there were people unloading already. The stock declined steadily but slowly for the next few weeks until hitting $10 and even $9. I'm not a great trader but it was just very disappointing to only get $11/share (close to the ipo price) when I thought they could get closer to $20. They had over 700k shares of Infinera so that was about $6m more that they may have gotten.
Just a general comment. I do not know all the details obviously regarding the building, gemdale/infinera sales, CB interest payments/additional payments (no call option to pay it off so they had to pay the special interest rates and wait until March). The company says they did the best that they could under the circumstances and certain regulations in China were not known or changing or just coming in but it seems "bad luck" or "bad results" consistently surround the company. They also mentioned they hire the top accounting firms, the top planning firms, etc but the end result is all-time share low prices. I hope our luck changes :-)
Strategy in US/cable companies - I've touched upon this in other sections but basically they are not focusing on the US now and it takes time for trials/qualifications. For some reason, we didn't discuss the cable companies but I believe this is gaining steam with Markwell and other cable companies are looking into iptv (not necessarily UT systems however). Check the sigma designs board for a ton of iptv news, some applicable to UT and their part of the woods.
Writedowns - There was nothing to report (good)
Wimax - They won a $600m 2-year contract with BSNL in India !!!!!.....oops just kidding (getting close to April fools day). They did say they won one in Taiwan. (maybe I was just dreaming about that one too).
Profitability - There was a LOT of discussion on expenses because it ties into profitability. Based on the meeting, somehow I feel they are more confident about getting to profitability in Q4 2008. Now, Q1 2009 may be back to losses due to seasonality but overall, I think they were fairly comfortable with Q4 2008 and overall 2009 profitability (after being questioned on expenses, different business units, cost cutting everywhere, etc for 3 hours, they seemed to hold their ground). ALL previous guidance by Barton for profitability has been way off but his recent quarterly estimates (not for profitability of course) turned out to be very conservative so under all the roundabout information and hunches and psycho-analysis and checking the magic 8-ball, it does seem they WILL get to profitability by Q4 2008.
There are probably things that I missed (I didn't take notes down) and would add an addendum if other shareholders that were there point out something. But thats basically, the various things we discussed and got responses for. I once again would like to thank Chesha, Fran, Peter, and Thomas Toy for accomodating the group for 3 hours. I hope the information presented helps out all shareholders out there. Obviously, management cannot release a PR and write like I can but again some of the info I put are my own opinions and not FACT.
Summary - A lot of people had been waiting for the recap post and were asking for my first impressions. As you can see with the amount of information (some positive/some negative), it would not have been good to jump in and post right away. After the meeting, I was drained and did not feel particulary upbeat. Maybe it was the all-time low stock price. Maybe it was rehashing all the past mis-steps and hearing the reasons for some of the mis-steps. Maybe it was the helpless feeling of hoping that this time they CAN turn it around. The meeting was no doubt productive and the stock looks incredibly cheap here (as it has for a while now). I will let people just read the recap and decide for themselves. I personally will keep my shares for a long time. Here is something I posted earlier today which sums up my optimistic view on why it can turn around now.
EVERY move costs time, effort, money, and management focus. Thats why it is essential to FOCUS on the turnaround and not be wishy washy. Identify the key CORE (higher margin/growth opportunities) and monetize the rest. While we are not seeing it in the stock price, there has been significant milestones reached since Peter has arrived. Obviously, it is not one person but that one person can bring the necessary change that others can rally behind and then everyone has a purpose and unified goal. With that, great things can happen.
UTs potential IPTV growth in China - Historical PAS growth
Before I finish posting the recap on the meeting, I wanted to discuss the potential of IPTV adoption. After all, are we just hoping that UTStarcom breaks even? NO. We have all been patiently waiting for IPTV to break out and UT to reap the benefits. As you know, I am tracking the iptv customers that UT has in China and worldwide (see front of blog to the left side). There are many many iptv and broadband estimates on subscribers in the coming years worldwide and in China. There are only 2 or 3 analysts that really follow UT now and everyone is focusing on profitability (I don't blame them). No one seems interested in estimating the earnings potential if indeed iptv breaks out in UT dominated markets (nice sounding, huh :-).
What kind of growth rates can we really expect? Lets look back at PAS. Here are the most recent subscriber numbers from the PHS MOU group.
http://www.phsmou.org/world/sub_statistics.aspx
Scroll down to the combined worldwide numbers because it shows that PAS didn't take off right away either. From 1996 to 2001, the number of subscribers stayed relatively flat at around 5-6 million. It then doubled to over 10 million by December 2001 and then reached 90 million in 4 years (9 times). From a base of 5m to 90m in 4 years, that is a compound annual growth rate (CAGR) of over 100%! Five million is 10x the current iptv subscribers that UT has in China right now. From a base of 10m, that is still a CAGR of over 70% for 4 years. Most of that growth was in China. While UT has had tremendous mis-steps, they do know about disruptive technologies and has the ability to implement wide-scale deployments as we've seen in PAS. Based on broadband numbers and other iptv penetration rates in other countries, and the fact that the iptv era in China has started, it is now a waiting game before the major breakout. The fact that they can reach profitability by Q4 2008 and in 2009, that is a very good sign that they will be in position to reap the benefits when iptv does breakout. I expect the long term market share may be less than what they have in PAS and reaching 70-90m iptv users in China will take longer than PAS. However, they don't have the threat of 3G and PAS obsoletion as well. They also know that unlike PAS, they can penetrate and dominate other secondary markets (India, Brazil, Taiwan, etc.). Just something to keep in the back of your mind.
What kind of growth rates can we really expect? Lets look back at PAS. Here are the most recent subscriber numbers from the PHS MOU group.
http://www.phsmou.org/world/sub_statistics.aspx
Scroll down to the combined worldwide numbers because it shows that PAS didn't take off right away either. From 1996 to 2001, the number of subscribers stayed relatively flat at around 5-6 million. It then doubled to over 10 million by December 2001 and then reached 90 million in 4 years (9 times). From a base of 5m to 90m in 4 years, that is a compound annual growth rate (CAGR) of over 100%! Five million is 10x the current iptv subscribers that UT has in China right now. From a base of 10m, that is still a CAGR of over 70% for 4 years. Most of that growth was in China. While UT has had tremendous mis-steps, they do know about disruptive technologies and has the ability to implement wide-scale deployments as we've seen in PAS. Based on broadband numbers and other iptv penetration rates in other countries, and the fact that the iptv era in China has started, it is now a waiting game before the major breakout. The fact that they can reach profitability by Q4 2008 and in 2009, that is a very good sign that they will be in position to reap the benefits when iptv does breakout. I expect the long term market share may be less than what they have in PAS and reaching 70-90m iptv users in China will take longer than PAS. However, they don't have the threat of 3G and PAS obsoletion as well. They also know that unlike PAS, they can penetrate and dominate other secondary markets (India, Brazil, Taiwan, etc.). Just something to keep in the back of your mind.
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