I met with UTStarcom Chairman of the Boards Thomas Toy this evening in San Francisco. As many of you know, I have been nominated for a board seat by a fellow shareholder per company by-laws. As part of this process, I have had to fill out release forms for background checks and have six references available for the company hired executive search firm to interview and prepare a report/recommendation to the BOD. I had just submitted the last 3 references this last Monday and received a call from Mr. Toy a couple of days ago asking for a meeting. I was initially surprised because I had thought the process would still take some time.
We had the meeting this evening and to my disappointment (but not surprise), the board had already made its decision to discontinue my candidacy for lack of experience. I had a cordial discussion with Mr. Toy and he had wanted to personally speak to me about this rather than sending an email or announcing this over the phone. Mr. Toy mentioned that Bruce Ryan's board membership was just a coincidence (at about the same time) and had no relationship to my own candidacy. I discussed with Mr. Toy the frustrations/confusions of shareholders for the past few years and was willing to offer my help to send a signal to the street that there is a change and they would have a representative that will look after shareholder interests (of course, Mr. Toy mentioned that all the board members do that but you get my point).
Our meeting lasted about 30 minutes and did not reveal anything more than what was discussed in our previous shareholder meeting. Mr. Toy was gracious in offering to meet with shareholders in the future as we did last March 17 and mentioned that if the stock were to rise to $20 or $50, that would be something I could be proud of (I think he was being nice in offering a consolation for our efforts). As a final parting, he jokingly said that atleast I got a free bottle of water, which I replied to was actually a $300k bottle of water.
While I would have loved for the board to see the benefits of having me serve, how often does an outsider nominee get welcome on open arms. Moving on, what are our options?
Option 1 - Take consolation that we have done what we can at this juncture, continue to press our case, and move on.
Option 2 - Continue to seek the board, possibly cause some disruption but give shareholders a chance to be heard.
I would definitely like to pursue Option 2 but there will be more work and costs involved. There will be no guarantee of a win and the obstacles are high. It will send management a message regarding shareholder discontent but how much more can we show? Will it impact them in a positive way or just deter from the current turnaround? If we don't pursure it, will it show that the "group" has no "teeth". Would I be letting every shareholder out there that wants to continue this very meaningful fight down?
I dug up some information just tonight on SECURITY HOLDER DIRECTOR NOMINATIONS. Here is a link to the SEC website discussing this. http://www.sec.gov/rules/proposed/34-48626.htm I just quickly browsed through it and will go into it in more detail but it lays out the scenario we are definitely in and I think one that we can get maximum shareholder support. It would force the company to put me in the ballot atleast and give shareholders a "say".
I will discuss this matter with various shareholders in the next few days and decide on how to proceed. If you have any suggestions/comments or experience with this, please let me know.
In terms of achieving what the groups initial goals under Plan A, I believe we have accomplished a lot to this point. I don't believe we have support to go to a Plan B at this time as shareholders want to see how much the shareprice can appreciate once this management team executes and the iptv markets open up. However, if things continue as is and the stock continues to languish, then Plan B will always be an option and the support should continue to grow.
For me personally, its been a lot of peaks (mostly) and valleys (the stock price; not getting compensation cuts/etc). The peaks are the emails/calls I receive hearing how you have xxx amount of shares and in full support and have trust in my candidacy and all the earlier compliments for the blog, etc. It is truly an honor and a wonderful experience to represent the shareholders in front of management/board. I'd like to end this post (kind of getting sentimental) by saying thank you as well for all your support and encouragements.
Thursday, April 17, 2008
Sunday, April 13, 2008
Turnaround - Pier 1
On Oct. 29, 2007, a fellow shareholder News_to_use highlighted Pier 1 at a time when UT was booted out of the index. http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_U/threadview?bn=27187&tid=144821&mid=144855
Although it is in a totally different sector, Pier 1 has also sustained multi-year losses (11 straight quarters of losses). Towards the end of last year when shareholders were confronted with UTs continued losses (and massively increasing at that), the question had to switch to WHEN can it become profitable again? This question is critical because the market tends to severely discount underperforming companies that are burning cash. With Pier 1 getting back to profitability, the stock has rebounded from the $3-4 range to the mid $7s in just a few months. This is in the face of continued credit deterioration in the markets, weakness in consumer spending in the US, and the industry that they are in (home furnishings in this mortgage meltdown). Thats pretty impressive and it was due to signficant cost cutting and operational improvements, which has its limits.
With all the talk about getting back to profitability for UT, the expenses have not not gone down materially and core revenues have not moved up to compensate for PAS losses. UT stock continues to stay in the $3 level as the market waits for divestitures, operating improvements, and profitability. UT is about to hit 12 consecutive quarters of losses and the projections for breakeven/profitability are not until Q4 at the earliest. If they do not get there by Q4, it will probably be Q2 2009 since PAS/PCD are seasonally strong in Q4 and weaker in Q1. That will be 16 consecutive quarters in the red!
The fact that Pier 1 can move up to the $7.5 range shows the significant drop in its shareprice similar to UT but also its willingness to cut costs and get back in the black. However, analysts are becoming cautious with Pier 1 due to the headwinds they face (so I would not buy it now). http://www.reuters.com/article/marketsNews/idINBNG6978320080410?rpc=44
For most of 2007 and early 2008, UT has had to address management changes, stabilizing China (after Wu left), refocusing on the business, filings, selling Gemdale/infinera, and the convertible bond. Blackmore and the management are trying to buy time and improve operationally but obviously don't have the sense of urgency that shareholders have had for the last few years. As I have been saying the last 8-10 months, UT has had TOO MUCH resources that has afforded them to "dilly dally" with making tough decisions (or any decisions at all). Blackmore mentions the 9-week strategic study and identifying core/none-core units as being very quick. They have cut some expenses and guided to more cost cuts but it is simply too slow. Blackmore has talked about turning the operations into "world class" but it will take atleast till end of Q4 2008/early 2009. The accounting systems that they have been working on since 2004-2005 won't be done until mid 2008 at the earliest. Other industries such as the airline industry have already gone through bankruptcy and reorganization and now back ...The stock has reflected their lack of urgency (even when compared to Pier 1). The quarterly expenses of $115-120m even for Q1 simply shows that they have too much resources. It is unfortunate for current long-time shareholders that management can hide behind "long term" shareprice appreciation while shareholders are forced to wait it out or sell at the all-time lows. The management/board continue to get outsized compensation while they tinker around on how to improve shareholder value from their initial restructuring in 2005 to the 2006 strategic study to the failed 2007 earnings and then the new 2007 restructuring and turnaround plan.
With their enormous quarterly expenses, there is no doubt they can cut enough costs sooner or later to get to breakeven but can they EVER justify their poor execuses for hiding behind enhancing longterm shareholder value? Will they ever be as proactive in addressing shareholder value as they are in dealing with their own personal compensation? (They did not have a call option on the convertible bond but they have clauses in their retention bonuses for change of control).
I will end this post discussing Fran Barton because he has been the architect of this ship for the last few years and is being paid "All-Star" money to turn this around. Simply put, he has failed shareholders and I don't know if the street has any faith in him. However, for whatever reason, the board seems to think he is worth the money and he is the person to turn it around. With thousands of employees and tens/hundreds of senior executives, the board chose to heave a ton of money at Fran. I for one have not seen him shine or done anything creative or worthy of being worth close to what they are compensating him, let alone the respect of shareholders. A huge part of any executive's compensation has to be tied to the shareprice performance. The top people should get credit and the blame because of their positions and yet we have seen NO salary cuts or compensation being tied to shareprice appreciation. I could be yet proven wrong about Fran's performance but in the meantime, shaerholders are left holding the bag.
I can't end with too much negativity so I'll go back to the Pier 1 example (my original reason for posting) as News_to_use pointed out that things can get better and the stock can take off significantly. If UT does get to profitability (getting their cost base right), they have a good chance of sustaining it due to their position in iptv in certain markets and the larger moat it has compared to Pier 1 and the better prospects in growing overseas markets.
Although it is in a totally different sector, Pier 1 has also sustained multi-year losses (11 straight quarters of losses). Towards the end of last year when shareholders were confronted with UTs continued losses (and massively increasing at that), the question had to switch to WHEN can it become profitable again? This question is critical because the market tends to severely discount underperforming companies that are burning cash. With Pier 1 getting back to profitability, the stock has rebounded from the $3-4 range to the mid $7s in just a few months. This is in the face of continued credit deterioration in the markets, weakness in consumer spending in the US, and the industry that they are in (home furnishings in this mortgage meltdown). Thats pretty impressive and it was due to signficant cost cutting and operational improvements, which has its limits.
With all the talk about getting back to profitability for UT, the expenses have not not gone down materially and core revenues have not moved up to compensate for PAS losses. UT stock continues to stay in the $3 level as the market waits for divestitures, operating improvements, and profitability. UT is about to hit 12 consecutive quarters of losses and the projections for breakeven/profitability are not until Q4 at the earliest. If they do not get there by Q4, it will probably be Q2 2009 since PAS/PCD are seasonally strong in Q4 and weaker in Q1. That will be 16 consecutive quarters in the red!
The fact that Pier 1 can move up to the $7.5 range shows the significant drop in its shareprice similar to UT but also its willingness to cut costs and get back in the black. However, analysts are becoming cautious with Pier 1 due to the headwinds they face (so I would not buy it now). http://www.reuters.com/article/marketsNews/idINBNG6978320080410?rpc=44
For most of 2007 and early 2008, UT has had to address management changes, stabilizing China (after Wu left), refocusing on the business, filings, selling Gemdale/infinera, and the convertible bond. Blackmore and the management are trying to buy time and improve operationally but obviously don't have the sense of urgency that shareholders have had for the last few years. As I have been saying the last 8-10 months, UT has had TOO MUCH resources that has afforded them to "dilly dally" with making tough decisions (or any decisions at all). Blackmore mentions the 9-week strategic study and identifying core/none-core units as being very quick. They have cut some expenses and guided to more cost cuts but it is simply too slow. Blackmore has talked about turning the operations into "world class" but it will take atleast till end of Q4 2008/early 2009. The accounting systems that they have been working on since 2004-2005 won't be done until mid 2008 at the earliest. Other industries such as the airline industry have already gone through bankruptcy and reorganization and now back ...The stock has reflected their lack of urgency (even when compared to Pier 1). The quarterly expenses of $115-120m even for Q1 simply shows that they have too much resources. It is unfortunate for current long-time shareholders that management can hide behind "long term" shareprice appreciation while shareholders are forced to wait it out or sell at the all-time lows. The management/board continue to get outsized compensation while they tinker around on how to improve shareholder value from their initial restructuring in 2005 to the 2006 strategic study to the failed 2007 earnings and then the new 2007 restructuring and turnaround plan.
With their enormous quarterly expenses, there is no doubt they can cut enough costs sooner or later to get to breakeven but can they EVER justify their poor execuses for hiding behind enhancing longterm shareholder value? Will they ever be as proactive in addressing shareholder value as they are in dealing with their own personal compensation? (They did not have a call option on the convertible bond but they have clauses in their retention bonuses for change of control).
I will end this post discussing Fran Barton because he has been the architect of this ship for the last few years and is being paid "All-Star" money to turn this around. Simply put, he has failed shareholders and I don't know if the street has any faith in him. However, for whatever reason, the board seems to think he is worth the money and he is the person to turn it around. With thousands of employees and tens/hundreds of senior executives, the board chose to heave a ton of money at Fran. I for one have not seen him shine or done anything creative or worthy of being worth close to what they are compensating him, let alone the respect of shareholders. A huge part of any executive's compensation has to be tied to the shareprice performance. The top people should get credit and the blame because of their positions and yet we have seen NO salary cuts or compensation being tied to shareprice appreciation. I could be yet proven wrong about Fran's performance but in the meantime, shaerholders are left holding the bag.
I can't end with too much negativity so I'll go back to the Pier 1 example (my original reason for posting) as News_to_use pointed out that things can get better and the stock can take off significantly. If UT does get to profitability (getting their cost base right), they have a good chance of sustaining it due to their position in iptv in certain markets and the larger moat it has compared to Pier 1 and the better prospects in growing overseas markets.
Saturday, April 12, 2008
Weekly recap - Corporate Governance
The stock price closed at $2.92 for the week losing .09 or about 3%. However, I considered this week to be very positive for the news flow and "technical" action of the stock, which reached a 4 month high of $3.19 several times during the week. Here are the main news items and discussion points during the week.
- UT NGN leadership - On Monday, UT PR on the company exceeding a key NGN milestone of 5 billion minutes. "UTStarcom is one of the leading vendors for next generation voice networks as evidenced by its continued leadership for Class 5 and Local traffic on IP networks," noted Jahangir Raina, Director of Research, iLocus. "In the past 11 consecutive quarters where UTStarcom has dominated the Class 5 and Local VoIP market, UTStarcom has established its leadership with a cumulative 45 percent share of global Class 5 IP voice traffic. Recent deployment contracts for UTStarcom including PLDT in Asia and Jersey Telecom in Europe continue to demonstrate UTStarcom's commitment to Class 5 replacement." http://biz.yahoo.com/prnews/080407/aqm523.html?.v=4 One takeaway from this is that this "leadership" position has not brought the revenue/profit dollars to bring the company anywhere close to profitability. However, during the last earnings call, further wins in NGN in Brazil, Argentina, Italy, Taiwan, and Thailand show the momentum in this core area is just gaining strength. During last week's recap, I commented that the BWS analyst was less upbeat on NGN. This was a poor choice of words on my part as he is upbeat on NGN but more upbeat on iptv.
- India macro situation - IPTV India 2008 provided more info on the growth of broadband and iptv. Here is an article posted by fellow shareholder mason, http://www.efytimes.com/efytimes/25875/news.htm "The entire communication is set to move from voice base to video base giving the masses the power of the button. Soon the consumer will get the power of choice including creation of his or her own content for uploading," said Vijay Yadav, managing director, India and South Asia, UTStarcom." Over the last few years, UT has been trying to diversify out of PAS and China. Even with the potential success of iptv in China, the NGN wins and iptv wins outside China could ultimately be the determinant on what UT is worth to another company. Here is another article regarding iptv "heating up" (from rm516).. http://certcities.com/editorial/news/story.asp?EditorialsID=1335
- Short position - Short position went up over 5% the last 2 weeks.
- Wimax in Taiwan - Here is the Motorola PR on UTs wimax contract in Taiwan (Thanks to Kiwi/Kr_khous) http://biz.yahoo.com/prnews/080408/aqtu126.html?.v=38 Another shaerholder M.A. emailed the new UT Director of IR Barry Hutton regarding details of this contract. Here is Barry's response: "In relation to Motorola’s announcement I will add that Motorola was selected for the WiMAX base stations – there is other third party equipment as well. UTStarcom was awarded the systems integration responsibility in this contract. Our relationship with Motorola is typical for a systems integrator to a supplier. We partner with them in other situations as well. We cannot divulge the monetary value without authority from the customer." The wimax business is not one of UTs core businesses but it is good they are getting some traction in it.
- Stock technicals - As some pointed out, the stock has moved up an "impressive" 43% from the lows on March 17. I think it was impressive it could go from the all-time lows to almost 4 to 5 month highs but at the end of the day, its around the prices for the last 8 months or so. Some technicians I've talked to (and Hangman had some good posts on this) say they are very encouraged by the technical indicators. If you are a trader, you definitely have to follow the technicals. For long term holders, it is good to see the negativity and the "wash out" of shareholders that has occured (which is also in the technicals).
- UT IPTV Webinar - "The 60-minute presentation will include an overview of UTStarcom's RollingStream end-to-end IPTV solution and an update on the company's momentum and customer deployments in the Asia-Pacific, Europe and Latin America regions, as well as a closing Q&A session." It is interesting that they will have this maybe 2 weeks before the earnings call for Q1. They must have a lot to say if it will be one hour! :-) Hangman commented "Seems like Tim's efforts are finally paying off (better communication)..." My response: I'd like to think so Hang but the fact is the business is probably getting better. When a company has around $2.5b in revenue such as UT, they COULD put out a lot of information anytime. However, if they put out a lot of info last year, then it may IMPLY things are atleast decent and not the $200m loss that we saw. Look at Barton's explanation in Q4 on why they DIDN'T preannounce. He said it was on low margin revenue upside and does not impact the bottom line much. What??? I think the problem is the continued losses in Q4. Period! If they preannounced a 20% upside in revenue and the stock goes up and then come in with the losses that they had and the stock goes down, that may lead to law suits. I may be overthinking this but the more PRs they release (roadshows, etc) shows more confidence in the business going forward, which at this point BETTER start happening if their guidance for year end/early 2009 profitability is doable. PS. Companies will find a way to get Good news out while they can hide behind lack of financials when there is BAD news. With the stock tanking last year and they were studying financing options, you know they would put out good news if they HAD good news. The failed strategic study, roadshow to China, paid articles, leak of China "profitability" and all the stuff that went on in late 2006/early 2007 did not paint a picture of what was the actual performance because they were trying to sell the company. That really hurt shareholders when it did not happen. Just my two cents.
- Shareholder Meeting - The company announced the date for the shareholder meeting as June 27, 2008. This is once again "interesting" as it will be right when Q2 closes. This date is also earlier than July 24, 2008 as stated on the 10k. Why have the shareholder meeting so early? The company by-laws state that board nomination and shareholder proposals will have to be submitted 120 days before the meeting or 10 days after the public announcement of the date of the shareholder meeting. So, it seems the board is anxious to see what board nomination or shareholder proposals they will be facing this coming season. I doubt they will have the shareholder meeting on june 27, 2008 (on a Friday no less).
- By-law Amendments - "The Board is pleased to take this action today as it is consistent with governance trends at other public companies as well as our commitment to high standards of corporate governance. In addition, we believe this will enhance our accountability to our stockholders," said Thomas J. Toy, UTStarcom's Chairman of the Board." For now, No comments :-)
Have a good weekend everyone!
Monday, April 7, 2008
Shareholder Activism - Proxy Battles
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.
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.
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?
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