This morning, I had the opportunity to talk with Hamed Khorsand, a financial analyst with BWS Financial, one of the remaining analysts covering UTStarcom. Hamed has followed/covered UTStarcom since 2003 and started this type of work in 2000. The following are paraphrased questions/answers from our conversation.
Why continue to follow UT? - Hamed mentioned that there are different reasons for maintaining his coverage on various companies. For UT, he likes their technology and is waiting to see how the turnaround plays out.
How did he arrive at his $6 target and $10 valuation? - Basically, the sum of the parts is more valuable than the current company. He believes that there is a good chance of divestitures due to the separation of none-core/core businesses.
Does he believe the company is better off now/worth more compared to back in 2006? - Hamed mentioned he did not favor selling the company now and would prefer them to go through the turnaround before trying to sell the company (if at all). I have written that with all the issues in 2006, the company is actually more focused and closer to profitability now so I was not advocating a sale now (neither does the board/management when we met with them) but just wanted to see his thoughts on a comparison. He did say they are better off now.
Valuation metrics? - I asked if UT becomes profitable, will he not consider cash flow/growth as oppose to sum of the parts. Yes, he concurs.
Management/board - Interestingly, Hamed is more positive on the management/board of UT than he does Sigma Designs. I asked about Sigma Designs because Hamed has been very positive on Sigma (with a $100 price target) all the way until the day of the earnings report and then management unleashed the guidance shortfall due to Motorola over-ordering. This may be a case where the expectations on Sigma was much higher and UT has very little expectations. I reminded Hamed that UT has been in the red for 12 consecutive quarters while Sigma has been positive/growing for the last couple of years. Hamed is definitely not happy with Sigma management (I don't blame him because his clients probably lost a lot of money with his call). As for UT, he is waiting to see if the metrics/targets UT management has laid out can be met. Any pushout will disappoint investors (obviously).
Earnings/breakeven - Hamed predicts earnings/breakeven will not occur until mid 2009. His earnings estimate for 2009 is for a loss of 12 cents/share. This will be better than the $1.62/share loss in 2007 and almost $1 loss/share projected for 2008. Obviously, even the company does not know whether they can get to breakeven earlier but it shows the low expectations out there.
Major catalysts in 2008 - In terms of catalysts such as divestitures, stock buyback, opening of China iptv markets etc., what is the single most important catalyst? Hamed mentioned the opening up of China iptv markets. The iptv webinar on Monday, April 28 should be very positive. I'll write a preview post this weekend.
Lack of major tier 1 clients - Hamed mentioned that the company still lacks major tier 1 clients. Because UT supplies not only an end-to-end iptv system but also a full suite of networking/telecommunications gear, Hamed mentioned UT has not been able to get tier1 clients that uses them primarily. Most carriers want to use multiple suppliers to diversify and not rely on one single provider.
Expenses - Hamed mentioned that UT has to realize it is not making 40% GMs anymore and need to lower expenses (although he is not too suprised by the pace of expense cuts) and improve GMs (which he predicts to be in the 14.5 to 15% range).
PCD - Hamed was upbeat about the PCD (internal/resale). He thinks the resale part can be sold for/worth about $250m.
Debt free - Hamed interestingly portrayed UT as "debt free". From the last update, Barton mentioned UT having $228m in cash with $48m in debt with half the cash in China and half in the US. In today's environment, resolution of the CB and having the net cash make UT virtually debt free. Hopefully, divestitures, leasing the China building, and other cash generating measures mentioned by management will start to kick in. Until, the company gets their cost base right or atleast good progress towards it, it will be tough to get decent valuations.
I did not expect to hear any surprises or anything really new but it was good to talk with Hamed and get his take on various things just to confirm if we have all the general view points. The trading volume and generally flat stock price for the last 6-8 months reflects the wait and see attitude of most shareholders. The upcoming news (such as the webinar, earnings cc/guidance, shareholder meeting) may provide some catalysts for the stock but we'll just have to wait and see....
Wednesday, April 23, 2008
Saturday, April 19, 2008
Weekly recap and upcoming important dates
The stock closed back above the mendoza line this week at $3.04. This is the stock's highest weekly close since Oct. 22, 2007. I am not a technician so not sure if it means anything but it can't be bad :-) This week was relatively "quiet" with only some BOD related news. I'll briefly touch upon this and highlight some key dates that are fast approaching.
BOD nomination- I had already written a summary of my meeting with Director Thomas Toy (see previous post). While I was not surprised about the board's decision, it was a disappointment. Having said that, I do not believe it has impacted in any way the shareholder's/groups resolve to seek better performance and accountability from management/BOD. As I wrote previously, "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." I will go over some SEC documents/rulings and discuss this with other shareholders (mostly institutional/close confidants). At this point however, it is probably more prudent to discuss the two independent board members up for re-election. This is clearly another way to show management/board that the current stock price and board oversight regarding all their decisions over the last few years has been unacceptable. Going forward, I truly believe there is significant shareholder value to unlock but the street will always look at the board as the same group that could not navigate a respectable sale or manage the downturn or its assets properly. Even if the shareprice climbs, every strategic decision such as production, outsourcing, R&D, divestitures, markets, etc will need close shareholder scrutiny. While the management/board gets ALL-Star compensation, the performance has been more like the D-league (development league, basketball analogy there). In summary, the group will continue to pursue the support of other institutional shareholders and will always be at the ready to go into a plan B when the proper time comes along. This is what I am most proud of that we have accomplished at the very least.
Bruce Ryan- Tom Toy indicated that Ryan's appointment was also a potential prelude to one of the other board members retirement (thank goodness for that) but nothing is confirmed at this stage.
UT in the news- Since there is not much UT specific news, we have to dig a little deeper this week with PR from sigma designs. Thanks to Salisburygo for finding this. “Moving ahead, we intend to capture an increasing portion of the untapped potential for IPTV deployments around the world,” said Hong Lu, CEO of UT Starcom, Inc. “Towards this goal, we are using industry leading technologies, such as the new generation of SMP8654 media processors from Sigma Designs to create a new line of powerful yet cost-effective set-top boxes.”
http://biz.yahoo.com/bw/080414/20080414005414.html?.v=1
Post of the week- This goes to Techbroker, who has consistently updated us on developments in China. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=151526&mid=151546&tof=18&rt=2&frt=1&off=1 Techbroker says, "I am a value investor, this is why I got into this stock. But what I learned from investing UT is that strong management team is more than any value. If you have a strong management, you still have bad time, but company can manage it well. And most importantly, management always think about investors. Vice versa, when you have a bad management team, bad time keeps coming. Because management keeps making bad decisions, and alway put themselve before anything else. If anything goes wrong, they alway find good execuse for it so they seldom learn the real lesson from it. Well, we read this in any investment book. But we will never forget once we have such an experience here in UT." Amen to that....(Hope Peter/Fran and the rest of the gang is reading this :-)
Moving on, there are a lot of upcoming events.
IPTV Webinar, April 28 - I discussed this in a previous post but this is about a week from now. Coupled with all the recent iptv developments, this should be very good. I'm looking to see new contracts and updates on China/worldwide subscribers and deployments.
Q1 2008 earnings, Mid May? - I just talked to a fund manager who grumbled again at the lack of date for the earnings report/cc. The quarter has long ended and we still can't get a definitive date on this but the timing of the iptv webinar should be positive for the bookings/outlook going forward.
One year anniversary of end of strategic study/firing of Wu, End of May - The stock was in the $7+ range when the company dropped the bomb that they ended the strategic study without doing anything and letting go of Wu for internal disagreements. Looking back, this was very bad for the stock as it was open season for the shorts and every reason to think things will get worse before it will get better. When you have lack of financials or even preliminary operating numbers for over half a year, add in the lack of a sale, firing of the China CEO, and you get what happens. A really great job by the board here (sarcasm). Anyway, why do I bring it up? Lets say that the board really believed that the company was undervalued and put itself up for sale (the stock did go up to close to $11 and there were offers for parts of the company), then they have had to open up their books to potential suitors. I often get asked if things are "better" and there is so much value, then why hasn't anybody made a play on it. Well, if you don't get a deal done with the most likely suitors, then those suitors cannot act on it for a certain period of time (maybe a year). Well, that year is up and the stock is sitting at all-time lows still with a lot of issues resolved. Anyway, this is an intersting anniversary date and private equity or other companies may take a second look this time. This will also coincide with Lu's transition to China (yes, its been almost one year already, lets see what he has accomplished).
Shareholder Meeting June 27 and Peter Blackmore assumes CEO position July 1, 2008 - Initially, I had speculated the shaerholder meeting could be pushed back but this may not be a bad date as Peter can give his state of the UT address as he transitions into the CEO role. Q2 2008 would also be done and he should be able to take credit for certain accomplishments and provide a good second half of the year/2009 outlook.
Also, in the next couple of months, divestitures or a share buyback could also be in place. As some have said previously, Good luck to us all :-) BTW, if you haven't sent me an email to join the mailing list, please do so. I have gotten a few these days but I assume some have not "joined" yet. Thanks again for everyone's support! Have a good rest of the weekend.
BOD nomination- I had already written a summary of my meeting with Director Thomas Toy (see previous post). While I was not surprised about the board's decision, it was a disappointment. Having said that, I do not believe it has impacted in any way the shareholder's/groups resolve to seek better performance and accountability from management/BOD. As I wrote previously, "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." I will go over some SEC documents/rulings and discuss this with other shareholders (mostly institutional/close confidants). At this point however, it is probably more prudent to discuss the two independent board members up for re-election. This is clearly another way to show management/board that the current stock price and board oversight regarding all their decisions over the last few years has been unacceptable. Going forward, I truly believe there is significant shareholder value to unlock but the street will always look at the board as the same group that could not navigate a respectable sale or manage the downturn or its assets properly. Even if the shareprice climbs, every strategic decision such as production, outsourcing, R&D, divestitures, markets, etc will need close shareholder scrutiny. While the management/board gets ALL-Star compensation, the performance has been more like the D-league (development league, basketball analogy there). In summary, the group will continue to pursue the support of other institutional shareholders and will always be at the ready to go into a plan B when the proper time comes along. This is what I am most proud of that we have accomplished at the very least.
Bruce Ryan- Tom Toy indicated that Ryan's appointment was also a potential prelude to one of the other board members retirement (thank goodness for that) but nothing is confirmed at this stage.
UT in the news- Since there is not much UT specific news, we have to dig a little deeper this week with PR from sigma designs. Thanks to Salisburygo for finding this. “Moving ahead, we intend to capture an increasing portion of the untapped potential for IPTV deployments around the world,” said Hong Lu, CEO of UT Starcom, Inc. “Towards this goal, we are using industry leading technologies, such as the new generation of SMP8654 media processors from Sigma Designs to create a new line of powerful yet cost-effective set-top boxes.”
http://biz.yahoo.com/bw/080414/20080414005414.html?.v=1
Post of the week- This goes to Techbroker, who has consistently updated us on developments in China. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=151526&mid=151546&tof=18&rt=2&frt=1&off=1 Techbroker says, "I am a value investor, this is why I got into this stock. But what I learned from investing UT is that strong management team is more than any value. If you have a strong management, you still have bad time, but company can manage it well. And most importantly, management always think about investors. Vice versa, when you have a bad management team, bad time keeps coming. Because management keeps making bad decisions, and alway put themselve before anything else. If anything goes wrong, they alway find good execuse for it so they seldom learn the real lesson from it. Well, we read this in any investment book. But we will never forget once we have such an experience here in UT." Amen to that....(Hope Peter/Fran and the rest of the gang is reading this :-)
Moving on, there are a lot of upcoming events.
IPTV Webinar, April 28 - I discussed this in a previous post but this is about a week from now. Coupled with all the recent iptv developments, this should be very good. I'm looking to see new contracts and updates on China/worldwide subscribers and deployments.
Q1 2008 earnings, Mid May? - I just talked to a fund manager who grumbled again at the lack of date for the earnings report/cc. The quarter has long ended and we still can't get a definitive date on this but the timing of the iptv webinar should be positive for the bookings/outlook going forward.
One year anniversary of end of strategic study/firing of Wu, End of May - The stock was in the $7+ range when the company dropped the bomb that they ended the strategic study without doing anything and letting go of Wu for internal disagreements. Looking back, this was very bad for the stock as it was open season for the shorts and every reason to think things will get worse before it will get better. When you have lack of financials or even preliminary operating numbers for over half a year, add in the lack of a sale, firing of the China CEO, and you get what happens. A really great job by the board here (sarcasm). Anyway, why do I bring it up? Lets say that the board really believed that the company was undervalued and put itself up for sale (the stock did go up to close to $11 and there were offers for parts of the company), then they have had to open up their books to potential suitors. I often get asked if things are "better" and there is so much value, then why hasn't anybody made a play on it. Well, if you don't get a deal done with the most likely suitors, then those suitors cannot act on it for a certain period of time (maybe a year). Well, that year is up and the stock is sitting at all-time lows still with a lot of issues resolved. Anyway, this is an intersting anniversary date and private equity or other companies may take a second look this time. This will also coincide with Lu's transition to China (yes, its been almost one year already, lets see what he has accomplished).
Shareholder Meeting June 27 and Peter Blackmore assumes CEO position July 1, 2008 - Initially, I had speculated the shaerholder meeting could be pushed back but this may not be a bad date as Peter can give his state of the UT address as he transitions into the CEO role. Q2 2008 would also be done and he should be able to take credit for certain accomplishments and provide a good second half of the year/2009 outlook.
Also, in the next couple of months, divestitures or a share buyback could also be in place. As some have said previously, Good luck to us all :-) BTW, if you haven't sent me an email to join the mailing list, please do so. I have gotten a few these days but I assume some have not "joined" yet. Thanks again for everyone's support! Have a good rest of the weekend.
Thursday, April 17, 2008
Meeting with Directory Thomas Toy and Options going forward
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.
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.
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.
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