The stock closed at $4.8, up .17 or 3.7% for the week. More significantly, the stock is up $1.55 or about 48% for the month. The stock is up $2.05 or about 75% year to date. Those are staggering numbers but you have to remember that UT was one of (if not) the worse performing stocks in 2007, losing $6 or 68.5% (ouch). Here is an interesting fact, the stock has been up every month this year! Unfortunately for long time suffering longs, its still about $4 off from the 2006 closing price.
Here are some of the UT related news for the week.
Tiscali Italia NGN expansion contract win - "Tiscali will serve its ambitious growth plans using UTStarcom's complete next generation solution architecture including multi-service access, soft switching, integrated network management and a multitude of advanced services and applications.""We believe the NGN market will grow at double digit CAGR from 2007 - 2011," noted Stephane Teral, Principal Analyst, Service Provider VoIP, IMS, and Mobile Infrastructure, Infonetics Research." Tiscali Italia is not as big as Telecom Italia but does show UTs momentum in NGN, one of UTs core businesses. As usual, there was no contract amounts but does show the company executed the contract cleanly and is getting expansion contracts. I wish the growth rate was further clarified. Double digit could be 10% or 50%.
http://biz.yahoo.com/prnews/080527/aqtu013.html?.v=59
Blackmore speaks at Economist's Asia CEO Agenda 2008 Conference - http://biz.yahoo.com/prnews/080528/aqw010.html?.v=52 The conference was held in Hong Kong on May 29, 2008.
Sigma Designs 1st quarter report - Sigma is maintaining their estimated worldwide iptv set top box market of14 million units. North America will have 4.2m, Europe 5m, and Asia 4.8m. For me personally, I sold out my sigma position at a loss due to their terrible quarterly performance and lack of visibility going forward. I may revisit this again in the future due to valuation and their iptv/blue ray markets but this brings back nightmare management credibility issues, which i cannot tolerate at this time (a person can only have so many project turnarounds and I don't plan on starting a sigma designs blog or group :-).
Looking ahead - There is another analyst meeting in New York that the company is planning to participate in (June 11) and the shareholder meeting (June 27). I also received the proxy hard copies and will take a look again. I'll have a posting on that for sure.
Compared to some of my trading friends, I worked also this Saturday on my real job so this posting is a bit late. We demolished a 60 ft. steel building in the San Francisco Bay Area this morning, one of dozens that we need to take down. Anyway, it was like one of those Myth Busters show as we had a cutter that just sliced through heavy steel, pretty neat! Have a good rest of the weekend to everyone. I just don't know why UT had a sluggish month :-) It really needs to pick the pace up to reach my year end targets (he he).
Saturday, May 31, 2008
Sunday, May 25, 2008
China 3G and Telecom Consolidation
Thanks to "Curious_Tigre" for posting about China 3G and the upcoming telecom consolidation in China.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152594&mid=152594&tof=1&rt=2&frt=1&off=1
Over the years, there has been a lot of debate about UT not being a local Chinese company and that it has not benefited like ZTE or Huawei. While I agree that it did not get benefits these other companies did, its downfall was not because it was a foreign company. It was they bet on 3G heavily and that has been delayed even now. The company had a very niche product (PAS) that basically had one market (China). Even that was not the full cause of the downfall as it was expected and actually holding up better than expected because of the delay in 3G. Another major reason for UTs sharp decline was that the iptv market also has not openned up but that again is not due to UT being a foreign company. Another reason for UTs decline is Softbank's focus on wireless. Again, this is not due to UT being a "foreign" company (in China). Finally, the mis-management of international contracts (such as the one large Indian contract) set UT back even more and that obviously was not because they were not a Chinese company. Add to that the accounting/corporate governance issues and management/board wishy washy strategic plans (which were again not because they were not a Chinese company) and you get to where the stock collapsed.
Lets look at the competition and their R&D budgets. Those are so much more than UT. However, I don't believe UT lacked the resources to develop their technologies. In fact, UT gained from PAS, from China investments, and even China real estate. So, to say others can catch up is not correct either.
The benefits of having the China government bankrole huge projects overseas is a clear benefit to ZTE and Huawei (until corruption charges or anti-China sentiment get brought up). That is definitely a major advantage that UT doesn't have. However, UT doesn't have to win $2b projects or be a $20b revenue company. They just have to build sensible business plans going forward and assess which ones they can compete in (which I believe they are now doing a much better job). After all, UT does have the "advantage" of all the years in R&D, patents, large scale deployments, and even now PAS/PCD cash flows to support the core growth businesses. I don't see startups with that type of advantage.
For others to compete against UT on technology (iptv/ngn), it will take them a lot of time/money that they really have to just consider whether its wiser to just buy UT outright.
Anyway, the point is UT did not go down from $40 to $2 just because they were not a "Chinese" company. Also, investors now should focus on where the company can morph into. If management executes, it really should have years of growth and profits ahead. The stock price is basically a steal regardless of bad economy, technicals, or what not.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152594&mid=152594&tof=1&rt=2&frt=1&off=1
Over the years, there has been a lot of debate about UT not being a local Chinese company and that it has not benefited like ZTE or Huawei. While I agree that it did not get benefits these other companies did, its downfall was not because it was a foreign company. It was they bet on 3G heavily and that has been delayed even now. The company had a very niche product (PAS) that basically had one market (China). Even that was not the full cause of the downfall as it was expected and actually holding up better than expected because of the delay in 3G. Another major reason for UTs sharp decline was that the iptv market also has not openned up but that again is not due to UT being a foreign company. Another reason for UTs decline is Softbank's focus on wireless. Again, this is not due to UT being a "foreign" company (in China). Finally, the mis-management of international contracts (such as the one large Indian contract) set UT back even more and that obviously was not because they were not a Chinese company. Add to that the accounting/corporate governance issues and management/board wishy washy strategic plans (which were again not because they were not a Chinese company) and you get to where the stock collapsed.
Lets look at the competition and their R&D budgets. Those are so much more than UT. However, I don't believe UT lacked the resources to develop their technologies. In fact, UT gained from PAS, from China investments, and even China real estate. So, to say others can catch up is not correct either.
The benefits of having the China government bankrole huge projects overseas is a clear benefit to ZTE and Huawei (until corruption charges or anti-China sentiment get brought up). That is definitely a major advantage that UT doesn't have. However, UT doesn't have to win $2b projects or be a $20b revenue company. They just have to build sensible business plans going forward and assess which ones they can compete in (which I believe they are now doing a much better job). After all, UT does have the "advantage" of all the years in R&D, patents, large scale deployments, and even now PAS/PCD cash flows to support the core growth businesses. I don't see startups with that type of advantage.
For others to compete against UT on technology (iptv/ngn), it will take them a lot of time/money that they really have to just consider whether its wiser to just buy UT outright.
Anyway, the point is UT did not go down from $40 to $2 just because they were not a "Chinese" company. Also, investors now should focus on where the company can morph into. If management executes, it really should have years of growth and profits ahead. The stock price is basically a steal regardless of bad economy, technicals, or what not.
Saturday, May 24, 2008
Weekly recap - Market Swoon
The week was a downer for the markets. The DOW was down over 500 points or 3.9% for the week. Nasdaq was down 3.3% and the S&P down 3.5%. UT closed the week at $4.63, down .34 or 7.4%. UT was down to a low of $4.35 on Tuesday but recovered and closed the week higher on Friday at $4.63.
There was no PRs from the company this week but a couple of post-earnings analyst comments/actions.
S&P- Reiterated their hold rating but raised the 12-month price target to $5 (1x book value) from $3.5. They noted further restructuring is needed to get to operating profitability. They view 2008 as a transition year and looking for divestitures of none-core assets so that the company can focus on the broadband access industry. Their low valuation still reflects the "numerous accounting and corporate governance issues hovering over utsi." Back in 2006, S&P had an $11 12-month target/sum of the parts valuation. Maybe when the stock gets back to $10, S&P, can raise their 12-month target to $10 and then to $15 when the price gets to $15, and then to....well you get the idea.
BWS- Yahoo poster "llll121" posted comments from BWS. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152471&mid=152471&tof=-1&rt=2&frt=2&off=1
"The first quarter was progress for UTSI, but there needs to be more quarters of operating express compression before a trend is created." The report (part of it anyway) focuses on the PCD and this highlights the good (very profitable and shining business unit) but also the bad (did anyone buy UT before based on the PCD?).
Preview of June 11 Analyst Meeting- One of the bright spots during the turnaround is the company's communication during the cc, the shareholder meeting they had with the group, the iptv webinar, the filings themselves, and now an analyst meeting. With some of the issues behind the company, its good to see the management believe that there is something worth talking about. While some may think it is a waste of time (a couple of comments before), it is clearly a positive that the company communicate with the street their turnaround plans and more importantly their "growth" plans. You obviously cannot get earnings growth without being profitable so that is first in the agenda. However, its hard to get the street excited with the company (specially one that views itself as somewhat of a startup) when the main message is we will get to profitability sometime in 2009 or that they will finally balance the budget by 2009.
Therefore, during the analyst meeting, I hope management sets some "growth goals" such as:
1. How much they can grow "core revenues". With PAS being lumped in the mix, growth in non-PCD business units for 2008 will only be in the 4% range. The company needs to continously highlight the iptv, NGN, and broadband business expectations going forward. Non-PAS MCBU is set to grow 80% for this year and broadband about 15-20%. What about in the next 5 years? What are their long term targets? Many companies even with the size of Cisco expect to generate mid-teens growth. UT should be able to do so much better with their size and at the stage of their business lines.
2. Market leader - Which businesses/markets/countries are they #1 and #2 in? Which ones are they targetting to reach that stage?
3. Revenue goals in particular areas - Last year, India was set to become the company's #3 market behind China and the US, eclipsing Japan. How much revenue do they expect in India in 3 to 5 years? What about Brazil, Russia, and other CALA countries? At the company I work for, our marketing/business development people have put up areas and business opportunities that are in the $10m, $50m, $100m and upwards stages. UT should have goals for various countries/markets. Can India reach $300m/year in 3-5 years? Can Brazil hit $50m in a couple of years? Can Japan get back over $100m?
4. IPTV users- How many users does UT expect to have by the end of 2008? by the end of 2009, and by 2012? Sigma Designs reported on their last earnings cc: "As of June, 2007 China Telecom had approximately 310,000 IPTV subscribers and has yet to release their numbers for the second half. China Telecom has the potential to continue ramping its IPTV business as it has more than 35 million broadband subscribers and Best TV is also set to have 2 million total viewers by the end of this year. Currently Sigma powered UT Starcom set top boxes are a large portion of their IPTV deployments. China Netcom the second largest telco carrier in China also remains active in deploying IPTV services, moving along towards a long term target of 6 million IPTV users in five to seven years." Back in 2006, Merrill Lynch predicted a "base" subsrciber number of 8 million iptv users in a 5 year span in China but it could be 2 to 4x more. Ultimately, they forecasted about 32 million iptv users in China.
Recalling back to the $4 billion in revenue and $2/share in earnings (not stock price by the way....) forecast back in 2004, people may say whats the point of estimates? For the street to treat the company seriously and for it to gain back the streets good graces, it needs to set benchmarks to measure progress and to guide the company. There are a lot of examples such as apple's 10 million iphones for calendar year 2008. AT&T has a 40k iptv/week subscriber target by the end of the year. Nokia has a 40% market share target. General Electric for years had to be #1 or #2 in their respective business units/markets or they would get out.
Like everyone else, UT has limited resources and they have to focus on the best opportunities and where they can differentiate from other companies. Getting back to profitability and bringing down expenses is a good start but those are really the minimum you can ask from a company. The June analyst meeting is a good opportunity to play some "offense" and discuss their market opportunities and where the company is focusing their growth efforts going forward. Fran Barton supposedely has his global plan tucked in his folder. Hopefully, he is constantly updating it and discussing it with all his marketing/BD guys in the "field". No more excuses.... Fran. Lets hear some growth metrics that are actually worth being proud of if/when accomplished and that employees/company/shareholders can rally behind on. Slashing costs, fixing the books, being conservative are survival plans and not growth plans. If its survival, lets sell the company. If its growth and you feel you have the technology/business plans to execute it, then this is the time to show leadership/accountability and VISION.
Have a great Memorial Day weekend to everyone.
There was no PRs from the company this week but a couple of post-earnings analyst comments/actions.
S&P- Reiterated their hold rating but raised the 12-month price target to $5 (1x book value) from $3.5. They noted further restructuring is needed to get to operating profitability. They view 2008 as a transition year and looking for divestitures of none-core assets so that the company can focus on the broadband access industry. Their low valuation still reflects the "numerous accounting and corporate governance issues hovering over utsi." Back in 2006, S&P had an $11 12-month target/sum of the parts valuation. Maybe when the stock gets back to $10, S&P, can raise their 12-month target to $10 and then to $15 when the price gets to $15, and then to....well you get the idea.
BWS- Yahoo poster "llll121" posted comments from BWS. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152471&mid=152471&tof=-1&rt=2&frt=2&off=1
"The first quarter was progress for UTSI, but there needs to be more quarters of operating express compression before a trend is created." The report (part of it anyway) focuses on the PCD and this highlights the good (very profitable and shining business unit) but also the bad (did anyone buy UT before based on the PCD?).
Preview of June 11 Analyst Meeting- One of the bright spots during the turnaround is the company's communication during the cc, the shareholder meeting they had with the group, the iptv webinar, the filings themselves, and now an analyst meeting. With some of the issues behind the company, its good to see the management believe that there is something worth talking about. While some may think it is a waste of time (a couple of comments before), it is clearly a positive that the company communicate with the street their turnaround plans and more importantly their "growth" plans. You obviously cannot get earnings growth without being profitable so that is first in the agenda. However, its hard to get the street excited with the company (specially one that views itself as somewhat of a startup) when the main message is we will get to profitability sometime in 2009 or that they will finally balance the budget by 2009.
Therefore, during the analyst meeting, I hope management sets some "growth goals" such as:
1. How much they can grow "core revenues". With PAS being lumped in the mix, growth in non-PCD business units for 2008 will only be in the 4% range. The company needs to continously highlight the iptv, NGN, and broadband business expectations going forward. Non-PAS MCBU is set to grow 80% for this year and broadband about 15-20%. What about in the next 5 years? What are their long term targets? Many companies even with the size of Cisco expect to generate mid-teens growth. UT should be able to do so much better with their size and at the stage of their business lines.
2. Market leader - Which businesses/markets/countries are they #1 and #2 in? Which ones are they targetting to reach that stage?
3. Revenue goals in particular areas - Last year, India was set to become the company's #3 market behind China and the US, eclipsing Japan. How much revenue do they expect in India in 3 to 5 years? What about Brazil, Russia, and other CALA countries? At the company I work for, our marketing/business development people have put up areas and business opportunities that are in the $10m, $50m, $100m and upwards stages. UT should have goals for various countries/markets. Can India reach $300m/year in 3-5 years? Can Brazil hit $50m in a couple of years? Can Japan get back over $100m?
4. IPTV users- How many users does UT expect to have by the end of 2008? by the end of 2009, and by 2012? Sigma Designs reported on their last earnings cc: "As of June, 2007 China Telecom had approximately 310,000 IPTV subscribers and has yet to release their numbers for the second half. China Telecom has the potential to continue ramping its IPTV business as it has more than 35 million broadband subscribers and Best TV is also set to have 2 million total viewers by the end of this year. Currently Sigma powered UT Starcom set top boxes are a large portion of their IPTV deployments. China Netcom the second largest telco carrier in China also remains active in deploying IPTV services, moving along towards a long term target of 6 million IPTV users in five to seven years." Back in 2006, Merrill Lynch predicted a "base" subsrciber number of 8 million iptv users in a 5 year span in China but it could be 2 to 4x more. Ultimately, they forecasted about 32 million iptv users in China.
Recalling back to the $4 billion in revenue and $2/share in earnings (not stock price by the way....) forecast back in 2004, people may say whats the point of estimates? For the street to treat the company seriously and for it to gain back the streets good graces, it needs to set benchmarks to measure progress and to guide the company. There are a lot of examples such as apple's 10 million iphones for calendar year 2008. AT&T has a 40k iptv/week subscriber target by the end of the year. Nokia has a 40% market share target. General Electric for years had to be #1 or #2 in their respective business units/markets or they would get out.
Like everyone else, UT has limited resources and they have to focus on the best opportunities and where they can differentiate from other companies. Getting back to profitability and bringing down expenses is a good start but those are really the minimum you can ask from a company. The June analyst meeting is a good opportunity to play some "offense" and discuss their market opportunities and where the company is focusing their growth efforts going forward. Fran Barton supposedely has his global plan tucked in his folder. Hopefully, he is constantly updating it and discussing it with all his marketing/BD guys in the "field". No more excuses.... Fran. Lets hear some growth metrics that are actually worth being proud of if/when accomplished and that employees/company/shareholders can rally behind on. Slashing costs, fixing the books, being conservative are survival plans and not growth plans. If its survival, lets sell the company. If its growth and you feel you have the technology/business plans to execute it, then this is the time to show leadership/accountability and VISION.
Have a great Memorial Day weekend to everyone.
Sunday, May 18, 2008
Weekly recap - Reverse stock split
What idiot called for a reverse stock split in 2007? Oops, that would be me. It just shows we all go into a state of insanity once in a while and make stupid postings. Anyway, it looks like the stock did do a reverse split and my share count still remains the same :-)
The stock closed at $4.97, a level last seen briefly in October 2007 in anticipation of the filings. Previous to that, you have to go back to July at the onset of the stock breakdown from the $5 level. The stock moved up $1.06 this week or 27%. Aside from the stock rising, the real good news is that the company's turnaround plans are materializing, management is conservative but confident, and the estimates going forward are simply too low. Here are the news/highlights from the week.
Ying Wu - Focus Media Holding Ltd. named former founder and China head Ying Wu to its board of directors. http://biz.yahoo.com/ap/080515/focus_media_personnel.html?.v=1 With Hong Lu set to hand over his CEO title to Peter Blackmore and move to the executive director position, it will be interesting who the company hires to head the China operations.
Earthquake relief - The company donates money, equipment, and service engineer time to assist in the earthquake relief efforts. http://biz.yahoo.com/prnews/080516/aqth097.html?.v=46
Post of the week - I personally vote for Tomc368 who writes under the heading "Tim, we owe you" "I have been a long for 3 years and have been a contributor on this board for about a year. I have been out of commission for a while with medical issues, but noticed we have done very well while I have been gone. I am happy and excited for UTSI, and would like to take this time to thank Tim; not only for his blog, but for providing an identity to us common shareholders and a unified voice that management had to contend with. Tim, you kept us informed and focused. I truly believe that we, thru Tim, had an influence on management, and that some of the improvements we have seen may have been as a result of that impact. Tim, on behalf of the rest of us suffering longs, I thank you and feel we owe you a debt of gratitude for your untiring efforts and unselfish representation of all of us. Whether the rest of the board agrees or not, I would like to thank on behalf of all of us for keeping us focused and committed instead of deteriorating into a bickering, bitter board. Thank you , Tim." ok, so that one was a little biased. he he. Thanks for the kind words Tom. The real post of the week should go to Tigre, who posted about selling all his shares at around $4.4. This post generated the most replies. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152085&mid=152085&tof=65&frt=1 Some people attacked Tigre. Some felt sorry that he did not get to participate more on the upside. But, the value of the post was really the discussion on the prospects of UT, trading in general, the markets, and others. Believe me, Tigre will be OK and knows what he is doing :-) A close second in the posting is Techbroker for posting about PAS' role in the earthquake and hoping UT had a hand in it. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152065&mid=152065&tof=97&frt=1 Obviously, the earthquake situation is life and death but since this is a blog about UT, I'll put it as a very close second. I would like to commend Techbroker for consistently scouring the China news to bring us the latest and greatest items that impact UT. Tigre and Shadow and others add so much to the discussion as well so please keep it up everyone.
Earnings recap - See previous post.
Q2 guidance - Overall revenue between $580-610m (Non-PCD $120-130m; PCD $460-480m) and gross margins of 14% (Non-PCD 36%; PCD 6.5%). Expenses of $118-123m. That would imply a loss of $37m or 30 cents per share. Cash flow gains for Q1 will also be reversed so Q2 will definitely be the low point for operational performance.
Looking ahead past Q2 - Based on 2008 guidance/targets that the company gave back at the end of February and using midpoint of the range, the company will have Non-PCD revenues of $838m (4.3% gain) and gross margins of 33.3% for the year. For the 1st half of the year, the company will have $155m + $130m (top end) = 285m of non-PCD revenue. That means the 2nd half will have $553m or $277m/quarter of non-PCD revenue. On average, that means an additional $147m ($277m-130m) of non-PCD revenue on top of Q2 numbers. At a conservative GM of 30% (taking into account this quarters 39% GM and the 36% GM for Q2), that is an additional $44m in gross profits. Add in the estimated $11-12m in opex reduction and you get a delta of $55m for the Q3 and Q4 quarters or 45 cents. Q2 will probably exceed the current estimates but I am also using mid-point of guidance for 2008. Non-PCD/Non-PAS handset revs take more time to get recognized but the bookings for both PCD and PAS handsets are good I'm not worried about those holding up for the rest of 2008. The non-PCD bookings are set to increase in Q2 by 25% from $150m to $187.5m (or a book to bill above 1.4 for Q2) so that bodes well for 2009. So, to summarize, either Q2 will blow away current estimates or Q3 and Q4 should be profitable. There is obviously execution risk that could delay revenue recognition for non-PCD even past 2008 but the revenues for non-PCD in the first half are already so low. The margins I used for non-PCD at 30% is low as well. Compared with 2006 when we were expecting 2007 profitability, there was hardly news about contract wins and amounts in iptv, ngn, broadband. This time, the company is updating iptv surbscriber growth, contract amounts ($46m in India alone) and NGN wins. They are even having analyst meetings, road shows, and filing their quarterly reports. There are still a lot of work to be done and Q2 is not going to be pretty but even the quarter is half over. I just see too much upside at this stage and think the institutions see the same thing and thats why the stock is going up. I'm sticking with my year end targets and am fairly confident in year end profitability.
Have a great rest of the weekend everyone.
The stock closed at $4.97, a level last seen briefly in October 2007 in anticipation of the filings. Previous to that, you have to go back to July at the onset of the stock breakdown from the $5 level. The stock moved up $1.06 this week or 27%. Aside from the stock rising, the real good news is that the company's turnaround plans are materializing, management is conservative but confident, and the estimates going forward are simply too low. Here are the news/highlights from the week.
Ying Wu - Focus Media Holding Ltd. named former founder and China head Ying Wu to its board of directors. http://biz.yahoo.com/ap/080515/focus_media_personnel.html?.v=1 With Hong Lu set to hand over his CEO title to Peter Blackmore and move to the executive director position, it will be interesting who the company hires to head the China operations.
Earthquake relief - The company donates money, equipment, and service engineer time to assist in the earthquake relief efforts. http://biz.yahoo.com/prnews/080516/aqth097.html?.v=46
Post of the week - I personally vote for Tomc368 who writes under the heading "Tim, we owe you" "I have been a long for 3 years and have been a contributor on this board for about a year. I have been out of commission for a while with medical issues, but noticed we have done very well while I have been gone. I am happy and excited for UTSI, and would like to take this time to thank Tim; not only for his blog, but for providing an identity to us common shareholders and a unified voice that management had to contend with. Tim, you kept us informed and focused. I truly believe that we, thru Tim, had an influence on management, and that some of the improvements we have seen may have been as a result of that impact. Tim, on behalf of the rest of us suffering longs, I thank you and feel we owe you a debt of gratitude for your untiring efforts and unselfish representation of all of us. Whether the rest of the board agrees or not, I would like to thank on behalf of all of us for keeping us focused and committed instead of deteriorating into a bickering, bitter board. Thank you , Tim." ok, so that one was a little biased. he he. Thanks for the kind words Tom. The real post of the week should go to Tigre, who posted about selling all his shares at around $4.4. This post generated the most replies. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152085&mid=152085&tof=65&frt=1 Some people attacked Tigre. Some felt sorry that he did not get to participate more on the upside. But, the value of the post was really the discussion on the prospects of UT, trading in general, the markets, and others. Believe me, Tigre will be OK and knows what he is doing :-) A close second in the posting is Techbroker for posting about PAS' role in the earthquake and hoping UT had a hand in it. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152065&mid=152065&tof=97&frt=1 Obviously, the earthquake situation is life and death but since this is a blog about UT, I'll put it as a very close second. I would like to commend Techbroker for consistently scouring the China news to bring us the latest and greatest items that impact UT. Tigre and Shadow and others add so much to the discussion as well so please keep it up everyone.
Earnings recap - See previous post.
Q2 guidance - Overall revenue between $580-610m (Non-PCD $120-130m; PCD $460-480m) and gross margins of 14% (Non-PCD 36%; PCD 6.5%). Expenses of $118-123m. That would imply a loss of $37m or 30 cents per share. Cash flow gains for Q1 will also be reversed so Q2 will definitely be the low point for operational performance.
Looking ahead past Q2 - Based on 2008 guidance/targets that the company gave back at the end of February and using midpoint of the range, the company will have Non-PCD revenues of $838m (4.3% gain) and gross margins of 33.3% for the year. For the 1st half of the year, the company will have $155m + $130m (top end) = 285m of non-PCD revenue. That means the 2nd half will have $553m or $277m/quarter of non-PCD revenue. On average, that means an additional $147m ($277m-130m) of non-PCD revenue on top of Q2 numbers. At a conservative GM of 30% (taking into account this quarters 39% GM and the 36% GM for Q2), that is an additional $44m in gross profits. Add in the estimated $11-12m in opex reduction and you get a delta of $55m for the Q3 and Q4 quarters or 45 cents. Q2 will probably exceed the current estimates but I am also using mid-point of guidance for 2008. Non-PCD/Non-PAS handset revs take more time to get recognized but the bookings for both PCD and PAS handsets are good I'm not worried about those holding up for the rest of 2008. The non-PCD bookings are set to increase in Q2 by 25% from $150m to $187.5m (or a book to bill above 1.4 for Q2) so that bodes well for 2009. So, to summarize, either Q2 will blow away current estimates or Q3 and Q4 should be profitable. There is obviously execution risk that could delay revenue recognition for non-PCD even past 2008 but the revenues for non-PCD in the first half are already so low. The margins I used for non-PCD at 30% is low as well. Compared with 2006 when we were expecting 2007 profitability, there was hardly news about contract wins and amounts in iptv, ngn, broadband. This time, the company is updating iptv surbscriber growth, contract amounts ($46m in India alone) and NGN wins. They are even having analyst meetings, road shows, and filing their quarterly reports. There are still a lot of work to be done and Q2 is not going to be pretty but even the quarter is half over. I just see too much upside at this stage and think the institutions see the same thing and thats why the stock is going up. I'm sticking with my year end targets and am fairly confident in year end profitability.
Have a great rest of the weekend everyone.
Saturday, May 17, 2008
Q1 2008 results/cc
The call started with Hong Lu discussing the CEO transition to Peter Blackmore is as scheduled on July 1, 2008. The transition has been going well with the China sales and marketing unit yet to be handed over.
The call then continued with Peter Blackmore discussing the current state of the turnaround and the individual business unit performance. This was followed by Hong Lu discussing China activities and then Fran Barton talking about the quarter's numbers, liquidity, and Q2 guidance. The call ends with Q&A.
The quarter was highlighted by strong upside in revenue and gross margins with an increase in expenses. Net cash improvements of $90m was primarily through one-time gains (investment sales of Gemdale/infinera, favorable tax provision, delayed payments to vendors, and supply chain improvements). The supply chain improvements amounted to $6.4m, ahead of company's internal projections. Headcount was further reduced from the previous announced restructuring of 11% by another 125 people to total 16% or 946 people.
The company has been adamant about protecting R&D and so this stayed consistent but SG&A stayed particularly high this quarter. Blackmore highlighted a few items why this was the case. First, sales efforts were increased to drive sales/bookings and finance/accounting are still way too high. Continued implementation of their ERP system will extend to the 2nd half and other "legacy" legal costs continue. In reading the 10Q, there are still 3 material weaknesses and many items they may implement to resolve these weaknesses. There was an SEC settlement but the DOJ investigation still continues. Costs will come down as these issues are resolved. There were also "external professional fees" that boosted expenses this quarter and next by $5m each. Some people have speculated these fees are for the divestiture of none-core assets, which the company has said is in active discussions. Peter in the beginning reiterated again the focus is on the core operations. Since the 9-week strategic study and categorizing business units to core/none-core, it is clear they intend to sell these units. Its been 3 cc but no definitive sale as of now but do believe it will happen (or else, what is the point?)
Peter discussed the macro economic environment. He mentioned that UT operates in markets with huge populations and high growth rates, which works towards UTs advantage. Really? I wonder if this is why most investors bought shares in the company in the first place :-)
The next item was India. Peter wanted to discuss India as this supposedely had a lot of investor concerns. There has been a lot of writedowns but Peter wanted to point out this was due to one large contract in 2006 that has to be recognized over a number of years. The company is doing much better now and is reflected in higher GMs (24% this quarter in the broadband unit) without the impact of this initial contract, which did lead to UT being the largest broadband provider in India. The company has 5 different Tier 1 customers in India and a few Tier 2/3 customers. From the four iptv contracts signed in India, bookings totaled $46m. The company was selected as most respected BB provider in India for the 2nd year in a row.
Overall iptv in UT networks worldwide reached 850k by the end of April, up 100k in 3 months. Other new iptv related businesses emerging are ip surveilance and digital advertising. The company is also competitve and Peter noted the Jersey NGN contract win over Sonus and Huawei. The services division will gain traction in the future due to the iptv, ngn, and broadband wins. Peter highlighted PCD's huge quarter ($431m) and reiterated guidance for 2009 profitability. He ended by saying that he and management are very aware that there is still a lot to do, are actively engaged (I hope so) and there is a lot of upside.
Hong Lu was up next and started with the impact of the earthquake to UT and UTs role. There was no impact on UT operations or employees that were hurt. GSM/CDMA networks went down during the earthquake but PAS networks stayed up. The company donated 1m RMB, 2000 PAS handsets, and had service engineers on call. UT employees dontaed another 250k RMB. Overall, good work by the company in this regard and even a good PR for PAS.
Hong discussed UTs 3 strategies in China. The first was growing iptv. Currently, there are 583k users in China, up from about 500k in 3 months. Therefore, most iptv users added were in China as expected. The company maintained 60% market share. As an example of progress in iptv, Lu cited a $7m contract signed in Shanghai and another soon to be signed $3.7m contract also in Shanghai. They also had their first win in Hunan province and are in negotiations in 4 other provinces. They also signed a contract for interactive advertising in Guangdong. There was also a growing ip surveilance business opportunity with 250k retailers in China (must be a lot of theft there :-)
The second China initiative is jump starting the broadband business. Lu talked about breakthrough in GEPON working with CT/CN on 3 to 4 different province each. There was also a key win with SARFT.
The third China initiative is managing PAS decline. Aside from the good PCD numbers, PAS news was surprisingly good. PAS handsets declined from 1.3m to 1.1m but market share moved back above 30%. There was also higher bookings in Q1 and expected in Q2. They had a 50k handset order for Beijing in advance of the olympics. Lu talked extensively about Packet data saying UT was working in several cities and had 100k data cards on order. During the Q&A, Lu mentioned how the PAS packet mode delivered the best current solution over edge/cdma 1x with data rates from 80-110 kbps compared to 65 kbps. The company is having good success in Beijing and are trying to get wins in Shanghai as well where they are still in the slower circuit mode. From an infrastructure standpoint, revenues in the MCBU declined from $73m to $67m but this had very little iptv revenue, mostly PAS and NGN. From a regulatory standpoint, the reorganization of companies are also delayed and not expected until Q4 at the earliest. As we've seen with earlier regulatory issues in China, this takes time. This definitely helps out PAS infra/handset sales as the company tries to slow down the decline and eliminate a lot of talk about PAS going to zero.
Fran Barton discussed the raw numbers for the quarter. Gross margins in MCBU shot up to 49% from 31%. From the 10Q, this was due to the low GMs in 2007 where the company exited 3G but the 49% was still very good. There was hardly any iptv revenues so this bodes well for revenue recognition in the 2nd half of 2008 and beyond. The BBBU was flat from $27m to $26m. Here, the discussion was primarily base on the India contract in 2006. Without this, margins would have been 24% (instead of the 9% reported). Services rev were $11m instead of $13m but gross margins improved to 21% from 5%. TBU was $44m from $70m due to PAS handset decline and lower prices. Gross margins was up 1% to 37%. The "others" division had revs of $7m from $6m and margins declining from 93% to 75%.
Book to Bill - This came in at 1.2, which was the same as last year but revs were particularly strong in Q1 so this was a good sign. Non-PCD business had a book to bill of 1 while the PCD had a 1.3 book to bill (that division is really doing well). Non-PCD bookings totaled $150m and expected to increase 25% next quarter.
I discussed OPEX earlier but basically the focus was on the 2nd half of the year, where the company is still targeting below $110m for each of the 2nd half quarters.
Cash flow- This was particulary strong at $97m, but will be given back in Q2. The company raised a lot of cash through 1-time gains and even chose not to pay some payables and receive discounts. I think the company was really concern about having enough liquidity for the convertible bond payment and hence all the cash generated. Overall, the company is still sticking with overall neutral cash flow for the year.
Cash - Out of the $305m in cash, $174m is in China. From the 10Q, the company has credit facilities of about $150m in China of which $140m or so is still available (and there are no material covenants). Interest on these credit lines are from 6.3% to 7%. The company's cash is making around 1.7 to 1.8%. While not great, most is in China and the Yuan will probably appreciate. As Peter mentioned at the beginning of the call, even without any divestitures, the company can fund their operations. The balance sheet does look fairly good at this time.
DSO and inventory has been going down as well showing some progress in that regard.
Q2 guidance - $580m-$610m in revenue and 14% GMs (36% non-PCD; 6.5% PCD). OPEX will be $118m-123m, which includes more external professional service expenses. Non-PCD revs will be $120-130m. In the first quarter, non-PCD revs were ($586m-431m) $155m. So, the first half will have non-PCD revs in the $285m range. Based on initial guidance for full year 2008, I calculated $833m in non-PCD revenue so the second half of the year is setting up to be huge.
IP Assets/patents - The company anticipates $2m in revenue for licensing/sale of their ip assets/patents. We will need to get clarification if this is projected to be ongoing or one-time events (or probably mixed) but its something to look for.
There will be an analyst day on June 10, 2008 ahead of the shareholder meeting and other road shows planned. Barton mentioned the big distractions (SEC settlement, CB payment) are out of the way and can focus on operations. He re-emphasized profitability in 2009.
Q&A - There were discussions on divestitures and exceeding overall 2008 "guidance" but the company could not give out information at this juncture. The second analyst subbing for Bill Choi asked some relatively poor questions that didn't really add anything. My favorite part of the conference call is the Q&A from Himanshu and Fran Barton. When Himanshu asked about plans for the cash when divestitures were made, Barton answered they didn't have any sale as of yet but were thinking about "clever" ways to use the excess cash (something about checking with the investment bankers and lawyers - maybe thats why it costs so much to do anything! Anyway, Barton did add some informative numbers on opex for the none-core businesses such as PCD, mostly SG&A of $10m/quarter, ipcdma $6m/quarter, Customs solutions business unit $10m/quarter). So, for you home gamers, you can start estimating numbers without those units :-)
I'll add my overall thoughts on the quarter/earnings call on the weekly recap tomorrow.
The call then continued with Peter Blackmore discussing the current state of the turnaround and the individual business unit performance. This was followed by Hong Lu discussing China activities and then Fran Barton talking about the quarter's numbers, liquidity, and Q2 guidance. The call ends with Q&A.
The quarter was highlighted by strong upside in revenue and gross margins with an increase in expenses. Net cash improvements of $90m was primarily through one-time gains (investment sales of Gemdale/infinera, favorable tax provision, delayed payments to vendors, and supply chain improvements). The supply chain improvements amounted to $6.4m, ahead of company's internal projections. Headcount was further reduced from the previous announced restructuring of 11% by another 125 people to total 16% or 946 people.
The company has been adamant about protecting R&D and so this stayed consistent but SG&A stayed particularly high this quarter. Blackmore highlighted a few items why this was the case. First, sales efforts were increased to drive sales/bookings and finance/accounting are still way too high. Continued implementation of their ERP system will extend to the 2nd half and other "legacy" legal costs continue. In reading the 10Q, there are still 3 material weaknesses and many items they may implement to resolve these weaknesses. There was an SEC settlement but the DOJ investigation still continues. Costs will come down as these issues are resolved. There were also "external professional fees" that boosted expenses this quarter and next by $5m each. Some people have speculated these fees are for the divestiture of none-core assets, which the company has said is in active discussions. Peter in the beginning reiterated again the focus is on the core operations. Since the 9-week strategic study and categorizing business units to core/none-core, it is clear they intend to sell these units. Its been 3 cc but no definitive sale as of now but do believe it will happen (or else, what is the point?)
Peter discussed the macro economic environment. He mentioned that UT operates in markets with huge populations and high growth rates, which works towards UTs advantage. Really? I wonder if this is why most investors bought shares in the company in the first place :-)
The next item was India. Peter wanted to discuss India as this supposedely had a lot of investor concerns. There has been a lot of writedowns but Peter wanted to point out this was due to one large contract in 2006 that has to be recognized over a number of years. The company is doing much better now and is reflected in higher GMs (24% this quarter in the broadband unit) without the impact of this initial contract, which did lead to UT being the largest broadband provider in India. The company has 5 different Tier 1 customers in India and a few Tier 2/3 customers. From the four iptv contracts signed in India, bookings totaled $46m. The company was selected as most respected BB provider in India for the 2nd year in a row.
Overall iptv in UT networks worldwide reached 850k by the end of April, up 100k in 3 months. Other new iptv related businesses emerging are ip surveilance and digital advertising. The company is also competitve and Peter noted the Jersey NGN contract win over Sonus and Huawei. The services division will gain traction in the future due to the iptv, ngn, and broadband wins. Peter highlighted PCD's huge quarter ($431m) and reiterated guidance for 2009 profitability. He ended by saying that he and management are very aware that there is still a lot to do, are actively engaged (I hope so) and there is a lot of upside.
Hong Lu was up next and started with the impact of the earthquake to UT and UTs role. There was no impact on UT operations or employees that were hurt. GSM/CDMA networks went down during the earthquake but PAS networks stayed up. The company donated 1m RMB, 2000 PAS handsets, and had service engineers on call. UT employees dontaed another 250k RMB. Overall, good work by the company in this regard and even a good PR for PAS.
Hong discussed UTs 3 strategies in China. The first was growing iptv. Currently, there are 583k users in China, up from about 500k in 3 months. Therefore, most iptv users added were in China as expected. The company maintained 60% market share. As an example of progress in iptv, Lu cited a $7m contract signed in Shanghai and another soon to be signed $3.7m contract also in Shanghai. They also had their first win in Hunan province and are in negotiations in 4 other provinces. They also signed a contract for interactive advertising in Guangdong. There was also a growing ip surveilance business opportunity with 250k retailers in China (must be a lot of theft there :-)
The second China initiative is jump starting the broadband business. Lu talked about breakthrough in GEPON working with CT/CN on 3 to 4 different province each. There was also a key win with SARFT.
The third China initiative is managing PAS decline. Aside from the good PCD numbers, PAS news was surprisingly good. PAS handsets declined from 1.3m to 1.1m but market share moved back above 30%. There was also higher bookings in Q1 and expected in Q2. They had a 50k handset order for Beijing in advance of the olympics. Lu talked extensively about Packet data saying UT was working in several cities and had 100k data cards on order. During the Q&A, Lu mentioned how the PAS packet mode delivered the best current solution over edge/cdma 1x with data rates from 80-110 kbps compared to 65 kbps. The company is having good success in Beijing and are trying to get wins in Shanghai as well where they are still in the slower circuit mode. From an infrastructure standpoint, revenues in the MCBU declined from $73m to $67m but this had very little iptv revenue, mostly PAS and NGN. From a regulatory standpoint, the reorganization of companies are also delayed and not expected until Q4 at the earliest. As we've seen with earlier regulatory issues in China, this takes time. This definitely helps out PAS infra/handset sales as the company tries to slow down the decline and eliminate a lot of talk about PAS going to zero.
Fran Barton discussed the raw numbers for the quarter. Gross margins in MCBU shot up to 49% from 31%. From the 10Q, this was due to the low GMs in 2007 where the company exited 3G but the 49% was still very good. There was hardly any iptv revenues so this bodes well for revenue recognition in the 2nd half of 2008 and beyond. The BBBU was flat from $27m to $26m. Here, the discussion was primarily base on the India contract in 2006. Without this, margins would have been 24% (instead of the 9% reported). Services rev were $11m instead of $13m but gross margins improved to 21% from 5%. TBU was $44m from $70m due to PAS handset decline and lower prices. Gross margins was up 1% to 37%. The "others" division had revs of $7m from $6m and margins declining from 93% to 75%.
Book to Bill - This came in at 1.2, which was the same as last year but revs were particularly strong in Q1 so this was a good sign. Non-PCD business had a book to bill of 1 while the PCD had a 1.3 book to bill (that division is really doing well). Non-PCD bookings totaled $150m and expected to increase 25% next quarter.
I discussed OPEX earlier but basically the focus was on the 2nd half of the year, where the company is still targeting below $110m for each of the 2nd half quarters.
Cash flow- This was particulary strong at $97m, but will be given back in Q2. The company raised a lot of cash through 1-time gains and even chose not to pay some payables and receive discounts. I think the company was really concern about having enough liquidity for the convertible bond payment and hence all the cash generated. Overall, the company is still sticking with overall neutral cash flow for the year.
Cash - Out of the $305m in cash, $174m is in China. From the 10Q, the company has credit facilities of about $150m in China of which $140m or so is still available (and there are no material covenants). Interest on these credit lines are from 6.3% to 7%. The company's cash is making around 1.7 to 1.8%. While not great, most is in China and the Yuan will probably appreciate. As Peter mentioned at the beginning of the call, even without any divestitures, the company can fund their operations. The balance sheet does look fairly good at this time.
DSO and inventory has been going down as well showing some progress in that regard.
Q2 guidance - $580m-$610m in revenue and 14% GMs (36% non-PCD; 6.5% PCD). OPEX will be $118m-123m, which includes more external professional service expenses. Non-PCD revs will be $120-130m. In the first quarter, non-PCD revs were ($586m-431m) $155m. So, the first half will have non-PCD revs in the $285m range. Based on initial guidance for full year 2008, I calculated $833m in non-PCD revenue so the second half of the year is setting up to be huge.
IP Assets/patents - The company anticipates $2m in revenue for licensing/sale of their ip assets/patents. We will need to get clarification if this is projected to be ongoing or one-time events (or probably mixed) but its something to look for.
There will be an analyst day on June 10, 2008 ahead of the shareholder meeting and other road shows planned. Barton mentioned the big distractions (SEC settlement, CB payment) are out of the way and can focus on operations. He re-emphasized profitability in 2009.
Q&A - There were discussions on divestitures and exceeding overall 2008 "guidance" but the company could not give out information at this juncture. The second analyst subbing for Bill Choi asked some relatively poor questions that didn't really add anything. My favorite part of the conference call is the Q&A from Himanshu and Fran Barton. When Himanshu asked about plans for the cash when divestitures were made, Barton answered they didn't have any sale as of yet but were thinking about "clever" ways to use the excess cash (something about checking with the investment bankers and lawyers - maybe thats why it costs so much to do anything! Anyway, Barton did add some informative numbers on opex for the none-core businesses such as PCD, mostly SG&A of $10m/quarter, ipcdma $6m/quarter, Customs solutions business unit $10m/quarter). So, for you home gamers, you can start estimating numbers without those units :-)
I'll add my overall thoughts on the quarter/earnings call on the weekly recap tomorrow.
UTStarcom, Softbank, and Alibaba
Before I do the weekly recap and a more detailed look at the Q1 earnings/call, there was a WSJ article regarding Softbank and Alibaba that I just read that brings to light another reason why "tangible book value" is not a good measure of UTs "value". Interestingly, a fellow shareholder Tigre had a good discussion on tangible book value and a good discussion on the history between UTStarcom, Softbank, and Alibaba.
On Friday, Tigre notes that UTs book value remains close to $4.8 and that the "discount" has been erased and proceeds to outline the future catalysts in order for the shareprice to move higher.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152286&mid=152286&tof=23&frt=1
I've actually gotten quite a few comments on why Tigre would sell out at $4.4. I am surprised as well due to his knowledge in the company and belief that things are turning around. Add to that his current view now that the stock can hit $10 by the end of 2009. Selling trading shares when the stock has had a good run and you believe technically it might pullback or the markets might pull back is one thing but selling all your core holdings after almost 2 years is a bit surprising.
Anyway, on Thursday, May 15, 2008, there was news that Softbank will purchase a 65% stake in Alibaba Japan for around $20m. Here is a link to a previous post I devoted to UT investments and Tigre's very detailed summary of the history between Softbank, UT, and Alibaba.
http://www.paidcontent.org/entry/419-softbank-and-alibabacom-create-20-million-joint-venture-in-japan/
http://utstarcom-stocknews.blogspot.com/2008/01/ut-investments-and-roi.html
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=146053&mid=146053&tof=-1&rt=2&frt=2&off=1
A quick summary shows UTs investments in Softbank China could have been worth over $570m to over a billion!
UT has benefited from the Softbank relationship and investments in Softbank China, gemdale, and others but nowhere near what it could be. It is interesting to note that Tigre cited Barton as pushing for the sale of Softbank China. Its amazing in one respect how conservative Barton has been and yet the expenses have been maintained very high. Up to this day, I consider Barton a very likable person but in terms of performance have not been impressed. In terms of management situation, Lu has had difficulties managing the PAS decline the last few years and the international expansion but he is the founder so I give him a lot of respect for that. Also, the current situation with Blackmore taking over and Lu staying on as Chairman and maintaining client relationships is ideal.
From the Q4 earnings call regarding a question on future Japan contracts, Lu responded
Well, we are talking about many, many different projects with our customers predominantly in Japan is SoftBank and they have many different projects.
And if you are saying that it is a continuation with our first order, if there is any opportunity we are extremely pleased because they are very happy with our performance so far. And predominantly we are the only bidder, so not only bidder we are the only supplier in the past. So, and so I think if they have any order out there we are in a very good position.
Softbank and Japan will continue to be key markets for UT and that is another major potential market if it ramps up again. These kind of relationships are not reflected in tangible book value as Tigre himself knows so in effect paying tangible book value when the company is turning around and their core businesses at the very beginning of the cycle is a gift right now. When I invested back in 2004, it was for these reasons (market potential in emerging/mass markets and the companies unique technology/position as a US company/China manufacturing). For a few years, the $5 level provide a "low" for the shareprice. Market turmoil and perceptions of liquidity issues drove the stock to very low levels and have only started to recoup the losses. It is not even at the $5 level and the turnaround or opening up of markets are at very early stages. This is actually the time to be building positions and not selling.
I'll have a couple more posts regarding the Q1 earnings and the weekly recap but it should be no surprise to see the stock rebound signficantly when it is clear the company is back to operational growth and fine tuning the different business units/opportunities rather than dealing with quarterly financials, investigations, and debt.
One final note on the shareprice before I go for lunch. UT is a stock that the street will not give fluff valuation. It is simply hated for its previous performance, Its not going to go up on some questionable PR like a lot of other "China or solar plays". When you see long term shareholders selling out at $2.8 or $4.4, you know how pessimistic the attitude towards the stock is. While the stock won't go straight up, it should steadily move higher as the market reorients their thinking (whoever is left out there that is).
On Friday, Tigre notes that UTs book value remains close to $4.8 and that the "discount" has been erased and proceeds to outline the future catalysts in order for the shareprice to move higher.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152286&mid=152286&tof=23&frt=1
I've actually gotten quite a few comments on why Tigre would sell out at $4.4. I am surprised as well due to his knowledge in the company and belief that things are turning around. Add to that his current view now that the stock can hit $10 by the end of 2009. Selling trading shares when the stock has had a good run and you believe technically it might pullback or the markets might pull back is one thing but selling all your core holdings after almost 2 years is a bit surprising.
Anyway, on Thursday, May 15, 2008, there was news that Softbank will purchase a 65% stake in Alibaba Japan for around $20m. Here is a link to a previous post I devoted to UT investments and Tigre's very detailed summary of the history between Softbank, UT, and Alibaba.
http://www.paidcontent.org/entry/419-softbank-and-alibabacom-create-20-million-joint-venture-in-japan/
http://utstarcom-stocknews.blogspot.com/2008/01/ut-investments-and-roi.html
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=146053&mid=146053&tof=-1&rt=2&frt=2&off=1
A quick summary shows UTs investments in Softbank China could have been worth over $570m to over a billion!
UT has benefited from the Softbank relationship and investments in Softbank China, gemdale, and others but nowhere near what it could be. It is interesting to note that Tigre cited Barton as pushing for the sale of Softbank China. Its amazing in one respect how conservative Barton has been and yet the expenses have been maintained very high. Up to this day, I consider Barton a very likable person but in terms of performance have not been impressed. In terms of management situation, Lu has had difficulties managing the PAS decline the last few years and the international expansion but he is the founder so I give him a lot of respect for that. Also, the current situation with Blackmore taking over and Lu staying on as Chairman and maintaining client relationships is ideal.
From the Q4 earnings call regarding a question on future Japan contracts, Lu responded
Well, we are talking about many, many different projects with our customers predominantly in Japan is SoftBank and they have many different projects.
And if you are saying that it is a continuation with our first order, if there is any opportunity we are extremely pleased because they are very happy with our performance so far. And predominantly we are the only bidder, so not only bidder we are the only supplier in the past. So, and so I think if they have any order out there we are in a very good position.
Softbank and Japan will continue to be key markets for UT and that is another major potential market if it ramps up again. These kind of relationships are not reflected in tangible book value as Tigre himself knows so in effect paying tangible book value when the company is turning around and their core businesses at the very beginning of the cycle is a gift right now. When I invested back in 2004, it was for these reasons (market potential in emerging/mass markets and the companies unique technology/position as a US company/China manufacturing). For a few years, the $5 level provide a "low" for the shareprice. Market turmoil and perceptions of liquidity issues drove the stock to very low levels and have only started to recoup the losses. It is not even at the $5 level and the turnaround or opening up of markets are at very early stages. This is actually the time to be building positions and not selling.
I'll have a couple more posts regarding the Q1 earnings and the weekly recap but it should be no surprise to see the stock rebound signficantly when it is clear the company is back to operational growth and fine tuning the different business units/opportunities rather than dealing with quarterly financials, investigations, and debt.
One final note on the shareprice before I go for lunch. UT is a stock that the street will not give fluff valuation. It is simply hated for its previous performance, Its not going to go up on some questionable PR like a lot of other "China or solar plays". When you see long term shareholders selling out at $2.8 or $4.4, you know how pessimistic the attitude towards the stock is. While the stock won't go straight up, it should steadily move higher as the market reorients their thinking (whoever is left out there that is).
Thursday, May 15, 2008
Preliminary thoughts on the Earnings CC
I've been talking to a few shareholders and taking my notes from the earnings call but don't think I'll have time to do a full recap tonight so here are some initial thoughts.
One of the highlights of the call was Hong Lu's discussion on UTs role in the relief efforts in China. I was actually proud to be a UT shareholder because of the company's role in providing PAS equipment/24-hour tech support during this catastrophe.
The other highlight of the call for me was simply the consistent nature of the earnings call. There is "certainty" in the earnings call and an overall feeling that things are turning around. The management is also showing a lot of confidence that the turn around is working (they actually have a analyst meeting planned in June) but yet know there is a lot of work ahead. Here are some detailed items to be positive about:
1. Management reaffirmed 2008 cash flow (breakeven), GMs, revenues for each of the business units. Upside to guidance was discussed by one of the analysts but management would like to get through Q2 first before making any calls.
2. PCD is doing exceptional with a record 7.6% gross margins. The book to bill for PCD is also at 1.3 and overall margins of 6-6.5% should be met for the year.
3. Still in active discussions to divest none-core assets. Analysts did a good job in trying to get information from management about divestitures and Peter reiterated their focus is on the "core" businesses. There are also those external professional service expenses that may be due to all the "active discussions" :-)
4. Patents brought in $2m.
5. Second half expenses will be $110m or lower per quarter. Headcount reduced by 16% (up from initial 11%).
6. Hardly any iptv revenues were recognized, setting the stage for the 2nd half of the year.
7. IPTV at 850k (100k or 13% increase sequentially). Margins are healthy. China subs increased to 583k
8. Strategic contract with SARAFT.
9. PAS, packet data doing well. There was even a 50k handset order from Beijing for the olympics and packet data being implemented in Beijing (100k+ users).
10. Book to bill of 1.2.
The one major negative is Q2 will still be "bad" as expected but Q3 & Q4 will definitely be closer to breakeven as OPEX significantly goes down.
I don't have a crystal ball for tomorrow and its close to the $5 max pain on options expirations day so thats probably where it will settle in. I do believe the stock should continue to trend up for the rest of the year as the company continues its progress. Have a good Friday to everyone.
One of the highlights of the call was Hong Lu's discussion on UTs role in the relief efforts in China. I was actually proud to be a UT shareholder because of the company's role in providing PAS equipment/24-hour tech support during this catastrophe.
The other highlight of the call for me was simply the consistent nature of the earnings call. There is "certainty" in the earnings call and an overall feeling that things are turning around. The management is also showing a lot of confidence that the turn around is working (they actually have a analyst meeting planned in June) but yet know there is a lot of work ahead. Here are some detailed items to be positive about:
1. Management reaffirmed 2008 cash flow (breakeven), GMs, revenues for each of the business units. Upside to guidance was discussed by one of the analysts but management would like to get through Q2 first before making any calls.
2. PCD is doing exceptional with a record 7.6% gross margins. The book to bill for PCD is also at 1.3 and overall margins of 6-6.5% should be met for the year.
3. Still in active discussions to divest none-core assets. Analysts did a good job in trying to get information from management about divestitures and Peter reiterated their focus is on the "core" businesses. There are also those external professional service expenses that may be due to all the "active discussions" :-)
4. Patents brought in $2m.
5. Second half expenses will be $110m or lower per quarter. Headcount reduced by 16% (up from initial 11%).
6. Hardly any iptv revenues were recognized, setting the stage for the 2nd half of the year.
7. IPTV at 850k (100k or 13% increase sequentially). Margins are healthy. China subs increased to 583k
8. Strategic contract with SARAFT.
9. PAS, packet data doing well. There was even a 50k handset order from Beijing for the olympics and packet data being implemented in Beijing (100k+ users).
10. Book to bill of 1.2.
The one major negative is Q2 will still be "bad" as expected but Q3 & Q4 will definitely be closer to breakeven as OPEX significantly goes down.
I don't have a crystal ball for tomorrow and its close to the $5 max pain on options expirations day so thats probably where it will settle in. I do believe the stock should continue to trend up for the rest of the year as the company continues its progress. Have a good Friday to everyone.
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