I listened to the 3-hour recording last night and re-listened to the Q&A portion again this morning so that I can properly evaluate all the information provided (and there was a lot). Rather than repeating every single piece of information, I'll discuss some topics and provide more commentary than usual.
Management/BOD - The analyst day was well attended with independent directors T. Toy, J. Clark, and B. Ryan attending. Company executives including P. Blackmore, F. Barton, H. Lu, B. Caskey, and D. King gave presentations. A "panel" of China executives were asked questions to further give insight into the company and its technology. Towards the end, Peter Blackmore commented about the strength of the management team. As a shareholder that has been following the company for the last four years, I can only say that the management team/BOD has ranged from poor to borderline criminal. Thats really the only conclusion I can make since the stock has plummeted from the $40s to $2, the numerous whiplash in strategic directions, the lack of communication/financials and the SEC/DOJ investigations and personal fines some of the executives have had to pay. While Barton discussed improvements from 2007 to 2008, I was wondering to myself would any new investors or the street support a company losing $75m that still cannot get the cost base right after more than 3 years in the RED. I was actually embarassed from owning shares in the company with such horrible numbers. I was wondering what the BOD and management were thinking when seeing those numbers. I understand why they did show the numbers and I own the shares for the valuation but just seemed very weird trying to impress "new faces" with the performance and issues going forward. Maybe the new faces where shorts or maybe people were there for the free lunch :-)
Peter Blackmore as CEO - Since he started, Peter has expressed his enthusiasm for the company's technology, their target markets, their R&D/manufacturing base and all the positives investors like myself bought into the company 4 years ago. The difference is that Peter came in basically when the stock was in a free fall and during his tenure was mostly under $3. I have on ocassion said that a cave man should be able to enhance shareholder value. Having said that, I have liked Peter since meeting him in the shareholder meeting last November and through all the subsequent conference calls, he has managed to explain their strategy and focus. What I heard yesterday though was still little progress to get to core profitability.
Major questions - Listening to the presentation, I started questioning whether (even NOW) the company has a plan to make money or can make money in the future. Its fascinating to hear the "talented" executives and the great technology (Passive Transport Network) that is atleast 1 year ahead of the competition and how great the payback rate for the carriers. However, at the end of the day, can the company receive more money than it spends? During my discussion with Hamed Khorsand (BWS Financial), he mentioned one of the major problems of UTStarcom is that carriers simply want multi-vendor suppliers. UT has had a history of great technology but difficulty in breaking in with Tier 1 carriers for their suite of products. As I posted previously, a lot of technology was devloped 5-10 years ago (look at technology supplied to Softbank). The company continues to spend for a wide variety of technology that may or may not gain traction. Obviously, as a tech company, they have to roll the dice on some of these but they have done a poor job in converting these to revenue. The type of carriers they tend to win now are 2nd tier carriers who are "taking a chance" with their technology. Most of the sucesses/wins they showed were in 2007-2008. When talking about their iptv end-to-end system, they noted they had to developed the entire platform because no one had it then. While the engineers/R&D may be first rate, it doesn't do shareholders a lot when management/BOD cannot control the budget and forecast properly. Being an engineer (Ph.D in geomechanics), I can only imagine how incredible the technology is so when Barton "models" the budget with or without PCD, it makes me cringe whether he can even get that right. Anyway, being a technology company and investing in one is difficult but is even more difficult when management has done a poor job.
China Telecom Consolidation - I appreciated Hong Lu discussing this and giving his opinion. Lu mentioned that this has been a long, long time coming, is very complex, and chaotic. He mentioned China executives meeting every day because of the complexity and that there may be remorse from China Netcom for overpaying for China Unicom assets. Lu mentioned that there is a monopoly in fixed line (which the company is strong in) but that cable providers may get in the future. It would be costly for China Netcom/Unicom to convert PAS subscribers to CDMA subscribers. There are currently 84m PAS live subscribers compared to less than 30m CDMA subscribers. He anticipates losing 1/3 of PAS subscribers over time but operators will try to maintain the rest. There are current advantages to PAS on the data side and that China Unicom would probably use existing PAS base stations to promote data investments. The China Unicom side is more aggressive than the China Netcom side.
IPTV - This is the main core focus for the company going forward. Lu discussed that in Japan, it was hurt by regulations preventing iptv broadcast of terrestrial TV. If allowed, iptv would take off in Japan. In China, only 10 cities currently have iptv in some regulated form. In Shanghai alone, iptv is expanding by 40k/month or 500k/year. While it is now building, the explosion has not started yet. One executive commented that most people over estimate technology adoption in the next 2 years and under estimate the 10-year adoption. Just like NGN, iptv will have critical mass due to limited revenue generating capabilities on the less interacitve/less robust offerings. This is really the big hope for UTStarcom investors, that the significant revenue increase will come sooner rather than later (when other technology or other issues may overcome their advantage).
IPTV, NGN, Broadband - Brian Caskey defended the companies main core businesses. Capex growth from 2008-2012 for each is expected to be $16B, 17B, and 43B (or 19, 24, and 17%) respectively. The real question is how much can UT capture and what should they spend to get those revenues.
UT Business Units, financial models, and "targets" - Barton discussed financial numbers with and without PCD. Early projections for PCD was for a 4.5% revenue increase for 2008. Now, its up to almost 10%, from $1.664b in 2007 to initial 2008 estimate of $1.739b to now $1.825b. Margin is expected to be 6.9% and OPEX to be $40m. That is an operating profit of $86m. That alone probably makes up a significant reason for the stock run-up. The flip side is that the other core businesses are still nowhere close to management's stated target metrics. For the first time, we received information on the company's "core" business including $280m of UT products sold to the PCD. Early this year, initial guidance for core business (without PCD) was about $838m. Now, it is ($1.035b-$280m+$33m) about $790m. The first number is the stated 2008 "target" in the presentation for core revs, the $280m is the internally designed handsets, the $33m is an estimate of the MSBU. This may be totally off but it seems like some core revenue was delayed or pushed back to 2009. There was little core in the Q1 results so the rest of 2008 should still be ok. The larger picture is can the company make money without the PCD. There was a question on what the breakeven revenue if PCD was sold. By the end of the year, OPEX will be around $105m/quarter. Lets annualize this for 2009 so its $420m. If we take out $40m for PCD, then its $380m. Assuming an additional $5m in cost improvements/quarter in 2009, then you get down to $360m.
For $360m capex, you will need $1.33b and $1.2b for 27 and 30% GMs
For $380m capex, you will need $1.41b and $1.267b for 27 and 30% GMs
For $400m (including tax/stock comp), you will need $1.48b and $1.33b for 27 and 30% GMs.
Currently, they have only $1.035b in revenues w/out PCD (which include the $280m in internally designed handsets) with a overall GM of 27.2%.
Candidly, Peter Blackmore mentioned needing to improve sales by "several hundred million" and Barton hoping to target 5 to 10% GM more than OPEX so about 30 to 35%. But those could be 2+ years from now.
Revenues w/out PCD for 2008 will drop by 4% due to 16% drop in PAS and sale of none-core assets.
Revenues without PAS & PCD is projected to go up 10% this year and core infra bookings will go up 50% from 2007 to 2008. Barton cautioned that some of the bookings will be over a few years.
There is definitely a roadmap to satisfying the metrics Blackmore set up for SG&A and R&D but its hard to see it being achieved in 2009. Of course, those are without PCD, which this year alone is set to have $86m in operating profits.
There is probably some stuff I missed but the company is out of the woods (which the stock price has reflected) but nowhere near where longtime investors can be happy about. There is still significant value to unlock (see PCD) but operationally, not surprised that analysts are not upgrading or getting too excited about the company. The company has just finished changing/improving/or close to setting up their systems for ERP, CRM, BID and others. Blackmore is still pushing for improvements in the supply chain (need more scale and better forecasting for infra side; handset side has been outsourced).
Blackmore does seem to understand the bottom line although he is understandably enthused by the company's (and his own) situation (as I said, his timing is better than most investors :-). In terms of the shareprice, I have been pounding the table under $3 but not so much above $5 (obviously). The company needs to show more progress in divestitures, expense control, and revenue recognition before the next leg up. My end of the year targets still stand because I believe they can beat estimates and divestitures will be finalized by the end of the year (as Blackmore mentioned). I am in for the value but not necessarily the management/BOD. Credibility has to be earned and the good communication is a good start but operational performance is really the key. Asset/investment sales are "easy" ways to unlock value but to regain the lost shareholder wealth will take markets opening up and continued/sustained discipline and execution.
Saturday, June 14, 2008
Monday, June 9, 2008
Sale of Mobile Solutions Business Unit (MSBU)
The company divested its MSBU to private equity firm OpenGate Capital for an undisclosed amount. http://biz.yahoo.com/prnews/080609/aqm115.html?.v=45
The MSBU had been lumped with the Customs Solutions Business Unit (CSBU) into the "others" category and designated as none-core by the company. Here are some background information that I had written on previous postings.
Customs Solutions Business Unit (CSBU) - Mostly includes technogy acquired from 3coms Commworks unit. This includes IP-based messaging and transaction products. Revenue is expected to double to $40m with GMs above 50%. This unit is also expected to be profitable in 2008. Blackmore mentioned some of the "none-core" assets are becoming very attractive and this along with the PCD definitely fits the bill. What is this business unit worth alone? The company paid $100m to 3com a few years ago and has finally gotten this to profitability this year and growing very fast. This alone could be worth close to $80m-$100m if sold (based on 2-2.5x revenue for this type of business - check Starent/Infinera for valuations).
Mobile Solutions Business Unit (MSBU) - This includes the moving media 9000 and supports IPCDMA, GSM solutions. Growth is in the 30% and gross margins in the 40s in 2008. UTs wimax gear is formally the Moving Media 9000 and its part of the Mobile Solutions Business Unit (MSBU).
Revenue for MSBU - On the Q4 call, Barton gave preliminary 2008 guidance breaking down CSBU to have about $40m in revenue. However, Barton forgot to give guidance for the MSBU. Thats why there was a discrepancy on the individual business units revenue (at the midrange of each business units, it added to 2.544 B) versus the 2.577 B overall revenue (at 4.5% revenue growth, mid range of 3-6% over 2007 revenue). The "others" had $42m in revenue for 2007. If CSBU had $20m, then MSBU had $22m. At 30% growth, MSBU would have about 30m in revenue for 2008 (which would also account for the discrepancy between adding the individual business units estimate and the overall estimates for 2008).
Commentary - The MSBU was not expected to be profitable compared to the CSBU but as management mentioned, it would be good to be able to divest this without shutting it down (to maintain support for customers who buy other UT products). It is disappointing that they could not get more traction with wimax but it does show management's committment to focusing on their best/most profitable opportunities.
"UTStarcom will retain the PDSN operations and will work with Star Solutions as an OEM provider" I am not sure how much the opex will go down (Barton did mentioned $6m/quarter) but because it was not profitable, it should help the drive to overall profitability.
The MSBU had been lumped with the Customs Solutions Business Unit (CSBU) into the "others" category and designated as none-core by the company. Here are some background information that I had written on previous postings.
Customs Solutions Business Unit (CSBU) - Mostly includes technogy acquired from 3coms Commworks unit. This includes IP-based messaging and transaction products. Revenue is expected to double to $40m with GMs above 50%. This unit is also expected to be profitable in 2008. Blackmore mentioned some of the "none-core" assets are becoming very attractive and this along with the PCD definitely fits the bill. What is this business unit worth alone? The company paid $100m to 3com a few years ago and has finally gotten this to profitability this year and growing very fast. This alone could be worth close to $80m-$100m if sold (based on 2-2.5x revenue for this type of business - check Starent/Infinera for valuations).
Mobile Solutions Business Unit (MSBU) - This includes the moving media 9000 and supports IPCDMA, GSM solutions. Growth is in the 30% and gross margins in the 40s in 2008. UTs wimax gear is formally the Moving Media 9000 and its part of the Mobile Solutions Business Unit (MSBU).
Revenue for MSBU - On the Q4 call, Barton gave preliminary 2008 guidance breaking down CSBU to have about $40m in revenue. However, Barton forgot to give guidance for the MSBU. Thats why there was a discrepancy on the individual business units revenue (at the midrange of each business units, it added to 2.544 B) versus the 2.577 B overall revenue (at 4.5% revenue growth, mid range of 3-6% over 2007 revenue). The "others" had $42m in revenue for 2007. If CSBU had $20m, then MSBU had $22m. At 30% growth, MSBU would have about 30m in revenue for 2008 (which would also account for the discrepancy between adding the individual business units estimate and the overall estimates for 2008).
Commentary - The MSBU was not expected to be profitable compared to the CSBU but as management mentioned, it would be good to be able to divest this without shutting it down (to maintain support for customers who buy other UT products). It is disappointing that they could not get more traction with wimax but it does show management's committment to focusing on their best/most profitable opportunities.
"UTStarcom will retain the PDSN operations and will work with Star Solutions as an OEM provider" I am not sure how much the opex will go down (Barton did mentioned $6m/quarter) but because it was not profitable, it should help the drive to overall profitability.
Saturday, June 7, 2008
Weekly recap - nearing 52 wk high
The stock continued its rise this week despite the downturn in overall markets. UT stock closed at $5.53, up 0.73 cents or 15% on above average volume. The stock has now doubled year to date and up 148% from the all-time low of $2.23 set on March 17, 2007. On my last post, I listed down possible reasons for the rise. Aside from the analyst meeting next week, there were no other direct PRs from the company. Some of the related news that I read over the week were the following:
PAS roaming - Techbroker posted a link on CT planning PAS roaming throughout the country. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152715&mid=152715&tof=34&frt=1 PAS roaming has been discussed for years and there were already some unofficial usage previously but now that the telecom consolidation has been set, PAS roaming could become more "official" and help promote and extend PAS revenue streams.
Icahn names price for Yahoo/Microsoft merger - Its amazing that Icahn can become so frustrated after buying his yahoo stake for $25 with the sole purpose of scalping a quick $9/share. If I was a yahoo shareholder, I would side with Icahn only because I think yahoo would be hard pressed to get to $35 on their own in the next few years. The thought of communicating with an Icahn (or someone else) regarding UTStarcom entered the minds of a lot of frustrated UT investors early this year but it was simply not the right time even when the stock was in the $2s.
Proxy statement - I've talked to some shareholders and my recommendation would be to withold votes for the two directors but agree to the employee option repricing.
Verizon's purchase of Alltel - UT supplies handsets to both companies. Verizon Wireless has 67.2 million subscribers and the combined company would have 80.4 million subscribers. From UTs website, UT supplies only 1 phone to Alltel but up to 16 to Verizon Wireless (not to mention the data cards/smart phones). Overall, this should be a positive to UTs personal communications division and could be another reason the stock went up this week.
I'll end the weekly posting by commenting on the stock price again. The stock has recently gone up seven straight days and people are wary of chasing the stock and are looking for resistance points. The fact of the matter is the upcoming quarters are going to be really good ones for the company and valuation is very reasonable even with the run-up. The quick earnings projections I have done a few posts ago show that estimates are very conservative and positive "surprises" are inevitable. Diverstitures, analyst and shareholder meetings are coming soon as well so any "pullback" should be relatively swift. On top of all the positive factors from the last post, you have the shares underowned and most of the main stream investment community will wait for a few quarters of confirmation. In short, its a good environment to be long the stock. In a few days, the 52 wk high will be under $6 and UT may indeed be at the 52 wk high. In this market, that would be an incredible achievement specially when the company is still working through a bunch of issues and not yet profitable.
Have a good rest of the weekend to everyone. Looking forward to the analyst meeting next week and possibly a 52 wk high.
PAS roaming - Techbroker posted a link on CT planning PAS roaming throughout the country. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=152715&mid=152715&tof=34&frt=1 PAS roaming has been discussed for years and there were already some unofficial usage previously but now that the telecom consolidation has been set, PAS roaming could become more "official" and help promote and extend PAS revenue streams.
Icahn names price for Yahoo/Microsoft merger - Its amazing that Icahn can become so frustrated after buying his yahoo stake for $25 with the sole purpose of scalping a quick $9/share. If I was a yahoo shareholder, I would side with Icahn only because I think yahoo would be hard pressed to get to $35 on their own in the next few years. The thought of communicating with an Icahn (or someone else) regarding UTStarcom entered the minds of a lot of frustrated UT investors early this year but it was simply not the right time even when the stock was in the $2s.
Proxy statement - I've talked to some shareholders and my recommendation would be to withold votes for the two directors but agree to the employee option repricing.
Verizon's purchase of Alltel - UT supplies handsets to both companies. Verizon Wireless has 67.2 million subscribers and the combined company would have 80.4 million subscribers. From UTs website, UT supplies only 1 phone to Alltel but up to 16 to Verizon Wireless (not to mention the data cards/smart phones). Overall, this should be a positive to UTs personal communications division and could be another reason the stock went up this week.
I'll end the weekly posting by commenting on the stock price again. The stock has recently gone up seven straight days and people are wary of chasing the stock and are looking for resistance points. The fact of the matter is the upcoming quarters are going to be really good ones for the company and valuation is very reasonable even with the run-up. The quick earnings projections I have done a few posts ago show that estimates are very conservative and positive "surprises" are inevitable. Diverstitures, analyst and shareholder meetings are coming soon as well so any "pullback" should be relatively swift. On top of all the positive factors from the last post, you have the shares underowned and most of the main stream investment community will wait for a few quarters of confirmation. In short, its a good environment to be long the stock. In a few days, the 52 wk high will be under $6 and UT may indeed be at the 52 wk high. In this market, that would be an incredible achievement specially when the company is still working through a bunch of issues and not yet profitable.
Have a good rest of the weekend to everyone. Looking forward to the analyst meeting next week and possibly a 52 wk high.
Friday, June 6, 2008
Unstoppable
Thats one description for the stock the last 3 months. The day to day rise without gaps on both up and down days with increasing volume can only mean one thing.....Invasion! (Star Wars link there :-) I am not surprised that the stock is going up (after all, I've maintained a blog, formed a shareholder group, met with management, and even tried to go for a board seat). However I, just like other traders looking for an overall market pullback, thought UT would atleast pull back. It hasn't happened and now the price action suggests a major move upwards in the next few weeks. Lets list down some of the possible "reasons" for this move up (aside from there are more buyers than sellers):
1. Analyst meeting - UT has had so many negative things happen to it that having an analyst meeting at this juncture shows they have a very positive story to tell. This is not new to most shareholders and management had already indicated they would do so during the March 17 meeting (it is still amazingly coincidental that the meeting occurred during the market meltdown and UT hitting an all-time low of $2.23).
2. None-core divestitures - This has also long been expected and the increased external expenses (last quarter and this quarter), multiple statements of active discussions since November 2007 hint at divestitures coming very soon.
3. PAS revival - The recent positive PAS performance during the earthquake and hints of demand from their packet data (in Beijing and working on Shanghai), and renewed roaming suggests PAS decline is managable. The possibility of economic slowdown even in China may benefit PAS as 3G phones/base stations won't be cost effective in some locations.
4. Institutional purchases - It is possible that the stock is responding to shedding its penny stock label by busting through the $5 level. UT offers exposure to the iptv market, growing economies outside the US and Western Europe, and a recovering telecom sector where investments are needed to increase worker productivity. While the energy sector could be in a bubble, there is no doubt investments in broadband in India (for ex.) are very much needed and growing at a very fast sustainable clip.
5. Diversification - It has taken a long time for UT to diversify away from China and PAS and this was definitely NOT a smooth transformation but the company is actually growing their core revenues and PCD (which is not even core) has led the initial rebound.
6. Future IPTV revenue potential - Contract wins are increasing with the openning of the iptv market worldwide and UT is a significant player. The last quarter shows that most of the revenue has not even been booked!
7. Low price, low expectations, and high probability of good news - The stock is just now climbing up to All-time support low ($5.19) so its just 30 cents above. Expectations are still very low and my calculations and previous quarter performance show the company is now very conservative which allows a lot of room for positive "surprises".
8. Good balance sheet - I would have liked for them to have gotten more from Infinera/Gemdale, not spend all the added interest expenses, and even the massive amounts on the filings, investigations, internal controls but that is all completed. The company has a nice cash horde and in this environment, very comforting for shareholders not having to worry about dilutions or liquidity issues. So, the company went from the brink (perception anyway) to having a very good balance sheet.
9. Management has stocked up - I don't want to think negatively but I have to. Shareholders have taken the brunt of the sacrifice over the years and most have sold out for massive losses. Management gets more important during the turnaround and receive higher compensation and MORE options (because of the lower prices). Now that all the bonuses, and other compensation have been worked out (and even employees get to reprice their options), in some perverse way, you get the feeling we are now all on the same "boat".
10. Shorts - Facing massive losses month after month with all the above items facing them, shorts are fueling some of the move up.
There are probably others (TA, momentum, etc) but I just wanted to list some items. If I and other shareholders are correct, this is still the start of a very beautiful friendship (I think I mentioned that at $3, o well the stock was moving $2-3 a few years ago).
1. Analyst meeting - UT has had so many negative things happen to it that having an analyst meeting at this juncture shows they have a very positive story to tell. This is not new to most shareholders and management had already indicated they would do so during the March 17 meeting (it is still amazingly coincidental that the meeting occurred during the market meltdown and UT hitting an all-time low of $2.23).
2. None-core divestitures - This has also long been expected and the increased external expenses (last quarter and this quarter), multiple statements of active discussions since November 2007 hint at divestitures coming very soon.
3. PAS revival - The recent positive PAS performance during the earthquake and hints of demand from their packet data (in Beijing and working on Shanghai), and renewed roaming suggests PAS decline is managable. The possibility of economic slowdown even in China may benefit PAS as 3G phones/base stations won't be cost effective in some locations.
4. Institutional purchases - It is possible that the stock is responding to shedding its penny stock label by busting through the $5 level. UT offers exposure to the iptv market, growing economies outside the US and Western Europe, and a recovering telecom sector where investments are needed to increase worker productivity. While the energy sector could be in a bubble, there is no doubt investments in broadband in India (for ex.) are very much needed and growing at a very fast sustainable clip.
5. Diversification - It has taken a long time for UT to diversify away from China and PAS and this was definitely NOT a smooth transformation but the company is actually growing their core revenues and PCD (which is not even core) has led the initial rebound.
6. Future IPTV revenue potential - Contract wins are increasing with the openning of the iptv market worldwide and UT is a significant player. The last quarter shows that most of the revenue has not even been booked!
7. Low price, low expectations, and high probability of good news - The stock is just now climbing up to All-time support low ($5.19) so its just 30 cents above. Expectations are still very low and my calculations and previous quarter performance show the company is now very conservative which allows a lot of room for positive "surprises".
8. Good balance sheet - I would have liked for them to have gotten more from Infinera/Gemdale, not spend all the added interest expenses, and even the massive amounts on the filings, investigations, internal controls but that is all completed. The company has a nice cash horde and in this environment, very comforting for shareholders not having to worry about dilutions or liquidity issues. So, the company went from the brink (perception anyway) to having a very good balance sheet.
9. Management has stocked up - I don't want to think negatively but I have to. Shareholders have taken the brunt of the sacrifice over the years and most have sold out for massive losses. Management gets more important during the turnaround and receive higher compensation and MORE options (because of the lower prices). Now that all the bonuses, and other compensation have been worked out (and even employees get to reprice their options), in some perverse way, you get the feeling we are now all on the same "boat".
10. Shorts - Facing massive losses month after month with all the above items facing them, shorts are fueling some of the move up.
There are probably others (TA, momentum, etc) but I just wanted to list some items. If I and other shareholders are correct, this is still the start of a very beautiful friendship (I think I mentioned that at $3, o well the stock was moving $2-3 a few years ago).
Saturday, May 31, 2008
Weekly recap - May Closing
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).
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).
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.
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