I normally wait until the weekend to post but there were a lot of discussion points today from the market being down 5%, Nortel down 50%, short selling rules, conversations with shareholders, and UT down another 11.3%. Under this backdrop, I will give highlights on my conversations with shareholders and the Nortel shortfall.
Discussions with shareholders - I talked to 4 institutional shareholders today, with one giving me a recap with his discussions with Peter Blackmore yesterday. I had received an email reply from Barry Hutton discussing the company's stance on a buyback and he mentioned most shareholders are against it at this time (huh?). The institutions I talked with had shares from 500k, 700k+, 3.7m+, and over 15m+ (foreign investor that owns a few million and in touch with others). All have supported a share buyback and still do. I had heard from another shareholder that one institution that has around 4m that was in favor of a share buyback may be hesitant now due to the global financial instability (although they were in favor of it very recently-maybe they were talked out of it). In any case, this is in addition to the retail shareholders that probably number 15-17m that I believe support a share buyback as well. I feel like a politician doing a poll but I do want to see what shareholders think of a share buyback. I want to reiterate I am not for doing a buyback of such a size that would jeopardize the long term plans for the business but as tangible confidence boosting action that would be a good return for their "excess" cash.
Based on the presentation slides on the company's presentation in New York last week, the company will end the year with $324m in net cash after seeding an Indian contract and further losses in Q3/Q4. Amazingly, this is more than the current market cap as of closing today. The question becomes how much will the company spend again in 2009 in order to facilitate the growth they are targetting and accomodate their current cost structure (no further major restructuring or head count reduction is plan based on the presentation).
The company's credibility in projections have been terrible but here is my stab in the dark. $1.1b in revenue, 27% gross margins, and $380m in expenses. The higher revenue from this year is based on the "high" revenue target for 2009 in the slide. +2% gross margin is based on better mix of revenues from the core business (less from handsets), and expense based on $95m/quarter as legacy costs and more efficiencies are rung out. It should be $95m by Q4 already but the slides had it at $100m. Anyway, those numbers above still would result in $80m in losses. There are other items that could hurt cash flow such as taxes/options that will/can be offset by interest income, Yuan appreciation, proceeds from a CSBU sale, further outsourcing of handset business, lease of building, patent proceeds, etc.
Lets add $20m more in cash flow losses for contingencies for a total cash loss of $100m in 2009. I will not reduce this by $60m that was used for the India contract (assuming they carry this over quarter to quarter). The company will then end 2009 with net $224m with these assumptions. There is no more convertible bond, or options/China investigations, etc to worry about. Because of this, I think it is reasonable for the company to do a buyback. One institutional holder mentioned a buyback of up to $50m, spread over 6 to 12 months. In any case, I believe there is a lot of support for the buyback and shareholders should continue to bring this up with management. Shareholders discussed a lot of issues today such as India iptv subscribers, China iptv market share, naked short selling but as T. Boone Pickens mentiions, that misses the point. I say buyback, buyback, buyback!!! (ok wanted to say something like that since I keep seeing those commercials :-).
Discussion with Peter Blackmore - From the briefing I had, here were some highlights.
Impact of world economy slowdown - Aside from the shortfall in 2008, there is no other pushouts or further weakness seen. This may change and the company has yet to finalize 2009 guidance but the markets/tech areas they are targetting must be ok for Peter to be confident. Again, its "guidance" and take management's word at your risk but it was a good question to ask in light of the Nortel shortfall and the worldwide slowdown.
Insider buys/Share buybacks - Ongoing discussions and nothing until Q3 earnings call at the earliest. The word I am getting is Peter wants to buy some shares but prevented from doing so due to his tax sale earlier. Again, hearsay...and nothing tangible.
There were numerous other topics such as Japan, Fran Barton's compensation, CFO replacements as well as D.King's replacement, etc and nothing surprising. In general, people feel good after talking with Peter. Credibility over the last few years have been bad and it seems Peter realizes this shortfall was brutal.
Nortel - Read the announcement for Nortel and its a nightmare for their shareholders. They are planning restructuring, their CDMA business has not bottomed, their future 4G business will be divested, they need to raise cash, they borrowed at over 11% previously, they need to overhaul company expenses/decide with are core/none-core. Basically, UT in this light, is way ahead!
I'll end this post by saying shareholders have to stay united and not stand for poor stock/company performance. I want to reiterate again and again that we cannot stand for performance like what we went through under Fran Barton's tenure (Lu was the CEO but I'll use that period for benchmark). As I replied to Peter, he needs to reverse the following:
1. No profitable quarters.
2. Numerous failed guidance for profitability
3. Declining share price
4. Increased compensation
5. Little or no credibility
I will continue to discuss issues with retail/institutional holders such as candidates for the board of directors, faith of current directors and their performance over the years (from the collapse of the shareprice, failed strategic study, and the latest being F. Barton's tenure/compensation). If there are shareholders (retail/institution) that have ideas or just want to join the "group", email them to me at tim_94305@yahoo.com.
Have a good night everyone.
Wednesday, September 17, 2008
Saturday, September 13, 2008
Weekly recap - Under $3
The stock closed at $2.87, down 26 cents or 8.3%. Early in the week, the markets were focused mainly on the government bailout of Fannie Mae and Freddie Mac. Late in the week, the markets shifted the attention to Lehman, Washington Mutual, and Merrill Lynch. The markets did manage to close the week slightly up.
Brasil Telecom contract - "Brasil Telecom, one of Brazil's leading wireless and fixed-line communications providers and incumbent telecom operators, will utilize UTStarcom's mSwitch solution to enable fixed-line connectivity with GSM platforms for call continuity between the two networks using a single wireless device. The FMC solution enables Brasil Telecom to extend its current cellular coverage area indoors using the new Voice Continuity Call (VCC) handover between cellular and WiFi networks." http://biz.yahoo.com/prnews/080910/aqw060.html?.v=65 This seems like a huge technological win with a major carrier that UT has been working on for years. It would have been nice to know the contract amount and what the market potentials are. It does show UT continues to be at the leading edge technologically and the strategic wins continue.
India IPTV market - Shareholders Tigre and Shadow discussed the iptv developments in India. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=155429&mid=155429&tof=29&frt=1 The size of the iptv market in India was projected to be 2 to 3m in 5 years. On the recent presentation slide, UT noted that Aksh alone was targetting 1m in 3 years.
Short interest - The short interest went down by about 1m from 23.6m to 22.6m at the end of August. Average daily volume is down to 832k shares, with the days to cover increasing to 27 days (highest in a year, maybe ever).
September road show presentation - Shareholder Shadow provided a link to the presentation and discussed some of the highlights. http://files.shareholder.com/downloads/UTSI/233497028x0x233340/69022b6e-0c64-4805-9b54-d795276263f1/InvestorPresentation_September%202008.pdf
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=155452&mid=155483&tof=4&rt=2&frt=1&off=1
Stock price - The stock has pulled back for 9 straight weeks bringing down the market cap to about $360m, which is around the cash position for the company. I wrote an email to Peter Blackmore and copied the shareholders in the group. It basically outlines more frustration from shareholders and questions the role of the CEO. While the company has resolved previous legacy issues, improved liquidity and won some strategic contracts, shareholders are still faced with all-time low share prices. Management continues to have major credibility issues with failed profitability forecasts year after year. The frustration is even larger when you consider the disproportionate share of the sacrifice shareholders bear. Management continues to get outsized compensation/bonuses (are there any salary cuts or no bonuses?), employees get to reprice their options, executives get more shares and performance is not every tied to the share price or basic profitability.
On the recent presentation slides, shareholders hear the improved performance, financial positions, and guidance for the future. That is all great but year after year, there are more excuses for the missed guidance. The "recent" tenure of Fran Barton showed the company's poor operational performance, outsize compensation, board's failed decision making abilities, and the waste of resources and destruction of shareholder wealth. Unbelievably, the company will have its highest net cash position (around $324m at the end of the year) even after seeding a future contract $60m and burning more cash through the end of the year. All of this with the stock at all time lows. I am by no means a financial guru (I did invest in this company after all) and do not know all the interal forecasts and company operation. However, I believe a stock buyback or other tangible direct actions by the company should be done at this stage (aside from just more guidance). Management/board compensation reduction etc should be implemented. Management relies on consultants and has had plenty of discussions with the board. Could a share buyback or compensation reduction be any worse than years and years of failed strategy/execution that has landed shareholders at this state. I could go on and on but I'll end it here for now. Rather than pour over the recent presentation slides or hope for good "guidance", I believe investors should switch their thinking to planning for significant management scrutiny and board accountability. Final thought on the strength and experience of the management team. Are you kidding me? I have PhD from Stanford but if I don't produce or show results, what good is that?
This recent missed estimates, stock crash, and lack of management intervention can be summed up in one shareholder's (Flipocrat) word: Disgraceful.
Have a good weekend.
Brasil Telecom contract - "Brasil Telecom, one of Brazil's leading wireless and fixed-line communications providers and incumbent telecom operators, will utilize UTStarcom's mSwitch solution to enable fixed-line connectivity with GSM platforms for call continuity between the two networks using a single wireless device. The FMC solution enables Brasil Telecom to extend its current cellular coverage area indoors using the new Voice Continuity Call (VCC) handover between cellular and WiFi networks." http://biz.yahoo.com/prnews/080910/aqw060.html?.v=65 This seems like a huge technological win with a major carrier that UT has been working on for years. It would have been nice to know the contract amount and what the market potentials are. It does show UT continues to be at the leading edge technologically and the strategic wins continue.
India IPTV market - Shareholders Tigre and Shadow discussed the iptv developments in India. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=155429&mid=155429&tof=29&frt=1 The size of the iptv market in India was projected to be 2 to 3m in 5 years. On the recent presentation slide, UT noted that Aksh alone was targetting 1m in 3 years.
Short interest - The short interest went down by about 1m from 23.6m to 22.6m at the end of August. Average daily volume is down to 832k shares, with the days to cover increasing to 27 days (highest in a year, maybe ever).
September road show presentation - Shareholder Shadow provided a link to the presentation and discussed some of the highlights. http://files.shareholder.com/downloads/UTSI/233497028x0x233340/69022b6e-0c64-4805-9b54-d795276263f1/InvestorPresentation_September%202008.pdf
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=155452&mid=155483&tof=4&rt=2&frt=1&off=1
Stock price - The stock has pulled back for 9 straight weeks bringing down the market cap to about $360m, which is around the cash position for the company. I wrote an email to Peter Blackmore and copied the shareholders in the group. It basically outlines more frustration from shareholders and questions the role of the CEO. While the company has resolved previous legacy issues, improved liquidity and won some strategic contracts, shareholders are still faced with all-time low share prices. Management continues to have major credibility issues with failed profitability forecasts year after year. The frustration is even larger when you consider the disproportionate share of the sacrifice shareholders bear. Management continues to get outsized compensation/bonuses (are there any salary cuts or no bonuses?), employees get to reprice their options, executives get more shares and performance is not every tied to the share price or basic profitability.
On the recent presentation slides, shareholders hear the improved performance, financial positions, and guidance for the future. That is all great but year after year, there are more excuses for the missed guidance. The "recent" tenure of Fran Barton showed the company's poor operational performance, outsize compensation, board's failed decision making abilities, and the waste of resources and destruction of shareholder wealth. Unbelievably, the company will have its highest net cash position (around $324m at the end of the year) even after seeding a future contract $60m and burning more cash through the end of the year. All of this with the stock at all time lows. I am by no means a financial guru (I did invest in this company after all) and do not know all the interal forecasts and company operation. However, I believe a stock buyback or other tangible direct actions by the company should be done at this stage (aside from just more guidance). Management/board compensation reduction etc should be implemented. Management relies on consultants and has had plenty of discussions with the board. Could a share buyback or compensation reduction be any worse than years and years of failed strategy/execution that has landed shareholders at this state. I could go on and on but I'll end it here for now. Rather than pour over the recent presentation slides or hope for good "guidance", I believe investors should switch their thinking to planning for significant management scrutiny and board accountability. Final thought on the strength and experience of the management team. Are you kidding me? I have PhD from Stanford but if I don't produce or show results, what good is that?
This recent missed estimates, stock crash, and lack of management intervention can be summed up in one shareholder's (Flipocrat) word: Disgraceful.
Have a good weekend.
Sunday, September 7, 2008
Weekly recap - Stock slide continues
The stock closed at $3.13, down 13 cents or 4% for the week, the eight consecutive week UT stock has declined. The markets were also significantly lower from 3 to 4.7% this week as the markets return to bear market levels. Here are the UT related news for the week.
UT & Aksh power BSNL iptv for 20 Indian cities - This was already widely reported previously but the official PR came out this week. http://biz.yahoo.com/prnews/080902/aqtu017.html?.v=70
UT issues documents for employee options exchange - A 159 page document (no I didn't read it all) indicates that the option price will be at the closing on Oct, 1, 2008. There are 7.25m options with strike prices from $6-25+ that can be exchanged. Here is the exchange ratio for various options prices.
$6-10; 1.9 for 1
$10.01-15; 3.8 for 1
$15.01-20; 5.2 for 1
$20.01-25; 8.2 for 1
$25.01+; 9.2 for 1
If all options get exchanged, the number of options will drop to the 2.5-3m range. The options will vest 50% after 1 year and the rest 2 years from Oct. 1, 2008. If each option cost 50 cents for example, that would be worth $1.25-1.5m. I don't believe this is significant considering Barton's retention agreement alone was $2m/year.
Dell selling factories/Nokia revenue shortfall - Not too related but Dell is also trying to outsource their manufacturing to be more efficient while Nokia's shortfall show the competitive nature in the handset/smartphone market. UT's sale of the PCD at the height of their profitability was good timing/management. The sale brought liquidity, lowered working capital requirement, preserved internal handset contracts, and reduces operational risk for that business unit.
Russia conference - Shadow posted that UT was a major sponsor of an iptv conference in Russia. We have heard back in the shareholder meeting that UT was working on a couple of contracts in Russia and Brian Caskey made a trip there so there is some progress for potential contracts. http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_U/threadview?bn=27187&tid=155269&mid=155269
UT stock non-marginable - Last week, Etrade made UT stock non-marginable and that is before the stock even dropped below $3. If UT goes below $3, then other brokers will enforce margin requirements for UT putting more pressure on the stock. I knew we should have had a reverse stock split (just kidding.......no nasty emails/postings please :-)
Philippine NGN contracts - Top Philippine carrier PLDT plans to spend substantially on a next generation network (NGN) technology for its telephone service nationwide as it expects revenue to reach hundreds million of pesos in five years.
The company will spend 4.3 billion pesos ($93 million), which includes an incremental investment of 3.9 billion pesos ($84.2 million) for over five years, according to documents it filed with the National Telecommunications. Its existing investment in the proposed areas amounted to 464.01 million pesos ($10 million).
The company will finance its fresh investment through internally generated funds.
http://www.telecomasia.net/article.php?type=article&id_article=10183
There is no official PR from UT but this should be their contract (at about 17m/year for 5 years). So far, that first contract was for $10m (if this article is correct). It seems these NGN contracts are in the $10-20m range and have good expansion potential. Almost all UT competitors are also focusing on NGN but UT seems to have a bunch of wins in this area (Argentina, Taiwan, Brazil, Jersey, Philippines, etc).
India Broadband - Just a side note to last week's PR on India broadband. UT indicated it was the top broadband provider in India with 75% market share. Currently, there are only 4.5m broadband lines and the country is targetting 20m by 2010. Even with the Phase II contract with BSNL (around $80m+), there should be signficant contracts ahead in India if the country will come anywhere close to the 20m target. During my last 2 emails with Blackmore the last few weeks, he had just come back from Japan and Brazil respectively. Unless he was there on vacation, there might be some good developments in those two countries.
David King - Joins Acision as COO. David was at the shareholder meeting in June and discussed the Russia/India developments and the company's better focus on efficiencies and drive in new markets. I had a positive impression of David and liked the way he described the iptv markets in India and their better operational practices (cutting excess personnel/partnering, etc) so i didn't see his departure as a firing. However, he did have valid personal reasons for leaving and thats that. The company will find replacements and move on.
China Telecom earnings - Last week, I had notes some information regarding China Netcom's earnings pertaining to UT. This week, here are some notes from China Telecom.
In the first half of 2008, access lines in service decreased by 5.44 million to 214.9 million. PAS subscribers were 51.99 million with a net decrease of 6.06 million.
In the first half of ‘08, broadband subscribers increased 4.3 million to 39.95 million, an increase of 12.1% from the end of last year.
Fourth, to improve cost effectiveness, we implement stringent control on PAS handset subsidies and tilt investment towards profitable business and customer segments.
Fifth, maintenance CapEx on PAS to ensure normal operation declined by 88.4% from last year, accounting for a decrease of 3.4 percentage points of total investment to 0.5%.
Broadband growth in China continues to be impressive and will fuel iptv demand in the future but PAS has fallen off significantly, which is good in a way because its impact will be lessen on UT going forward.
China iptv - Last week, I noted the continued, steady growth in China (about 30% sequential growth). This one is about a week old as well. http://www.iptv-news.com/content/view/2267/64/ The headline is "China Telecom has shortlisted 11 companies to supply 574,000 IPTV set-top boxes, comprising 536,000 standard-definition and 38,000 high-definition units." It has ZTE benefitting the most and that "ZTE is thought to currently hold the largest market share of China's IPTV system and terminal market, and has supplied systems and terminals in a number of regions, including the provinces of Shaanxi, Jiangsu and Guangdong, as well as Beijing and Shanghai." At the very least, the iptv deployments remain healthy. UT should get its share.
BSNL iptv over 100 cities - Before the ink on UT's PR for 20 BSNL cities, they are already talking about 100 cities :-) http://dth-iptv-radio.blogspot.com/search/label/BSNL%20IPTV Subscriber target when the 20 BSNL cities was discussed was only about 10k in 9 months. Now, it is up to 100k by March 2009. The website also has a lot of postings on MTNL, Bharti, and other iptv news. It seems like there are a lot of iptv issues that have just been resolved very recently (the last few weeks) and has led to increased deployments. In that article, they talked about bringing iptv to 1/4 of the 82 million cable homes. The cost of iptv is about $4.5/month. Thats less than the cost of a DVR in the U.S. with plenty of added features. Another article in the website talks about 1m India iptv subscribers by 2011 (see section on Bharti iptv). With wins with Bharti, BSNL, MTNL, Goa, and Sri Lanka, the future for UT iptv in India is shaping up. The breakout could be in cable systems and in China but steady growth, which we anticipated since last year, is only beginning right now. Shadow's prediction of 400k in India doesn't look too ridiculous to me. I was looking for 50-100k in India but it might be closer to 200-300k.
IPTV, NGN, Broadband, Russia, India, China, Brazil, etc, etc, etc. - For the last few years, it has been mostly promises, trials, and strategic contract wins. The revenue has yet to come close to their expenses. The company has put in hundreds of millions in R&D the last few years to seed their technology and position. There is still some ways to go but the news I am reading indicate massive adoption/potential is teasingly close. I hate this company!!!!!!!! :-)
Have a good weekend everyone and lets hope UT breaks the 8 week losing streak.
UT & Aksh power BSNL iptv for 20 Indian cities - This was already widely reported previously but the official PR came out this week. http://biz.yahoo.com/prnews/080902/aqtu017.html?.v=70
UT issues documents for employee options exchange - A 159 page document (no I didn't read it all) indicates that the option price will be at the closing on Oct, 1, 2008. There are 7.25m options with strike prices from $6-25+ that can be exchanged. Here is the exchange ratio for various options prices.
$6-10; 1.9 for 1
$10.01-15; 3.8 for 1
$15.01-20; 5.2 for 1
$20.01-25; 8.2 for 1
$25.01+; 9.2 for 1
If all options get exchanged, the number of options will drop to the 2.5-3m range. The options will vest 50% after 1 year and the rest 2 years from Oct. 1, 2008. If each option cost 50 cents for example, that would be worth $1.25-1.5m. I don't believe this is significant considering Barton's retention agreement alone was $2m/year.
Dell selling factories/Nokia revenue shortfall - Not too related but Dell is also trying to outsource their manufacturing to be more efficient while Nokia's shortfall show the competitive nature in the handset/smartphone market. UT's sale of the PCD at the height of their profitability was good timing/management. The sale brought liquidity, lowered working capital requirement, preserved internal handset contracts, and reduces operational risk for that business unit.
Russia conference - Shadow posted that UT was a major sponsor of an iptv conference in Russia. We have heard back in the shareholder meeting that UT was working on a couple of contracts in Russia and Brian Caskey made a trip there so there is some progress for potential contracts. http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_U/threadview?bn=27187&tid=155269&mid=155269
UT stock non-marginable - Last week, Etrade made UT stock non-marginable and that is before the stock even dropped below $3. If UT goes below $3, then other brokers will enforce margin requirements for UT putting more pressure on the stock. I knew we should have had a reverse stock split (just kidding.......no nasty emails/postings please :-)
Philippine NGN contracts - Top Philippine carrier PLDT plans to spend substantially on a next generation network (NGN) technology for its telephone service nationwide as it expects revenue to reach hundreds million of pesos in five years.
The company will spend 4.3 billion pesos ($93 million), which includes an incremental investment of 3.9 billion pesos ($84.2 million) for over five years, according to documents it filed with the National Telecommunications. Its existing investment in the proposed areas amounted to 464.01 million pesos ($10 million).
The company will finance its fresh investment through internally generated funds.
http://www.telecomasia.net/article.php?type=article&id_article=10183
There is no official PR from UT but this should be their contract (at about 17m/year for 5 years). So far, that first contract was for $10m (if this article is correct). It seems these NGN contracts are in the $10-20m range and have good expansion potential. Almost all UT competitors are also focusing on NGN but UT seems to have a bunch of wins in this area (Argentina, Taiwan, Brazil, Jersey, Philippines, etc).
India Broadband - Just a side note to last week's PR on India broadband. UT indicated it was the top broadband provider in India with 75% market share. Currently, there are only 4.5m broadband lines and the country is targetting 20m by 2010. Even with the Phase II contract with BSNL (around $80m+), there should be signficant contracts ahead in India if the country will come anywhere close to the 20m target. During my last 2 emails with Blackmore the last few weeks, he had just come back from Japan and Brazil respectively. Unless he was there on vacation, there might be some good developments in those two countries.
David King - Joins Acision as COO. David was at the shareholder meeting in June and discussed the Russia/India developments and the company's better focus on efficiencies and drive in new markets. I had a positive impression of David and liked the way he described the iptv markets in India and their better operational practices (cutting excess personnel/partnering, etc) so i didn't see his departure as a firing. However, he did have valid personal reasons for leaving and thats that. The company will find replacements and move on.
China Telecom earnings - Last week, I had notes some information regarding China Netcom's earnings pertaining to UT. This week, here are some notes from China Telecom.
In the first half of 2008, access lines in service decreased by 5.44 million to 214.9 million. PAS subscribers were 51.99 million with a net decrease of 6.06 million.
In the first half of ‘08, broadband subscribers increased 4.3 million to 39.95 million, an increase of 12.1% from the end of last year.
Fourth, to improve cost effectiveness, we implement stringent control on PAS handset subsidies and tilt investment towards profitable business and customer segments.
Fifth, maintenance CapEx on PAS to ensure normal operation declined by 88.4% from last year, accounting for a decrease of 3.4 percentage points of total investment to 0.5%.
Broadband growth in China continues to be impressive and will fuel iptv demand in the future but PAS has fallen off significantly, which is good in a way because its impact will be lessen on UT going forward.
China iptv - Last week, I noted the continued, steady growth in China (about 30% sequential growth). This one is about a week old as well. http://www.iptv-news.com/content/view/2267/64/ The headline is "China Telecom has shortlisted 11 companies to supply 574,000 IPTV set-top boxes, comprising 536,000 standard-definition and 38,000 high-definition units." It has ZTE benefitting the most and that "ZTE is thought to currently hold the largest market share of China's IPTV system and terminal market, and has supplied systems and terminals in a number of regions, including the provinces of Shaanxi, Jiangsu and Guangdong, as well as Beijing and Shanghai." At the very least, the iptv deployments remain healthy. UT should get its share.
BSNL iptv over 100 cities - Before the ink on UT's PR for 20 BSNL cities, they are already talking about 100 cities :-) http://dth-iptv-radio.blogspot.com/search/label/BSNL%20IPTV Subscriber target when the 20 BSNL cities was discussed was only about 10k in 9 months. Now, it is up to 100k by March 2009. The website also has a lot of postings on MTNL, Bharti, and other iptv news. It seems like there are a lot of iptv issues that have just been resolved very recently (the last few weeks) and has led to increased deployments. In that article, they talked about bringing iptv to 1/4 of the 82 million cable homes. The cost of iptv is about $4.5/month. Thats less than the cost of a DVR in the U.S. with plenty of added features. Another article in the website talks about 1m India iptv subscribers by 2011 (see section on Bharti iptv). With wins with Bharti, BSNL, MTNL, Goa, and Sri Lanka, the future for UT iptv in India is shaping up. The breakout could be in cable systems and in China but steady growth, which we anticipated since last year, is only beginning right now. Shadow's prediction of 400k in India doesn't look too ridiculous to me. I was looking for 50-100k in India but it might be closer to 200-300k.
IPTV, NGN, Broadband, Russia, India, China, Brazil, etc, etc, etc. - For the last few years, it has been mostly promises, trials, and strategic contract wins. The revenue has yet to come close to their expenses. The company has put in hundreds of millions in R&D the last few years to seed their technology and position. There is still some ways to go but the news I am reading indicate massive adoption/potential is teasingly close. I hate this company!!!!!!!! :-)
Have a good weekend everyone and lets hope UT breaks the 8 week losing streak.
Sunday, August 31, 2008
Weekly recap - CFO Barton Retires
The stock closed at $3.26, down 10 cents or 3%. The stock is down 7 straight weeks and has lost $2.31/share or about 42%. The markets were also lower this week with the DOW/S&P losing about .78% and the Nasdaq 2%. The week's major news was the resignation of CFO Fran Barton and Senior VP international sales and marketing David King. Here are other news/commentary.
UT named #1 broadband infrastructure company in India - For the 2nd year in a row, UT was named by Voice& Data as the #1 broadband infrastructure company in India. Accoring to the PR, the number of broadband users has doubled from April 2007 to June 2008 to 4.38m. The target of reaching 20m users by 2010 shows that the India broadband market continues to be a good source of revenue for UTStarcom. The key for UT will be improving margins in that business unit. The position in broadband and iptv that UT has built over the last few years should hopefully start to benefit in the years to come.
China Netcom earnings - Both CT & CN reported earnings recently. Here is a PR from CN for their earnings. http://biz.yahoo.com/bw/080825/20080824005046.html?.v=1 Here are some itmes related to UT.
-The Company reported a decline in total capital expenditure of 10.7% year-on-year to RMB 7,527 million. In particular, investment in the businesses of fixed-line and PHS only accounted for 4.4% of the total, down 13.2 percentage points compared to the same period last year.
-As of June 30, 2008, we had 108,510 thousand local access subscribers, 2,310 thousand less
than at the end of 2007. Of this number, fixed-line subscribers declined by 1,499 thousand, while PHS subscribers declined by 811 thousand.
-We are working to upgrade the “Family 1+” from bundled services to household-oriented multimedia information services. In May, 2008, we launched a family gateway, which offered comprehensive information services to “Family 1+” customers, combining simultaneous access to the internet through various PCs, wireless internet access, family video monitoring and IPTV services.
By the end of the first half of 2008, there were 9,971 thousand “Family 1+” subscribers. Penetration rate among broadband subscribers for the “Family 1+” service was 36%.
-We believe that, after the 2008 Beijing Olympic Games, the high-quality broadband network established during the Olympic Games as well as the broadband consumption habit developed during the Olympic Games, will lead to a fast and sustainable growth in the innovative business and thus help catalyze the Company’s strategic transformation.
-I read in the WSJ that CT was planning to add about 8m broadband subscribers per year for the next 4 years.
China IPTV procurement list- China Telecom (NYSA: CHA; 0728.HK) has announced the winning lists of equipment manufacturers that provincial branches should use for IPTV 2.0 platform and terminal equipment procurement. The winning manufacturers were split into three areas: systems platforms, standard-definition terminals and high-definition terminals. http://www.marbridgeconsulting.com/marbridgedaily/2008-08-25/article/19055/china_telecom_announces_iptv_procurement_firms
China IPTV subscriber count as of Q2- There were 1.708 million subscribers of IPTV (Internet Protocol TV) service in the China market at the end of the second quarter of 2008, growing by 396,000 or 30.2% on quarter and by 132.1% on year, according to China-based consulting company Analysys International.
The exceptionally large growth in IPTV user base was due to the increased demand attributable to the Beijing 2008 Olympic Games, Analysys pointed out.
http://www.digitimes.com/systems/a20080829PR200.html
UT has maintained its market share (about 2x compared to ZTE) and the growth in China continues at a slow but steady pace (from 736k to 840k to 1m to 1.31m the last few quarters).
Barton's retirement package- Reviewing the two 8K filings regarding Bartons retention agreement/retirement package, it does seem Barton was good atleast with his own financials. When the $10m/4 year retention agreement was disclosed last November 30, 2007, the first installment was already given in November 2007. Thus, in just 9 months since the "four" year retention agreement was disclosed, Barton was able to collect two installments or 50% from a dollar standpoint. Even better for Mr. Barton, because the stock declined by nearly 50% from the June highs, he was able to receive nearly 877k shares for this year's installment. If the stock had maintained the mid $5 to $6 level and Barton continued to stay on till atleast November, he would only receive 400-500k shares. Projecting into Nov 30, 2009. If the stock hits $12, he would only receive 200k shares. If by Nov 30, 2010, the stock hits $20 (ok maybe wishful thinking), he would only receive a little over 100k. In any case, Barton has retired and hopefully the company can withstand his retirement and somehow manage to pull it together and continue their stellar run for shareholders :-)
Have a good rest of the Labor Day weekend everyone.
UT named #1 broadband infrastructure company in India - For the 2nd year in a row, UT was named by Voice& Data as the #1 broadband infrastructure company in India. Accoring to the PR, the number of broadband users has doubled from April 2007 to June 2008 to 4.38m. The target of reaching 20m users by 2010 shows that the India broadband market continues to be a good source of revenue for UTStarcom. The key for UT will be improving margins in that business unit. The position in broadband and iptv that UT has built over the last few years should hopefully start to benefit in the years to come.
China Netcom earnings - Both CT & CN reported earnings recently. Here is a PR from CN for their earnings. http://biz.yahoo.com/bw/080825/20080824005046.html?.v=1 Here are some itmes related to UT.
-The Company reported a decline in total capital expenditure of 10.7% year-on-year to RMB 7,527 million. In particular, investment in the businesses of fixed-line and PHS only accounted for 4.4% of the total, down 13.2 percentage points compared to the same period last year.
-As of June 30, 2008, we had 108,510 thousand local access subscribers, 2,310 thousand less
than at the end of 2007. Of this number, fixed-line subscribers declined by 1,499 thousand, while PHS subscribers declined by 811 thousand.
-We are working to upgrade the “Family 1+” from bundled services to household-oriented multimedia information services. In May, 2008, we launched a family gateway, which offered comprehensive information services to “Family 1+” customers, combining simultaneous access to the internet through various PCs, wireless internet access, family video monitoring and IPTV services.
By the end of the first half of 2008, there were 9,971 thousand “Family 1+” subscribers. Penetration rate among broadband subscribers for the “Family 1+” service was 36%.
-We believe that, after the 2008 Beijing Olympic Games, the high-quality broadband network established during the Olympic Games as well as the broadband consumption habit developed during the Olympic Games, will lead to a fast and sustainable growth in the innovative business and thus help catalyze the Company’s strategic transformation.
-I read in the WSJ that CT was planning to add about 8m broadband subscribers per year for the next 4 years.
China IPTV procurement list- China Telecom (NYSA: CHA; 0728.HK) has announced the winning lists of equipment manufacturers that provincial branches should use for IPTV 2.0 platform and terminal equipment procurement. The winning manufacturers were split into three areas: systems platforms, standard-definition terminals and high-definition terminals. http://www.marbridgeconsulting.com/marbridgedaily/2008-08-25/article/19055/china_telecom_announces_iptv_procurement_firms
China IPTV subscriber count as of Q2- There were 1.708 million subscribers of IPTV (Internet Protocol TV) service in the China market at the end of the second quarter of 2008, growing by 396,000 or 30.2% on quarter and by 132.1% on year, according to China-based consulting company Analysys International.
The exceptionally large growth in IPTV user base was due to the increased demand attributable to the Beijing 2008 Olympic Games, Analysys pointed out.
http://www.digitimes.com/systems/a20080829PR200.html
UT has maintained its market share (about 2x compared to ZTE) and the growth in China continues at a slow but steady pace (from 736k to 840k to 1m to 1.31m the last few quarters).
Barton's retirement package- Reviewing the two 8K filings regarding Bartons retention agreement/retirement package, it does seem Barton was good atleast with his own financials. When the $10m/4 year retention agreement was disclosed last November 30, 2007, the first installment was already given in November 2007. Thus, in just 9 months since the "four" year retention agreement was disclosed, Barton was able to collect two installments or 50% from a dollar standpoint. Even better for Mr. Barton, because the stock declined by nearly 50% from the June highs, he was able to receive nearly 877k shares for this year's installment. If the stock had maintained the mid $5 to $6 level and Barton continued to stay on till atleast November, he would only receive 400-500k shares. Projecting into Nov 30, 2009. If the stock hits $12, he would only receive 200k shares. If by Nov 30, 2010, the stock hits $20 (ok maybe wishful thinking), he would only receive a little over 100k. In any case, Barton has retired and hopefully the company can withstand his retirement and somehow manage to pull it together and continue their stellar run for shareholders :-)
Have a good rest of the Labor Day weekend everyone.
Saturday, August 30, 2008
Tenure and Resignation of Fran Barton
CFO Fran Barton is retiring effective August 31, 2008.
http://biz.yahoo.com/prnews/080828/aqth069.html?.v=65 This was unusual in that there was no transition period (atleast not that the street was aware of). Fran was hired by UTStarcom to be its CFO effective September 2005. Then CFO Mike Sophie focused on the COO spot after Fran Barton's hiring. From the company PR, "I believe that Fran's background represents an optimal fit for the needs of our finance organization as we go through the restructuring and diversification initiatives," said Mike Sophie, chief operating officer at UTStarcom, "His appointment will allow me to focus on the operating aspects of these initiatives. Fran and I will work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability."
http://sev.prnewswire.com/computer-electronics/20050802/SFTU10902082005-1.html
I want to highlight the positives and negatives of Fran Barton's tenure and provide some commentary.
Positives:
I will take the positives from the November 30, 2007 8K filing discussing Fran Barton's retention agreement.
"The Compensation Committee approved the Retention Agreement after taking into consideration: (i) Mr. Barton's performance during a challenging year, including completing the Company's previously disclosed stock option and historical sales contract investigations, bringing the Company current in its SEC filings and improving the Company's Section 404 compliance process; (ii) the critical nature of Mr. Barton's current and future role in light of anticipated management transitions in fiscal year 2008; and (iii) increasing competition in the market for experienced financial professionals. "
The balance sheet is also better due to asset/investment/none-core business unit sales.
Negatives:
1. There was not one single profitable operating quarter during Fran Barton's tenure.
1a. Write downs and poor contracts (such as in India) and bloated expenses added to the decline in PAS to contribute to the money losing quarters.
2. Predictions of profitability for (a) early 2007 (given in late 2005), (b) early 2008 (given in August 2007), and (c) early 2009 or late 2008 (given in late 2007) did not come close.
3. The material weaknesses identified have not been fully resolved (the last I heard there were 3 outstanding).
4. "Legacy" expenses from accounting to legal still continue to date.
5. ARP accounting systems are not fully in place as of yet.
6. The stock price has declined from around $8 (already down from the $30s/40s the previous year in 2004) to the low $3 level in 3 years.
Compensation:
Barton started out with a base salary of $500k that was increased to $750k. At the end of November, 2007 (after the shareholder meeting when the price was sub $3 no less), shareholders received news of the retention agreement.
"The Retention Agreement provides that the Company will provide a retention incentive to Mr. Barton with a total value of $10,000,000 (the "Retention Incentive"), consisting of a combination of restricted stock, RSUs, performance shares and performance units (together, "Equity") to be granted under the Plan and/or cash, in the sole discretion of the Compensation Committee. Each installment of the Retention Incentive will be awarded in a combination of Equity, in the Committee's sole discretion, up to the annual maximum amounts permitted under the Plan after taking into account Mr. Barton's focal awards for each particular year. The first installment was awarded effective November 30, 2007 (see below), and the remaining installments are expected to be awarded each January thereafter. Because of limits on the maximum amount of Equity that can be granted to an individual in any calendar year under the Plan, the Company expects that the Retention Incentive will be awarded over a number of years, so that as much of the Retention Incentive can be awarded under the Plan as possible. The first installment of the Retention Incentive will vest as to $2,500,000 in value on November 30, 2007, and the remaining installments will vest as to $2,500,000 in value on each November 30 thereafter until the full $10,000,000 in value has vested. For purposes of determining the vested value, the value of Equity to vest will be based on the Fair Market Value (as defined in the Plan) of the Company's common stock on the applicable date of grant."
Resignation Agreement:
Fran Barton will receive $380k and accelerated vesting of the $2.5m retention bonus that was going to vest in November 2008. So, Fran effectively collected half of the $10m in retention bonus.
Commentary:
As a shareholder in the company, it is hard for me to even say "thank you" for Fran Barton's services due to the negatives I outlined above. During the March 17 meeting that some shareholders had with management, I openly questioned management and lead director Thomas Toy about management compensation and highlighted specifically Fran Barton's compensation. Tom basically defended the compensation/retention agreement based on the "positives" noted on the 8k. At that time, the management/board made it seem Barton had the blue print plan to return the company to sustainable profitability and growth (See my March 2008 postings to review our meeting).
It does seem odd that now Barton has retired, management is confident that the executives left behind can fill Fran Barton's role with "seamless transition". I had emailed Peter Blackmore late Thursday and he explained the departures as simply for personal reasons and that he was confident in the team that they had. Blackmore wanted to discuss it personally but we did not hook up the following day. I have been a constant critic of Fran Barton even before blogging and did not feel he deserved the compensation for the performance. Now that the turnaround is well underway, it seems less likely he would contribute. I did not get an impression Barton was well in-tuned with the technology and would forget certain numbers even during planned CCs. During the few times I had personal contact with Fran, he seemed very nice/professional and well liked by the other employees. However, this is the business world where performance is the metric which we measure the CFO and not likeability. In that measure, Fran Barton did not fulfill the goal when he was hired to return the company to growth and profitability. The balance sheet seems better with all the asset sales but shareholder equity has also gone down. Nor did the shareprice (already low at the time when Fran Barton joined) go up.
In summary, I enjoyed the minimal conversations I had with Fran but think it is a positive impact to the company/share holders that he retired. I guess it was "nice" for Fran's reputation that the street react negatively for a day to Fran Barton's departure but that just reinforced my belief that in the short term that the street has mispriced the stock badly.
I want to end this post wishing Fran Barton good luck but does he really need it or UT shareholders still facing the ongoing soap opera that is UTStarcom......all potential, valuation, and little results. As we think about Fran's tenure, we shareholders still cling to the hope that management/board can "work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability." When did we hear that one before? Or are we shareholders just a bunch of short term traders with no patience. Right...give us a break. Really, please give us a break :-)
http://biz.yahoo.com/prnews/080828/aqth069.html?.v=65 This was unusual in that there was no transition period (atleast not that the street was aware of). Fran was hired by UTStarcom to be its CFO effective September 2005. Then CFO Mike Sophie focused on the COO spot after Fran Barton's hiring. From the company PR, "I believe that Fran's background represents an optimal fit for the needs of our finance organization as we go through the restructuring and diversification initiatives," said Mike Sophie, chief operating officer at UTStarcom, "His appointment will allow me to focus on the operating aspects of these initiatives. Fran and I will work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability."
http://sev.prnewswire.com/computer-electronics/20050802/SFTU10902082005-1.html
I want to highlight the positives and negatives of Fran Barton's tenure and provide some commentary.
Positives:
I will take the positives from the November 30, 2007 8K filing discussing Fran Barton's retention agreement.
"The Compensation Committee approved the Retention Agreement after taking into consideration: (i) Mr. Barton's performance during a challenging year, including completing the Company's previously disclosed stock option and historical sales contract investigations, bringing the Company current in its SEC filings and improving the Company's Section 404 compliance process; (ii) the critical nature of Mr. Barton's current and future role in light of anticipated management transitions in fiscal year 2008; and (iii) increasing competition in the market for experienced financial professionals. "
The balance sheet is also better due to asset/investment/none-core business unit sales.
Negatives:
1. There was not one single profitable operating quarter during Fran Barton's tenure.
1a. Write downs and poor contracts (such as in India) and bloated expenses added to the decline in PAS to contribute to the money losing quarters.
2. Predictions of profitability for (a) early 2007 (given in late 2005), (b) early 2008 (given in August 2007), and (c) early 2009 or late 2008 (given in late 2007) did not come close.
3. The material weaknesses identified have not been fully resolved (the last I heard there were 3 outstanding).
4. "Legacy" expenses from accounting to legal still continue to date.
5. ARP accounting systems are not fully in place as of yet.
6. The stock price has declined from around $8 (already down from the $30s/40s the previous year in 2004) to the low $3 level in 3 years.
Compensation:
Barton started out with a base salary of $500k that was increased to $750k. At the end of November, 2007 (after the shareholder meeting when the price was sub $3 no less), shareholders received news of the retention agreement.
"The Retention Agreement provides that the Company will provide a retention incentive to Mr. Barton with a total value of $10,000,000 (the "Retention Incentive"), consisting of a combination of restricted stock, RSUs, performance shares and performance units (together, "Equity") to be granted under the Plan and/or cash, in the sole discretion of the Compensation Committee. Each installment of the Retention Incentive will be awarded in a combination of Equity, in the Committee's sole discretion, up to the annual maximum amounts permitted under the Plan after taking into account Mr. Barton's focal awards for each particular year. The first installment was awarded effective November 30, 2007 (see below), and the remaining installments are expected to be awarded each January thereafter. Because of limits on the maximum amount of Equity that can be granted to an individual in any calendar year under the Plan, the Company expects that the Retention Incentive will be awarded over a number of years, so that as much of the Retention Incentive can be awarded under the Plan as possible. The first installment of the Retention Incentive will vest as to $2,500,000 in value on November 30, 2007, and the remaining installments will vest as to $2,500,000 in value on each November 30 thereafter until the full $10,000,000 in value has vested. For purposes of determining the vested value, the value of Equity to vest will be based on the Fair Market Value (as defined in the Plan) of the Company's common stock on the applicable date of grant."
Resignation Agreement:
Fran Barton will receive $380k and accelerated vesting of the $2.5m retention bonus that was going to vest in November 2008. So, Fran effectively collected half of the $10m in retention bonus.
Commentary:
As a shareholder in the company, it is hard for me to even say "thank you" for Fran Barton's services due to the negatives I outlined above. During the March 17 meeting that some shareholders had with management, I openly questioned management and lead director Thomas Toy about management compensation and highlighted specifically Fran Barton's compensation. Tom basically defended the compensation/retention agreement based on the "positives" noted on the 8k. At that time, the management/board made it seem Barton had the blue print plan to return the company to sustainable profitability and growth (See my March 2008 postings to review our meeting).
It does seem odd that now Barton has retired, management is confident that the executives left behind can fill Fran Barton's role with "seamless transition". I had emailed Peter Blackmore late Thursday and he explained the departures as simply for personal reasons and that he was confident in the team that they had. Blackmore wanted to discuss it personally but we did not hook up the following day. I have been a constant critic of Fran Barton even before blogging and did not feel he deserved the compensation for the performance. Now that the turnaround is well underway, it seems less likely he would contribute. I did not get an impression Barton was well in-tuned with the technology and would forget certain numbers even during planned CCs. During the few times I had personal contact with Fran, he seemed very nice/professional and well liked by the other employees. However, this is the business world where performance is the metric which we measure the CFO and not likeability. In that measure, Fran Barton did not fulfill the goal when he was hired to return the company to growth and profitability. The balance sheet seems better with all the asset sales but shareholder equity has also gone down. Nor did the shareprice (already low at the time when Fran Barton joined) go up.
In summary, I enjoyed the minimal conversations I had with Fran but think it is a positive impact to the company/share holders that he retired. I guess it was "nice" for Fran's reputation that the street react negatively for a day to Fran Barton's departure but that just reinforced my belief that in the short term that the street has mispriced the stock badly.
I want to end this post wishing Fran Barton good luck but does he really need it or UT shareholders still facing the ongoing soap opera that is UTStarcom......all potential, valuation, and little results. As we think about Fran's tenure, we shareholders still cling to the hope that management/board can "work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability." When did we hear that one before? Or are we shareholders just a bunch of short term traders with no patience. Right...give us a break. Really, please give us a break :-)
Sunday, August 24, 2008
Weekly recap - Management needs to act.
The stock closed the week at $3.36, down 10 cents or 3%. The markets rallied hard on Friday to pare losses. For the week, Nasdaq lost 1.5%, DOW .27%, and S&P .46%. The stock has now closed lower the last six consecutive weeks, dropping from $5.57 on July 7 for a loss of $2.21 or 40%. Technically, the stock is weak, trading below the 50 day ($4.8 or so) and the 200 day ($3.6 or so). There were no specific PRs from the company so I'd just like to discuss a couple of items.
IPTV - One of the disappointments during the last earnings call update is the iptv subscriber numbers. The company only added around 100k subscribers to reach 956k and mostly in China (Shanghai). Fellow shareholder Shadowdoc99 posted on the slow developments in iptv in China.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=154720&mid=155008&tof=12&rt=2&frt=1&off=1 Hopefully, the olympics will accelerate the growth in China, which is the main growth driver for UTs iptv in the near term (6 to 12 months).
Shadow also discussed some developements that could help UT in India regarding iptv system storage clauses: The Information and Broadcasting Ministry in India, based on recommendation by TRAI, has mandated that all IPTV carriers make available up to 90 days of stored broadcasts for subscribers. Reliance is going to have conniptions over this requirement as they have signed on with Microsoft for IPTV and cannot meet this requirement without huge capex for storage. In fact, only UTSI's system can meet this requirement economically and so it seems India is standardizing on UTSI's IPTV system.
This blog has a lot of good information on the latest iptv news in India, http://dth-iptv-radio.blogspot.com/search/label/BSNL%20IPTV
It seems like the regulations in India are very favorable to UT's iptv system and that UT is well positioned in India. The problem now is that broadband uptake and iptv ramp is still very slow and overal iptv numbers are around 10k. Compared to the contract capacity that UT has signed with Aksh (with MTNL, BSNL), Bharti Airtel, Goa, and Sri Lanka numbering potentially over 2 million subscribers over the next 2 to 3 years, the current number is very disappointing to say the least.
The situation is not much different in other parts of the world, such as in Taiwan and Brazil, where UT has announced contract wins. The numbers are very small (about 5 to 10k live subscribers). The Taiwan contract for example was for an initial 20k UT set top boxes and targettied 500k within 2 years. That contract was announced in December of 2007 so it has been very slow as well. Recently, management has indicated some optimism there and from the China olympics but we'll just have to see how it plays out.
Share Buy Back and investor confidence - I've posted a couple of times on this the past week and shareholders have sent emails to management. The developments from the earnings call (revenue shortfall, cash losses) are very frustrating to shareholders. The company is reaching out to the investment community (roadshows, analyst day meetings, earnings call/shareholder meetings, webinars, etc) at a time when the company's performance does not seem to be improving (and in some respect deteriorating). As an existing shareholder, I have to now question why management is spending time/effort/money to tell their story, reach out to NEW analysts/investors when they can't even appease the existing shareholder base/investment community and when they have yet to even come close to sustainable profitability. It doesn't make any sense to me. From Sophie to Barton to Blackmore, it seems like management has kept on promising profitability in the "next year" but have not delivered. Everyone is hesitant to cut costs to get to profitability because they want huge growth further down the line but where are the committments? Where is the balance? Where does shareprice and shareholders come to play? More frustrating, when it doesn't happen, there are more excuses. Can someone there really deliver? I really want to challenge management to respond to their existing shareholders and be accountable for what you are spewing out. Management needs to act and start delivering.
I continue to call on shareholders to email management to implement a share buyback for all the reasons I have posted on. Have a good rest of the weekend to everyone.
IPTV - One of the disappointments during the last earnings call update is the iptv subscriber numbers. The company only added around 100k subscribers to reach 956k and mostly in China (Shanghai). Fellow shareholder Shadowdoc99 posted on the slow developments in iptv in China.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=154720&mid=155008&tof=12&rt=2&frt=1&off=1 Hopefully, the olympics will accelerate the growth in China, which is the main growth driver for UTs iptv in the near term (6 to 12 months).
Shadow also discussed some developements that could help UT in India regarding iptv system storage clauses: The Information and Broadcasting Ministry in India, based on recommendation by TRAI, has mandated that all IPTV carriers make available up to 90 days of stored broadcasts for subscribers. Reliance is going to have conniptions over this requirement as they have signed on with Microsoft for IPTV and cannot meet this requirement without huge capex for storage. In fact, only UTSI's system can meet this requirement economically and so it seems India is standardizing on UTSI's IPTV system.
This blog has a lot of good information on the latest iptv news in India, http://dth-iptv-radio.blogspot.com/search/label/BSNL%20IPTV
It seems like the regulations in India are very favorable to UT's iptv system and that UT is well positioned in India. The problem now is that broadband uptake and iptv ramp is still very slow and overal iptv numbers are around 10k. Compared to the contract capacity that UT has signed with Aksh (with MTNL, BSNL), Bharti Airtel, Goa, and Sri Lanka numbering potentially over 2 million subscribers over the next 2 to 3 years, the current number is very disappointing to say the least.
The situation is not much different in other parts of the world, such as in Taiwan and Brazil, where UT has announced contract wins. The numbers are very small (about 5 to 10k live subscribers). The Taiwan contract for example was for an initial 20k UT set top boxes and targettied 500k within 2 years. That contract was announced in December of 2007 so it has been very slow as well. Recently, management has indicated some optimism there and from the China olympics but we'll just have to see how it plays out.
Share Buy Back and investor confidence - I've posted a couple of times on this the past week and shareholders have sent emails to management. The developments from the earnings call (revenue shortfall, cash losses) are very frustrating to shareholders. The company is reaching out to the investment community (roadshows, analyst day meetings, earnings call/shareholder meetings, webinars, etc) at a time when the company's performance does not seem to be improving (and in some respect deteriorating). As an existing shareholder, I have to now question why management is spending time/effort/money to tell their story, reach out to NEW analysts/investors when they can't even appease the existing shareholder base/investment community and when they have yet to even come close to sustainable profitability. It doesn't make any sense to me. From Sophie to Barton to Blackmore, it seems like management has kept on promising profitability in the "next year" but have not delivered. Everyone is hesitant to cut costs to get to profitability because they want huge growth further down the line but where are the committments? Where is the balance? Where does shareprice and shareholders come to play? More frustrating, when it doesn't happen, there are more excuses. Can someone there really deliver? I really want to challenge management to respond to their existing shareholders and be accountable for what you are spewing out. Management needs to act and start delivering.
I continue to call on shareholders to email management to implement a share buyback for all the reasons I have posted on. Have a good rest of the weekend to everyone.
Saturday, August 23, 2008
Update on Stock Buyback
In response to shareholder's emails to management, a generic reply was sent back to shareholders.
Thank you for your recent e-mail to UTStarcom's management.
We have had a number of recent conversations with many investors during which we've heard a range of investor concerns and suggestions along with a great deal of excitement about our future. We appreciate this feedback and want to remind our investors that UTStarcom's management and board of directors regularly evaluate the company's priorities, including, but not limited to, possible uses of its existing cash balances.
We continue to be excited about the strategic plan we outlined in late 2007, the progress we've made thus far and the opportunities that are in front of us.
Thank you for your continued interest in and support of UTStarcom.
Sincerely,
Mr. Barry Hutton
Senior Director, Investor Relations
UTStarcom, Inc.(510) 769-2807
---------------------------------------------------------------------------------------------
Let me be clear from the very start that the "progress made thus far" has been significant but only when compared to the hole the company dug for itself. In terms of operating a company for profitability, it has been a disaster. The company's stance has been to focus on the long term turnaround and opportunities the company has (again, in the reply above, "excitement" was used"). I can't believe ANY shareholder is excited unless they sold out and rebought at these levels. The problem with management discussing the recent progress (last year) is to ignore the previous four years! Who is being short term? Shareholders or management. It is clear that shareholders have stuck with this company while management takes its time and "reacting" rather than being "proactive". All their consultants and executives have not made a dent or even get close to sustainable profitability.
The share price being up for the year is more an indication of the value the company had and NOT due to company performance. People that say they are doing well since the shares are up are simply idiots. Anyone looking at the company assets last year knows it is worth significantly more. The fact that the stock can move up close to the $6 level shows how little they have to do on the operational side of things to move the stock up.
The "hope" with "new" management rests with Peter Blackmore as the new CEO. This being Peter's first CEO role and with the low expectations, low share price, heavy assets/resources of the company showed that there was significant shareholder value that can be unlocked. Peter has discussed the company being a large startup and of course that was not the case. This shareholder group has consistently brought the history of underperformance in all the discussions we've had all the way back four years ago! Peter had a fresh start and another year to 18 months to perform and get to sustainable profitability. That time is running out and Peter should take responsibility for this.
Going back to the share buyback. People that say they need to think longer term and save cash either don't have a significant position or don't care about the company's performance. Even with the buildup for the $80m+ India Phase II contract and losses for the rest of the year, the company will have over $300m+ in net cash at the end of the year. That is about 70% of the current market cap! The CFO Fran Barton mentioned that he would not like to be involved in a company that just down sizes and not growing. Lets consider two cases. One, they do not grow (book business) the several hundred million they need to get to profitability. Are they then going to lose $300m+ next year in cash flow? Definitely not. So, they should cut costs and return funds to shareholders.
Case 2 is supposedely the one management is on, growing the company's core business significantly and ramping bookings and revenue. There was a good discussion on this by shareholders Tigre and Shadow (and I threw my two cents in). EVEN if they grow bookings by $100m/quarter next year and beyond, could they do a share buyback? Looking at the India Phase II contract for $80m+, that is probably at the extreme in terms of lower margins, longer DSOs and they only spent $60m in cash flows while funding all the material/hardware for this. How many building contractors can fund an entire buildings materials/equipment before the ink dries on the contract? Besides, most of their contracts will be much smaller, have higher GMs, quicker turnaround (lower DSOs), etc. This is a company with over $300m in net cash and probably more if they sell the CSBU and further reduce expenses. BTW, how long will they have "legacy" accounting, legal, and other expenses. They have been talking about this for 2 years. The company fights for a few million in gross profits and throw away so much in their "legacy" expenses. Anyway, back to funding the "growth". Don't forget the this is a company that owns their China building, worth about $180m. What is the problem in getting a $50m line of credit if they really need it? I am not a financial expert by any means but it is getting ridiculous when a company that has so many consultants and supposedely top-notch executives (not to mention a decade+ of operating in China) cannot find lines of credits when they have virtually no debt, huge NET cash, owns their properties, and planning to grow bookings 25 to 50% overall.
So, what is it gentlemen? Case 1 or 2 or if its even worse than any of those, then go to a strategic alternative to sell the company. Judging by the conversations I have heard, it is Case 2 and the shareprice is too low and supposedely progress has been made to make selling out now ridiculous. So, either way you look at, a share buyback should be implemented or confidence in your basic competence or charge for looking after shareholder value is gone. Going to roadshows and making promises after years (let alone the 2nd half shortfall) of underdelivering is not a productive use of time/effort. Don't be idiots and be pro-active for once. I personally like the management team but you need to do the share buyback and look competent for once. Its hard for me to defend the company/stock when time after time, the company has not produced. There is still so much value and potential with the company but that cannot be the only fighting charge we hold on. Tangible actions on the shareprice has to occur. It should not be at these levels.
Have a good weekend.
Thank you for your recent e-mail to UTStarcom's management.
We have had a number of recent conversations with many investors during which we've heard a range of investor concerns and suggestions along with a great deal of excitement about our future. We appreciate this feedback and want to remind our investors that UTStarcom's management and board of directors regularly evaluate the company's priorities, including, but not limited to, possible uses of its existing cash balances.
We continue to be excited about the strategic plan we outlined in late 2007, the progress we've made thus far and the opportunities that are in front of us.
Thank you for your continued interest in and support of UTStarcom.
Sincerely,
Mr. Barry Hutton
Senior Director, Investor Relations
UTStarcom, Inc.(510) 769-2807
---------------------------------------------------------------------------------------------
Let me be clear from the very start that the "progress made thus far" has been significant but only when compared to the hole the company dug for itself. In terms of operating a company for profitability, it has been a disaster. The company's stance has been to focus on the long term turnaround and opportunities the company has (again, in the reply above, "excitement" was used"). I can't believe ANY shareholder is excited unless they sold out and rebought at these levels. The problem with management discussing the recent progress (last year) is to ignore the previous four years! Who is being short term? Shareholders or management. It is clear that shareholders have stuck with this company while management takes its time and "reacting" rather than being "proactive". All their consultants and executives have not made a dent or even get close to sustainable profitability.
The share price being up for the year is more an indication of the value the company had and NOT due to company performance. People that say they are doing well since the shares are up are simply idiots. Anyone looking at the company assets last year knows it is worth significantly more. The fact that the stock can move up close to the $6 level shows how little they have to do on the operational side of things to move the stock up.
The "hope" with "new" management rests with Peter Blackmore as the new CEO. This being Peter's first CEO role and with the low expectations, low share price, heavy assets/resources of the company showed that there was significant shareholder value that can be unlocked. Peter has discussed the company being a large startup and of course that was not the case. This shareholder group has consistently brought the history of underperformance in all the discussions we've had all the way back four years ago! Peter had a fresh start and another year to 18 months to perform and get to sustainable profitability. That time is running out and Peter should take responsibility for this.
Going back to the share buyback. People that say they need to think longer term and save cash either don't have a significant position or don't care about the company's performance. Even with the buildup for the $80m+ India Phase II contract and losses for the rest of the year, the company will have over $300m+ in net cash at the end of the year. That is about 70% of the current market cap! The CFO Fran Barton mentioned that he would not like to be involved in a company that just down sizes and not growing. Lets consider two cases. One, they do not grow (book business) the several hundred million they need to get to profitability. Are they then going to lose $300m+ next year in cash flow? Definitely not. So, they should cut costs and return funds to shareholders.
Case 2 is supposedely the one management is on, growing the company's core business significantly and ramping bookings and revenue. There was a good discussion on this by shareholders Tigre and Shadow (and I threw my two cents in). EVEN if they grow bookings by $100m/quarter next year and beyond, could they do a share buyback? Looking at the India Phase II contract for $80m+, that is probably at the extreme in terms of lower margins, longer DSOs and they only spent $60m in cash flows while funding all the material/hardware for this. How many building contractors can fund an entire buildings materials/equipment before the ink dries on the contract? Besides, most of their contracts will be much smaller, have higher GMs, quicker turnaround (lower DSOs), etc. This is a company with over $300m in net cash and probably more if they sell the CSBU and further reduce expenses. BTW, how long will they have "legacy" accounting, legal, and other expenses. They have been talking about this for 2 years. The company fights for a few million in gross profits and throw away so much in their "legacy" expenses. Anyway, back to funding the "growth". Don't forget the this is a company that owns their China building, worth about $180m. What is the problem in getting a $50m line of credit if they really need it? I am not a financial expert by any means but it is getting ridiculous when a company that has so many consultants and supposedely top-notch executives (not to mention a decade+ of operating in China) cannot find lines of credits when they have virtually no debt, huge NET cash, owns their properties, and planning to grow bookings 25 to 50% overall.
So, what is it gentlemen? Case 1 or 2 or if its even worse than any of those, then go to a strategic alternative to sell the company. Judging by the conversations I have heard, it is Case 2 and the shareprice is too low and supposedely progress has been made to make selling out now ridiculous. So, either way you look at, a share buyback should be implemented or confidence in your basic competence or charge for looking after shareholder value is gone. Going to roadshows and making promises after years (let alone the 2nd half shortfall) of underdelivering is not a productive use of time/effort. Don't be idiots and be pro-active for once. I personally like the management team but you need to do the share buyback and look competent for once. Its hard for me to defend the company/stock when time after time, the company has not produced. There is still so much value and potential with the company but that cannot be the only fighting charge we hold on. Tangible actions on the shareprice has to occur. It should not be at these levels.
Have a good weekend.
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