The shares closed at $2.15, another all-time low closing price after the market fell off the cliff again today. I've talked about a share buyback the last few weeks and have gotten various opinions. Some companies that have done share buybacks have seen their stock tank with the market anyway. Some people mentioned it would only provide a short term boost (if that) and shorts would just use the price uplift to attack the shares more. Some have mentioned that its better to have the cash as a buffer for the uncertain environment. "Cash is king" Really?
The company's "long standing" position is that their "near term" goals are to get back to growth and profitability. Re-read that 10 times and see if it makes sense :-) According to them, this is the major driver of the share price. Really? :-) The problem is that their growth businesses (iptv, ngn, and broadband) only make up 1/3 of their current revenue base and PAS/handsets are not growing/declining. Their expenses are still way too high and they refuse to make substantial cuts. So, despite Peter's repeated expense targets and growing revenues by several hundred million, it doesn't seem probable in the "near term".
As a long-time suffering shareholder, it just hasn't paid to be in the stock. A lot of other shareholders are jumping ship as well. Therefore, it is imperative to have a shareholder retention program that could actually work to stabilize the shareholder base. My proposal is as follows:
1. Announce a special dividend payment of 50 cents/share to shareholders to be paid out one year from now.
2. Announce another special dividend payment equal to the amount to be received from the PCD sale (remaining performance payment up to $50m depending on PCD performance). This will be paid end of 2010, 2 years from now.
Here are the benefits/details of the program:
1. The company will have $325m in net cash by the end of the year. Spending $60m by end of 2009 will not impact cash flows until late 2009, where profitability "should" be closer.
2. Shareholders will have a reason to stick around for dividend payments the next two years and actually get a guaranteed payment equal to about 50% of the current price (unbelievable).
3. Shorts can continue to short or keep their positions but they will have to bring out cash giving them incentive to get out of their positions in the next few months.
4. Insiders who own shares will benefit from the dividend payment. Previously, to benefit, they would have to rely on the shares appreciating and selling shares. They will also be motivated to keep their shares.
5. Employees who had options repriced at $3.24 might have a chance to benefit from a stronger stock price by then and may have incentive to keep the shares.
6. The payment in 2010 will not come from existing cash but from the PCD remaining money (up to $50m).
7. A share buyback doesn't help earnings/share because there is NO earnings. As some have mentioned, the shorts can just keep shorting what the company buys back as well.
I believe the above has real incentives for shareholders and shorts. The company can do something tangible by being creative without impacting short term liquidity. It will highlight their massive cash position, which at this stage is the company's strongest point. Shareholders will have confidence the board/management actually "cares" about shareholder value and will benefit themselves. Imagine some executives getting a nice $500k to $2m bonus dividend!
Anyway, just a thought on an otherwise horrible week for shareholders (on top of the last 4 years).
Thursday, October 9, 2008
Wednesday, October 8, 2008
Liquidity, frozen asset, lack of confidence, bailout
Am I talking about the US banks, economy, or the fed actions? No, its the sorry situation with UT stock. The stock closed at an all-time low of $2.25 after hitting an even lower intra-day low of $2.15. I could talk about all the "assets" and value the company has but this situation is all about liquidity. The company understands liquidity (see last year) but here is an example of shareholder liquidity problems TODAY. I was talking with an institutional investor as this was unfolding and we muttered something like, there is definitely a determined seller today that was dumping a lot of shares, dropping the price 10 cents at a time. I then get a call from another institutional investor mentioning one of their clients on margin had to dump 700k shares! With trading volume averaging less than one million, it doesn't take a genius to realize it was going down hard. At some time this morning, at about 800k share volume, I was amazed to see the market cap get clipped by $47m on about $2m worth of trading. Brutal. This is the flip side of the 700k share buy that gapped the stock up to $3.37 a couple of Fridays ago.
The company has touted their $324m net cash position, their growth potential, their great technology, their "near term goal" of getting to proftiability, their goal of enhancing share holder value, and yet the stock makes another all-time low. Its unfortunate that shareholders have no recourse but to unload at these levels while management tinkers around their profitability timing and holds on to shareholder cash. While there is no guarantee the share price will go up with a buyback, it will provide confidence that is as beneficial as the return on cash. Seriously, what is the company waiting for? A $1 handle? You have got to be kidding me....That 2009 forecast coming up better be a good one or else......
One last note: One good thing about the credit crisis and all the failed strategic plans of companies all around. Executives nowadays have so many examples right in front of them on what NOT to do. Maybe the SEC/Fed should "force" UT to sell itself and/or find a merger partner. It can't be much worse than this.
Good luck everyone.
The company has touted their $324m net cash position, their growth potential, their great technology, their "near term goal" of getting to proftiability, their goal of enhancing share holder value, and yet the stock makes another all-time low. Its unfortunate that shareholders have no recourse but to unload at these levels while management tinkers around their profitability timing and holds on to shareholder cash. While there is no guarantee the share price will go up with a buyback, it will provide confidence that is as beneficial as the return on cash. Seriously, what is the company waiting for? A $1 handle? You have got to be kidding me....That 2009 forecast coming up better be a good one or else......
One last note: One good thing about the credit crisis and all the failed strategic plans of companies all around. Executives nowadays have so many examples right in front of them on what NOT to do. Maybe the SEC/Fed should "force" UT to sell itself and/or find a merger partner. It can't be much worse than this.
Good luck everyone.
Saturday, October 4, 2008
Weekly recap - deterioration in stock markets
The stock closed at $2.88, down 41 cents or 12.5% this week. The markets hit new lows despite the passing of the "rescue"/"invest in America" plan. The DOW, Nasdaq, and S&P500 were down 7.3%, 10.8%, and 9.4% respectively. I can't remember a worse week for the markets since maybe 2002. I read an article that mentioned 1/3 of the people think its a tremendous buying opportunity, 1/3 think its just the start to further losses, and 1/3 that don't know! I personally think its going to be higher in a few weeks even if its just a bounce from an oversold condition. However, the 10k level on the DOW is very close that its like the $3 "magnet" in UT stock. As for UT, I'm hoping it starts moving up in anticipation of the next earnings report. Here are some discussion points.
Commentary on bailout/more needed - I got this link while checking the Sigma Designs board, http://www.minyanville.com/articles/term-auction-facility-equity-credit-risk/index/a/19326/from/yahoo "Realizing it is not enough, by Monday morning expect some additional Federal Reserve action, perhaps a rate cut, maybe even a coordinated move between the Fed and European and Asian central banks. Even so, the market is too big, the debt crisis too large, for central banks to control."
Other stocks down - Each company has its own issues but here is a sampling of the losses suffered by other technology companies (with some relation to UT) this year.
Alcatel-Lucent -52%
Nortel -86%
Cisco -21.5%
Ericsson -31%
Motorola -58%
Nokia -54%
UTStarcom +4.7%
This obviously is not meant to soften the blow but it does show that UT had been beaten so bad in 2007 that valuation alone (asset sales) propelled it to over 100% gains by June. The lack of operation follow through and overall bear market has brought the stock down to very attractive levels again. For deep value investors, there are plenty of stocks to pick up that will yield significant gains from this level. This is good and bad for UT as investors have a lot of choices now.
Options pricing/director compensations - The directors received both stock/options for their yearly compensation. Former lead director Thomas Toy got the most with about $200k worth of shares and another 150k options at $3.37. I was somewhat surprise that Toy "only" had around 25k shares previously so this latest batch increased it to around 100k shares. The newest director received $40k worth of stock and around 25k options. I think these are not excessive. The employee options I believe were priced at $3.24. IF this leads to more movitated employees/board/management, then it will be a bargain. Up to now, shareholders have taken a beating.
India developments- "October 1, 2008 - Indian IPTV operator Aksh Optifibre has signed a three-year content deal with Sony Pictures Entertainment under which the latter will provide Hollywood content for Aksh's IPTV service, called 'iControl'." http://www.iptv-news.com/content/view/2388/64/
While BSNL & MTNL have launched their iptv services officially, it looks like Bharti and Reliance have not yet. http://dth-iptv-radio.blogspot.com/search/label/Airtel%20IPTV Hopefully, the regulations passed last month as well as the commercial launch for BSNL will move Bharti to start as well. I haven't seen an update with the GOA project that will use UTs iptv/ngn/broadband products.
BSNL's target is around 150k by March. However, they also have 5 franchisees (one being Aksh) so UT will not get the full pie. Aside from BSNL, UT does have MTNL, Bharti, UTL, and Sri Lanka in the India region to build subrscribers. We've heard how UT has won 5 of 6 commercial iptv contracts in the India region and has 80% market share. It would be helpful if management can discuss the franchise model a little bit more and what the competition really is. Are other franchisee using UT equipment as well?
Awaiting contract announcements - Based on the links provided by other shareholders and what we've been reading, it seems there are going to be "new" contracts in Russia, Israel, Philippines, Hong Kong, Brazil, and Japan. UT has also been in a Latin America countries as well as Mexico that could yield more contracts. Its imperative that we start hearing these wins as some take time for revenue to be booked. Of course, China will have the largest impact on revenues and signs of openning up will be great news.
Low volume/low interest- The trading volume has been low in UT indicating lack of retail interest. Another fact is that blog viewership which normally averages about 2500 views/month was down to around 1500 in September. I guess thats what the consequence of the decline in stock price. The volatility in other stocks have focused attention away from UT as well. All in all, it could be a contrarian indicator that the stock is ready to launch :-)
Have a good weekend. Next week is going to be volatile again for the markets. Get some rest!
Commentary on bailout/more needed - I got this link while checking the Sigma Designs board, http://www.minyanville.com/articles/term-auction-facility-equity-credit-risk/index/a/19326/from/yahoo "Realizing it is not enough, by Monday morning expect some additional Federal Reserve action, perhaps a rate cut, maybe even a coordinated move between the Fed and European and Asian central banks. Even so, the market is too big, the debt crisis too large, for central banks to control."
Other stocks down - Each company has its own issues but here is a sampling of the losses suffered by other technology companies (with some relation to UT) this year.
Alcatel-Lucent -52%
Nortel -86%
Cisco -21.5%
Ericsson -31%
Motorola -58%
Nokia -54%
UTStarcom +4.7%
This obviously is not meant to soften the blow but it does show that UT had been beaten so bad in 2007 that valuation alone (asset sales) propelled it to over 100% gains by June. The lack of operation follow through and overall bear market has brought the stock down to very attractive levels again. For deep value investors, there are plenty of stocks to pick up that will yield significant gains from this level. This is good and bad for UT as investors have a lot of choices now.
Options pricing/director compensations - The directors received both stock/options for their yearly compensation. Former lead director Thomas Toy got the most with about $200k worth of shares and another 150k options at $3.37. I was somewhat surprise that Toy "only" had around 25k shares previously so this latest batch increased it to around 100k shares. The newest director received $40k worth of stock and around 25k options. I think these are not excessive. The employee options I believe were priced at $3.24. IF this leads to more movitated employees/board/management, then it will be a bargain. Up to now, shareholders have taken a beating.
India developments- "October 1, 2008 - Indian IPTV operator Aksh Optifibre has signed a three-year content deal with Sony Pictures Entertainment under which the latter will provide Hollywood content for Aksh's IPTV service, called 'iControl'." http://www.iptv-news.com/content/view/2388/64/
While BSNL & MTNL have launched their iptv services officially, it looks like Bharti and Reliance have not yet. http://dth-iptv-radio.blogspot.com/search/label/Airtel%20IPTV Hopefully, the regulations passed last month as well as the commercial launch for BSNL will move Bharti to start as well. I haven't seen an update with the GOA project that will use UTs iptv/ngn/broadband products.
BSNL's target is around 150k by March. However, they also have 5 franchisees (one being Aksh) so UT will not get the full pie. Aside from BSNL, UT does have MTNL, Bharti, UTL, and Sri Lanka in the India region to build subrscribers. We've heard how UT has won 5 of 6 commercial iptv contracts in the India region and has 80% market share. It would be helpful if management can discuss the franchise model a little bit more and what the competition really is. Are other franchisee using UT equipment as well?
Awaiting contract announcements - Based on the links provided by other shareholders and what we've been reading, it seems there are going to be "new" contracts in Russia, Israel, Philippines, Hong Kong, Brazil, and Japan. UT has also been in a Latin America countries as well as Mexico that could yield more contracts. Its imperative that we start hearing these wins as some take time for revenue to be booked. Of course, China will have the largest impact on revenues and signs of openning up will be great news.
Low volume/low interest- The trading volume has been low in UT indicating lack of retail interest. Another fact is that blog viewership which normally averages about 2500 views/month was down to around 1500 in September. I guess thats what the consequence of the decline in stock price. The volatility in other stocks have focused attention away from UT as well. All in all, it could be a contrarian indicator that the stock is ready to launch :-)
Have a good weekend. Next week is going to be volatile again for the markets. Get some rest!
Saturday, September 27, 2008
Weekly recap - Awaiting the market bailout
The stock closed at $3.29, down 12 cents or 3.5% for the week. The DOW lost 2.1% while the Nasdaq dropped 4%. The major news of course is the anticipated Paulson bailout plan. While this will move UT stock, UTs faith will come during the next earnings call in about a month, where we will hear about Q4/2008, bookings, and 2009 forecasts. Stock volume for UT was low all week failing to reach even 1m shares in any day after trading over 5m shares the previous Thursday/Friday. Here are some topics/news discussed last week that have some UT relevance.
Short interest - Number of short shares fell to 22.177m from 22.6m at the Sept 15 settlement date. With the stock trading under $3 and a jump in volume/price (week ending 9/19), its probable the short interest has fallen even lower. Its unfortunate to see some longs giving up and the shorts able to cover at under $3/low $3s but thats where the company performance/macro environment has put the market price at. I'm still waiting for the "hold to maturity valuation." As one shareholder I talked with mentions, if the hold to maturity value isn't what we expect it to be, we'll all have to move to China and set up tents in the Hangzhou building.
Sri Lanka IPTV- Scheduled previously for an August launch, it has now lifted off! Woo hoo. http://www.sundaytimes.lk/080921/FinancialTimes/ft323.html "Officials said UTStarcom, Inc. has entered into a multi-million dollar contract recently with Sri Lanka’s Just In Time Holdings Pvt Ltd. to supply its industry-leading RollingStream(R) end-to-end IPTV solution to SLT." Just like Aksh in India, UT is partnering with a local distributor (in this case Just In Time Holdings). In Israel, we saw UT could also go direct. "SLT, a provider of international and domestic voice, Internet, and data services, will use the RollingStream platform to bring IPTV services to its growing customer base throughout Sri Lanka. SLT, with more than 87 percent market share and a wireline subscriber base of more than 1,300,000 customers, expects to grow its residential and commercial business through its increased triple play capabilities now available with this IPTV deployment. It is designed to support approximately 100,000 subscribers in the next two years and will enable the company to provide video services to future subscribers over copper lines in the next three to four years." "SLT engineers have rectified the defect and they also upgraded its ADSL system to ADSL 2+, to facilitate the launch of the IPTV service." These types of news show UTs strategic position but the challenges that are an inherent in providing a complex product such as IPTV. After over a year of UT reporting iptv subscriber numbers, it is still very difficult to project numbers going forward. In China, growth is "controlled" so it could explode or stop on a dime. In India, Taiwan, Brazil, and Sri Lanka, it seems the launch has occured literally the last few weeks. The broadband requirements seem to be more intense as well offering negatives of unsuitable speeds and positives of UT doing more broadband/ngn business.
ZTE not interested in Motorola handset - Chinese telecoms equipment maker ZTE “isn’t interested” in Motorola’s handset operations, and will focus instead on organic growth, Chairman Hou Weigui told Dow Jones Newswires. Chou said that acquiring Moto’s struggling handset business didn’t “make sense” as the “synergies won’t be big enough to cover the costs.” Plus, ZTE doesn’t actually have the money to buy out a large company like Motorola (NYSE: MOT). In February, Samsung, LG (SEO: 066570), and Sony (NYSE: SNE) Ericsson (NSDQ: ERIC) have all said they wouldn’t make a bid for Motorola either.
ZTE recently sold its 100 millionth handset and is hoping to crack the “big five” mobile handset makers. It’s not an unrealistic goal, especially as ZTE is currently in sixth position, and number three Motorola and fifth placed Sony Ericsson are struggling. The company, which started selling handsets in 2002 in its domestic market of China, made its name in low-end phones for emerging markets, but recently said it intended to enter the smartphone market.
http://www.moconews.net/entry/419-zte-ceo-not-interested-in-motorola/
The handset/smartphone business is simply very competitive (seem RIMM expectations as well) and while growing would not make sense for UT to compete in (atleast not heavily with the limited resources they have). While I know some shareholders were disappointed with the sale and profitability push back, it was simply the right thing to do.
Q3 quarter end - As September comes to a close, UT closes the books on its Q3. I was hoping for the sale of the customs solutions business unit (CSBU) prior to Q3 ending. This business unit was projected to double sales this year and be profitable. Not sure if this is still the case but its gross margins was fairly high and Blackmore was upbeat on. In this tough market environment, not sure if they could get a good price but unlike the MSBU, I hope they just as well keep it than sell it for a song (nothing). The sale of PCD happened in July so it will be included in the quarter's report and I recall Blackmore wanting to wrap up all the none-core business issues by end of the year so its something to watch for. The employee option pricing is coming next week as well so I'm hoping for a higher price and maybe something the management will strive to build on going forward.
Tough market environment - UT shareholders have been in a bear market for so long that this current environment is nothing new to them. Some have even been satisfied with the $3 stock price range. However, I see it as the time for UT to excel in this environment. During the past years, they have always talked about the value they give to customers with building great business models for their products (for the clients that is) and how much it will save them. The Tiscali NGN project was a good example of the provider getting cost advantages and maybe forcing the leader Telecom Italia to pour more money into NGN to improve efficiencies. The declining revenue for fixed line carriers has always been UTs main charge for improving sales of iptv and new technologies (transport network product?). This is the time for a smaller company like UT to use its advantages to be more nimble, flexible, focus and penetrate/expand their markets. We'll see........
Blackmore - As a shareholder, I have pinned my hopes on management. That didn't work out too well with Barton as he is a major poster child of excessive pay for disastrous performance. I think he made a great move in retiring before there were laws that actually mandated pay for performance (actual and good performance). We know the board didn't have the intelligence or the concern about the Barton situation and we shareholders got a train wreck. Anyway, as a shareholder, I support good compensation for good performance (imagine that). These aren't just "salaried" employees but executives of a public corporation. Back to Blackmore. He came in at an opportune time when the company was in a free fall but still had enough resources to turn it around. He obviously got a great pay package (I remember his salary can never go down). He did convert his bonus to stock and has focused the company like we've not seen the previous four years. Over the last year, there have been a tremendous amount of strategic wins, sale of none-core assets, no further filings/investigations, and definitely better shareholder communication. The major black mark was the 2008 revenue shortfall and his expense metrics not being reached yet. Going forward, Blackmore's grade is yet incomplete but there is atleast credible hope of achieving profitability due to the lowered expenses and strategic wins. I had posted on expenses and that needs more work as well. In terms of "experience", I hope Blackmore has had the time to hear shareholder views as well as digest all the issues/opportunities the company has. Just like the current bailout, the strategy/plan going forward has to be done right and will determine whether the market/UT stock start a new bull run or continue to deteriorate.
PS. I am disappointed to hear of some shareholders giving up but obviously do not blame them. I wish they got out at higher prices but more than anything wish this blog/group could have done more to enhance/unlock shareholder value. We'll keep plugging along to see what that hold to maturity value turns out to be.
Have a good weekend everyone.
Short interest - Number of short shares fell to 22.177m from 22.6m at the Sept 15 settlement date. With the stock trading under $3 and a jump in volume/price (week ending 9/19), its probable the short interest has fallen even lower. Its unfortunate to see some longs giving up and the shorts able to cover at under $3/low $3s but thats where the company performance/macro environment has put the market price at. I'm still waiting for the "hold to maturity valuation." As one shareholder I talked with mentions, if the hold to maturity value isn't what we expect it to be, we'll all have to move to China and set up tents in the Hangzhou building.
Sri Lanka IPTV- Scheduled previously for an August launch, it has now lifted off! Woo hoo. http://www.sundaytimes.lk/080921/FinancialTimes/ft323.html "Officials said UTStarcom, Inc. has entered into a multi-million dollar contract recently with Sri Lanka’s Just In Time Holdings Pvt Ltd. to supply its industry-leading RollingStream(R) end-to-end IPTV solution to SLT." Just like Aksh in India, UT is partnering with a local distributor (in this case Just In Time Holdings). In Israel, we saw UT could also go direct. "SLT, a provider of international and domestic voice, Internet, and data services, will use the RollingStream platform to bring IPTV services to its growing customer base throughout Sri Lanka. SLT, with more than 87 percent market share and a wireline subscriber base of more than 1,300,000 customers, expects to grow its residential and commercial business through its increased triple play capabilities now available with this IPTV deployment. It is designed to support approximately 100,000 subscribers in the next two years and will enable the company to provide video services to future subscribers over copper lines in the next three to four years." "SLT engineers have rectified the defect and they also upgraded its ADSL system to ADSL 2+, to facilitate the launch of the IPTV service." These types of news show UTs strategic position but the challenges that are an inherent in providing a complex product such as IPTV. After over a year of UT reporting iptv subscriber numbers, it is still very difficult to project numbers going forward. In China, growth is "controlled" so it could explode or stop on a dime. In India, Taiwan, Brazil, and Sri Lanka, it seems the launch has occured literally the last few weeks. The broadband requirements seem to be more intense as well offering negatives of unsuitable speeds and positives of UT doing more broadband/ngn business.
ZTE not interested in Motorola handset - Chinese telecoms equipment maker ZTE “isn’t interested” in Motorola’s handset operations, and will focus instead on organic growth, Chairman Hou Weigui told Dow Jones Newswires. Chou said that acquiring Moto’s struggling handset business didn’t “make sense” as the “synergies won’t be big enough to cover the costs.” Plus, ZTE doesn’t actually have the money to buy out a large company like Motorola (NYSE: MOT). In February, Samsung, LG (SEO: 066570), and Sony (NYSE: SNE) Ericsson (NSDQ: ERIC) have all said they wouldn’t make a bid for Motorola either.
ZTE recently sold its 100 millionth handset and is hoping to crack the “big five” mobile handset makers. It’s not an unrealistic goal, especially as ZTE is currently in sixth position, and number three Motorola and fifth placed Sony Ericsson are struggling. The company, which started selling handsets in 2002 in its domestic market of China, made its name in low-end phones for emerging markets, but recently said it intended to enter the smartphone market.
http://www.moconews.net/entry/419-zte-ceo-not-interested-in-motorola/
The handset/smartphone business is simply very competitive (seem RIMM expectations as well) and while growing would not make sense for UT to compete in (atleast not heavily with the limited resources they have). While I know some shareholders were disappointed with the sale and profitability push back, it was simply the right thing to do.
Q3 quarter end - As September comes to a close, UT closes the books on its Q3. I was hoping for the sale of the customs solutions business unit (CSBU) prior to Q3 ending. This business unit was projected to double sales this year and be profitable. Not sure if this is still the case but its gross margins was fairly high and Blackmore was upbeat on. In this tough market environment, not sure if they could get a good price but unlike the MSBU, I hope they just as well keep it than sell it for a song (nothing). The sale of PCD happened in July so it will be included in the quarter's report and I recall Blackmore wanting to wrap up all the none-core business issues by end of the year so its something to watch for. The employee option pricing is coming next week as well so I'm hoping for a higher price and maybe something the management will strive to build on going forward.
Tough market environment - UT shareholders have been in a bear market for so long that this current environment is nothing new to them. Some have even been satisfied with the $3 stock price range. However, I see it as the time for UT to excel in this environment. During the past years, they have always talked about the value they give to customers with building great business models for their products (for the clients that is) and how much it will save them. The Tiscali NGN project was a good example of the provider getting cost advantages and maybe forcing the leader Telecom Italia to pour more money into NGN to improve efficiencies. The declining revenue for fixed line carriers has always been UTs main charge for improving sales of iptv and new technologies (transport network product?). This is the time for a smaller company like UT to use its advantages to be more nimble, flexible, focus and penetrate/expand their markets. We'll see........
Blackmore - As a shareholder, I have pinned my hopes on management. That didn't work out too well with Barton as he is a major poster child of excessive pay for disastrous performance. I think he made a great move in retiring before there were laws that actually mandated pay for performance (actual and good performance). We know the board didn't have the intelligence or the concern about the Barton situation and we shareholders got a train wreck. Anyway, as a shareholder, I support good compensation for good performance (imagine that). These aren't just "salaried" employees but executives of a public corporation. Back to Blackmore. He came in at an opportune time when the company was in a free fall but still had enough resources to turn it around. He obviously got a great pay package (I remember his salary can never go down). He did convert his bonus to stock and has focused the company like we've not seen the previous four years. Over the last year, there have been a tremendous amount of strategic wins, sale of none-core assets, no further filings/investigations, and definitely better shareholder communication. The major black mark was the 2008 revenue shortfall and his expense metrics not being reached yet. Going forward, Blackmore's grade is yet incomplete but there is atleast credible hope of achieving profitability due to the lowered expenses and strategic wins. I had posted on expenses and that needs more work as well. In terms of "experience", I hope Blackmore has had the time to hear shareholder views as well as digest all the issues/opportunities the company has. Just like the current bailout, the strategy/plan going forward has to be done right and will determine whether the market/UT stock start a new bull run or continue to deteriorate.
PS. I am disappointed to hear of some shareholders giving up but obviously do not blame them. I wish they got out at higher prices but more than anything wish this blog/group could have done more to enhance/unlock shareholder value. We'll keep plugging along to see what that hold to maturity value turns out to be.
Have a good weekend everyone.
Thursday, September 25, 2008
Expenses
From the Q1 earnings call early this year,
Robert Galtman - Jeffries & Co.
Looking at the targets a little bit, I know with the OpEx target in particular, you mentioned that would look to bring OpEx down to $110 during the second half. I think last quarter you had maybe mentioned below $110 each quarter in the second half. Can you just give us some clarification around that? Is that $110 maybe later in Q4? Or would that be both in Q3, Q4 as well?
Fran Barton
Well, we’ll target it for Q3. I think Q4 we should certainly be there. We’re not stopping at $110, and so the language we may have used was at $110 or just under $110 or whatever, so it’s not intended to be over $110. Its $110 or under. But we will hold the expectation for now at $110. As we get a couple of these one-timers behind us, we can start operating at that level shortly. So we will try for Q3, but we will certainly be there for Q4.
=============================================
The sale of PCD/MSBU added savings of $15m/quarter so that by Q4, expenses should be around $95m/quarter. Management has been saying that they will get to profitability with revenue growth with slight decrease in expenses. A fellow shareholder Tigre brought up a good point that expenses should go up as revenue ramp. Because the company is protecting R&D at around $40m/quarter, most of the expense discussion will center on SG&A. Lets look at some factors that indicate it should continue to go down even with the revenue ramp.
1. Fixed costs? - The company's $130m or so revenue shortfall for 2008 announced a few weeks ago didn't result in opex reductions. So, the correlation is more with bookings and not revenue. Blackmore had indicated keeping expenses up in the 2nd half to ramp bookings for 2009.
2. PAS/handset slowdown - Shouldn't expenses for PAS go down as revenue go down? Same with internal handsets, specially if they move design operations from Korea to China?
3. Marketing costs/Trials costs- Back in early 2007 when the company was promoting itself, it mentioned 40 or so iptv field trials. I'm sure there were a lot of NGN trials as well. After all of these trials and now commercial wins (with showcase projects), shouldn't this be going down as well? By partnering with local distributors, shouldn't expenses go down as well?
4. Ramp of iptv/ngn with existing networks- With the bugs of the iptv system being configured and other content/regulatory issue being worked out, we are now tracking the number of subscribers for each country/region. As the subscribers ramp/acceptance granted, UT is able to generate revenue with the existing costs in place. I posted early today regarding the small $1m revenue by Sri Lanka Telecom for the initial network. As subscribers get on board, UT will get bench mark payments for the network, and then the STB to follow. Additional capacity/services/maintenance revenue will then follow. In some respects, the ngn and broadband revenues also come after a period of acceptance.
My conclussion is that opex should and could drop significantly more from $95m/quarter even as revenue ramp. Cultivating a smaller number of larger clients that will buy multiple products would also focus expenses more efficiently. This is what we heard in the shareholder meeting as well but have yet to see the synergies and impact of outsouring/partnering and focusing on smaller base of clients as of yet. The bulk of the expense savings have been with the divestitures, elimination of legacy costs, the initial headcount reduction.
Blackmore's target expense metrics are nowhere close to being achieved. The revenue potential is there but there is also questions with timing. I do see potential to cut more of the $55m SG&A costs. Cutting expense is really the way to protect against the uncertainties in this market and NOT by inefficiently relying on cash at hand.
Cash generation was a big theme earlier this year. Gross margins have yet to improve. Asset sales have helped but expenses are just too high. A restructuring would burn more cash and save "only" $5m/quarter. Why are they still spending $55m/quarter for SG&A anyway?
One final thought - on their building that was appraised at $180m. Now that they have all of this cash, there doesn't seem to be any progress/urgency on the building except some small tennants.
I continue to hope for the revenue and bookings ramp but there seems to be too much expenses and inefficiencies in resource use. They did save on Barton retiring (forgot about that savings :-) but Blackmore needs to address the expenses well during the next call. Each dollar saved is $4 in revenue it doesn't have to account for. What kinds of returns are they looking for their $324m in net cash??? They also seem to have a ton of advisors that have not yielded overall shareholder value or good returns on their resources.
I'd like to end in a nicer note that atleast its not like AIG or Washington Mutual and that atleast the company is in good shape balance sheet wise (I have to give them credit that as fast as they can spend the money the last 3+ money losing years, they also find a way to generate cash). If they just improve operational performance, they would stand out in this market specially going into 2009. Can you imagine if this thing actually works out.
Have a good night.
Robert Galtman - Jeffries & Co.
Looking at the targets a little bit, I know with the OpEx target in particular, you mentioned that would look to bring OpEx down to $110 during the second half. I think last quarter you had maybe mentioned below $110 each quarter in the second half. Can you just give us some clarification around that? Is that $110 maybe later in Q4? Or would that be both in Q3, Q4 as well?
Fran Barton
Well, we’ll target it for Q3. I think Q4 we should certainly be there. We’re not stopping at $110, and so the language we may have used was at $110 or just under $110 or whatever, so it’s not intended to be over $110. Its $110 or under. But we will hold the expectation for now at $110. As we get a couple of these one-timers behind us, we can start operating at that level shortly. So we will try for Q3, but we will certainly be there for Q4.
=============================================
The sale of PCD/MSBU added savings of $15m/quarter so that by Q4, expenses should be around $95m/quarter. Management has been saying that they will get to profitability with revenue growth with slight decrease in expenses. A fellow shareholder Tigre brought up a good point that expenses should go up as revenue ramp. Because the company is protecting R&D at around $40m/quarter, most of the expense discussion will center on SG&A. Lets look at some factors that indicate it should continue to go down even with the revenue ramp.
1. Fixed costs? - The company's $130m or so revenue shortfall for 2008 announced a few weeks ago didn't result in opex reductions. So, the correlation is more with bookings and not revenue. Blackmore had indicated keeping expenses up in the 2nd half to ramp bookings for 2009.
2. PAS/handset slowdown - Shouldn't expenses for PAS go down as revenue go down? Same with internal handsets, specially if they move design operations from Korea to China?
3. Marketing costs/Trials costs- Back in early 2007 when the company was promoting itself, it mentioned 40 or so iptv field trials. I'm sure there were a lot of NGN trials as well. After all of these trials and now commercial wins (with showcase projects), shouldn't this be going down as well? By partnering with local distributors, shouldn't expenses go down as well?
4. Ramp of iptv/ngn with existing networks- With the bugs of the iptv system being configured and other content/regulatory issue being worked out, we are now tracking the number of subscribers for each country/region. As the subscribers ramp/acceptance granted, UT is able to generate revenue with the existing costs in place. I posted early today regarding the small $1m revenue by Sri Lanka Telecom for the initial network. As subscribers get on board, UT will get bench mark payments for the network, and then the STB to follow. Additional capacity/services/maintenance revenue will then follow. In some respects, the ngn and broadband revenues also come after a period of acceptance.
My conclussion is that opex should and could drop significantly more from $95m/quarter even as revenue ramp. Cultivating a smaller number of larger clients that will buy multiple products would also focus expenses more efficiently. This is what we heard in the shareholder meeting as well but have yet to see the synergies and impact of outsouring/partnering and focusing on smaller base of clients as of yet. The bulk of the expense savings have been with the divestitures, elimination of legacy costs, the initial headcount reduction.
Blackmore's target expense metrics are nowhere close to being achieved. The revenue potential is there but there is also questions with timing. I do see potential to cut more of the $55m SG&A costs. Cutting expense is really the way to protect against the uncertainties in this market and NOT by inefficiently relying on cash at hand.
Cash generation was a big theme earlier this year. Gross margins have yet to improve. Asset sales have helped but expenses are just too high. A restructuring would burn more cash and save "only" $5m/quarter. Why are they still spending $55m/quarter for SG&A anyway?
One final thought - on their building that was appraised at $180m. Now that they have all of this cash, there doesn't seem to be any progress/urgency on the building except some small tennants.
I continue to hope for the revenue and bookings ramp but there seems to be too much expenses and inefficiencies in resource use. They did save on Barton retiring (forgot about that savings :-) but Blackmore needs to address the expenses well during the next call. Each dollar saved is $4 in revenue it doesn't have to account for. What kinds of returns are they looking for their $324m in net cash??? They also seem to have a ton of advisors that have not yielded overall shareholder value or good returns on their resources.
I'd like to end in a nicer note that atleast its not like AIG or Washington Mutual and that atleast the company is in good shape balance sheet wise (I have to give them credit that as fast as they can spend the money the last 3+ money losing years, they also find a way to generate cash). If they just improve operational performance, they would stand out in this market specially going into 2009. Can you imagine if this thing actually works out.
Have a good night.
Sunday, September 21, 2008
Weekly recap - Stock bounce
After nine straight weeks of stock price decline, UT stock closed at $3.41, up 54 cents or 18.8% for the week. In a very volatile week of trading where the DOW was down as much as 8% late in the week, UT recoverd all loses for the last 6 weeks. It is still down around 27% previous to earnings in early August. The DOW ended the week with a monster two day rally but still closed slightly down for the week.
BWS upgrade - From my Schwab alerts: BWS Financial upgraded UTStarcom (Nasdaq: UTSI) from Hold to Buy and maintains their $4.50 price target, citing valuation. The firm notes UTStarcom "shares have been battered since the Company announced second quarter results to a point where the stock is trading under projected cash value at the end of 2008. UTSI had $2.20 per share in cash at the end of the second quarter. The sale of the PCD business and the cash burn for the second half of 2008 should translate into UTSI having approximately $2.65 per share in cash at the end of the year."
NGN trials in Israel - Sep. 14--Taldor Group (TASE: TALD) has decided not to delay the trial of Bezeq The Israeli Telecommunication Co. Ltd.'s (TASE: BEZQ) next-generation network (NGN) at this time. Taldor is the representative of UT Starcom Inc. (Nasdaq: UTSI), whose equipment Bezeq will use for its NGN.
http://www.tradingmarkets.com/.site/news/Stock%20News/1879951/
Hopefully, this will result in actual contract(s) and revenue and not just wasted expenses.
India broadband/iptv - The discussions mainly between Shadow & Tigre regarding iptv in India continued this week with Shadow defending his 400k iptv subscriber target for UT in India in 2009 and Tigre saying its impossible. UT has basically said it has won 5 of 6 commercial contracts in India and has over 80% market share. It has 75% of wireline broadband and 34% of the broadband market (whatever that means). Anyway, India is critical for UT to showcase their core products much like Japan was a few years ago. If you have time to read this interesting back and forth, here is the link http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=155429&mid=155429&tof=4&frt=1
ZTE iptv market share in Shanghai - The article cited by Tigre indicates ZTE has a higher market share than UT. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=155573&mid=155573&tof=35&frt=1 UT has indicated it has 62% of the iptv market in China, twice the number of any competitor. Market share will remain a hot issue during the next few years but the question is really when China iptv will ramp quickly. Recent iptv set top box orders indicate the market growth continues at a steady/slightly increasing pace. The Sigma Design earnings call also show iptv worldwide growth remains robust.
Nortel - I wrote a little bit about Nortel's 2008 revenue shortfall in my mid-week blog posting. There are no less than 4 articles in lightreading discussing the shortfall, asset sales, restructuring, and other outlook for Nortel. Nortel is trying to sell its growing carrier ethernet and optical networking division, part of its core businesses. Here is an excerpt: "Hubbard estimates that Nortel had a 3 percent share of a $533 million Carrier Ethernet Switch and Router (CESR) market for the quarter ending in June. The CESR market is likely to be about $2.1 billion in 2008, compared to $1.9 billion in 2007. So it's a growing area, but also very competitive, with 21 equipment vendors in the space, he notes. " http://www.lightreading.com/document.asp?doc_id=164054 I just wanted to highlight its market share and the heavy competition. Nortel overall company gross margins are in the 42-43% while UT is in the 25-27%. Without internal handsets, UT gross margins are in the 30s with some businesses in the 40s. While UT has to compete with ZTE and Huawei, it does maintain some good market share (see above) in certain areas and can stay competitive with their lower gross margins. They just have to pick their spots and control expenses.
Stock price, relative views - During the week when the stock was near its lows, I posted "its the stock price, stupid." I wrote, "Each member of management and the board has to ask themselves if they are even aware that a sub $5 stock for this company is unacceptable. You then have shareholders so beaten down that they are second guessing themselves if they should sell a $5 bill for $2.5. Unbelievable! Then, you have management/board PAY their consultants to decide whethere it is better to put the cash under the mattress or buy the stock at half book. I know they are "constantly" evaluating the market and the situation but this is just stupid."
First, I understand we are in a bear market but each individual/entity looks at the stock price differently. Some people will look at their cost basis like the world revolves around them and measure company performance base on that basis. The board back in 2006 decided to do a strategic study because they felt the stock (at $6/7) was undervalued. Some people need the cash and no matter what the price will sell. When Peter Blackmore joined the company, the stock was in the mid $5s, but his bonus/shares were granted at $3.2. Some shareholders bought in $30s-40s and think the performance has been terrible every since. The shareholder equity/book value is around $600m or $5/share but the company continues to lose money. The company has been spending more than $40m/quarter in R&D the last 5+ years so that must be worth something? In any case, what is the threshold for UT management/board? I had mentioned the $5/share price in the post just based on book value/shareholder equity as a starting point where there has to be a sense of major urgency. Some will talk about profitability. Period. The problem is the stock/underperformance by the company has been going on for so long that some people start to think its acceptable. The company's investor relations rep Barry Hutton joined the company when the stock was at its all-time lows $2.2-2.3 so how in the world is he going to feel what shareholders "feel". He probably thinks the stock is a star performer. Has he paid $30, 20, 10, or even $4 for the stock with his hard earned money and based on company projections and talk? Its gotten so bad this week that people were jumping from UT to AIG or maybe Lehman the previous week as a "chance"/lottery ticket to get their money back quickly.
I could never get a price from the board that they were thinking of back in 2006. They had offers for the core business but obviously it was not good enough for them. However, now that they have cash and they are "excited" in the future outlook, they also don't seem to want to defend the stock. A few years ago, they posted the great revenue growth year after year. Now, they are proud of the head count reductions and expenses going down. Revenue growth/profitability? Those are "near term" goals. What is near term?
I "believe" the stock is a bargain under $5 but am warry the company/board has gotten used to subperformance of the company/stock. Fixing legacy problems have become "accomplishments". Lowering costs and reduced losses have become good performance. This week, Merrill Lynch sold itself to Bank Of America. Fellow shareholder techbroker wrote, is UT going to be a ML or a Lehman. I cling to the hope its going to be much much more but if the board let go in late 2006/early 2007, it would have been much better for shareholders. Instead, we continue to wait for profitability and dealing with the management/board who have set such a low performance bar for themselves (and they still can't clear it!).
Have a good rest of the week and hope the stock can make it two in a row this week.
BWS upgrade - From my Schwab alerts: BWS Financial upgraded UTStarcom (Nasdaq: UTSI) from Hold to Buy and maintains their $4.50 price target, citing valuation. The firm notes UTStarcom "shares have been battered since the Company announced second quarter results to a point where the stock is trading under projected cash value at the end of 2008. UTSI had $2.20 per share in cash at the end of the second quarter. The sale of the PCD business and the cash burn for the second half of 2008 should translate into UTSI having approximately $2.65 per share in cash at the end of the year."
NGN trials in Israel - Sep. 14--Taldor Group (TASE: TALD) has decided not to delay the trial of Bezeq The Israeli Telecommunication Co. Ltd.'s (TASE: BEZQ) next-generation network (NGN) at this time. Taldor is the representative of UT Starcom Inc. (Nasdaq: UTSI), whose equipment Bezeq will use for its NGN.
http://www.tradingmarkets.com/.site/news/Stock%20News/1879951/
Hopefully, this will result in actual contract(s) and revenue and not just wasted expenses.
India broadband/iptv - The discussions mainly between Shadow & Tigre regarding iptv in India continued this week with Shadow defending his 400k iptv subscriber target for UT in India in 2009 and Tigre saying its impossible. UT has basically said it has won 5 of 6 commercial contracts in India and has over 80% market share. It has 75% of wireline broadband and 34% of the broadband market (whatever that means). Anyway, India is critical for UT to showcase their core products much like Japan was a few years ago. If you have time to read this interesting back and forth, here is the link http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=155429&mid=155429&tof=4&frt=1
ZTE iptv market share in Shanghai - The article cited by Tigre indicates ZTE has a higher market share than UT. http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_U/threadview?m=tm&bn=27187&tid=155573&mid=155573&tof=35&frt=1 UT has indicated it has 62% of the iptv market in China, twice the number of any competitor. Market share will remain a hot issue during the next few years but the question is really when China iptv will ramp quickly. Recent iptv set top box orders indicate the market growth continues at a steady/slightly increasing pace. The Sigma Design earnings call also show iptv worldwide growth remains robust.
Nortel - I wrote a little bit about Nortel's 2008 revenue shortfall in my mid-week blog posting. There are no less than 4 articles in lightreading discussing the shortfall, asset sales, restructuring, and other outlook for Nortel. Nortel is trying to sell its growing carrier ethernet and optical networking division, part of its core businesses. Here is an excerpt: "Hubbard estimates that Nortel had a 3 percent share of a $533 million Carrier Ethernet Switch and Router (CESR) market for the quarter ending in June. The CESR market is likely to be about $2.1 billion in 2008, compared to $1.9 billion in 2007. So it's a growing area, but also very competitive, with 21 equipment vendors in the space, he notes. " http://www.lightreading.com/document.asp?doc_id=164054 I just wanted to highlight its market share and the heavy competition. Nortel overall company gross margins are in the 42-43% while UT is in the 25-27%. Without internal handsets, UT gross margins are in the 30s with some businesses in the 40s. While UT has to compete with ZTE and Huawei, it does maintain some good market share (see above) in certain areas and can stay competitive with their lower gross margins. They just have to pick their spots and control expenses.
Stock price, relative views - During the week when the stock was near its lows, I posted "its the stock price, stupid." I wrote, "Each member of management and the board has to ask themselves if they are even aware that a sub $5 stock for this company is unacceptable. You then have shareholders so beaten down that they are second guessing themselves if they should sell a $5 bill for $2.5. Unbelievable! Then, you have management/board PAY their consultants to decide whethere it is better to put the cash under the mattress or buy the stock at half book. I know they are "constantly" evaluating the market and the situation but this is just stupid."
First, I understand we are in a bear market but each individual/entity looks at the stock price differently. Some people will look at their cost basis like the world revolves around them and measure company performance base on that basis. The board back in 2006 decided to do a strategic study because they felt the stock (at $6/7) was undervalued. Some people need the cash and no matter what the price will sell. When Peter Blackmore joined the company, the stock was in the mid $5s, but his bonus/shares were granted at $3.2. Some shareholders bought in $30s-40s and think the performance has been terrible every since. The shareholder equity/book value is around $600m or $5/share but the company continues to lose money. The company has been spending more than $40m/quarter in R&D the last 5+ years so that must be worth something? In any case, what is the threshold for UT management/board? I had mentioned the $5/share price in the post just based on book value/shareholder equity as a starting point where there has to be a sense of major urgency. Some will talk about profitability. Period. The problem is the stock/underperformance by the company has been going on for so long that some people start to think its acceptable. The company's investor relations rep Barry Hutton joined the company when the stock was at its all-time lows $2.2-2.3 so how in the world is he going to feel what shareholders "feel". He probably thinks the stock is a star performer. Has he paid $30, 20, 10, or even $4 for the stock with his hard earned money and based on company projections and talk? Its gotten so bad this week that people were jumping from UT to AIG or maybe Lehman the previous week as a "chance"/lottery ticket to get their money back quickly.
I could never get a price from the board that they were thinking of back in 2006. They had offers for the core business but obviously it was not good enough for them. However, now that they have cash and they are "excited" in the future outlook, they also don't seem to want to defend the stock. A few years ago, they posted the great revenue growth year after year. Now, they are proud of the head count reductions and expenses going down. Revenue growth/profitability? Those are "near term" goals. What is near term?
I "believe" the stock is a bargain under $5 but am warry the company/board has gotten used to subperformance of the company/stock. Fixing legacy problems have become "accomplishments". Lowering costs and reduced losses have become good performance. This week, Merrill Lynch sold itself to Bank Of America. Fellow shareholder techbroker wrote, is UT going to be a ML or a Lehman. I cling to the hope its going to be much much more but if the board let go in late 2006/early 2007, it would have been much better for shareholders. Instead, we continue to wait for profitability and dealing with the management/board who have set such a low performance bar for themselves (and they still can't clear it!).
Have a good rest of the week and hope the stock can make it two in a row this week.
Wednesday, September 17, 2008
Discussions with shareholders
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.
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.
Subscribe to:
Posts (Atom)
