| UTStarcom (UTSI) 16.32 +0.31: This provider of wireless, wireline and broadband access equipment is getting a lift this morning after it announced its largest single contract in company history. The deal totals approximately $52 million and calls for the company to install its PAS city-wide wireless access system in the Zhejiang province of China. UTSI is different from other telecom companies in the sense that nearly all of its sales are in China. Not surprisingly, the telecom market is very different in China as compared to the U.S. The world's most populous country is still in the early stages of its telecom infrastructure development and the Chinese government has made it a high priority. UTSI estimates capital spending in China is $31 billion this year vs. last year's $25 billion. Management expects UTSI's sales to grow 40% this year to $515 million. China's demand for communications services is highlighted by its relatively low teledensity rate, which is a measure of the number of lines per hundred people. According to 1999 statistics from the International Telecommunication Union, China, with a population of 1.3 billion, has a teledensity rate of only 8.6% compared to teledensity rates in Brazil of 14.9%, in the United Kingdom of 57.5%, and in the United States of 68.2%. While growth in the China communications market is currently driven predominantly by voice services, the increasing demand for data services presents a growing opportunity. The Economist Intelligence Unit estimates that China's GDP will grow at a compound annual rate of 7.9% through 2002. UTSI's operating results reflect the attractive market dynamics -- in its fiscal second quarter, net sales for the second quarter of 2001 increased to $140.0 million, an 85% increase over the $75.7 million in net sales reported in the prior year period. Net income for the quarter increased roughly 87% to $15.3 million. Yet the shares also have an additional longer-term catalyst -- this Summer, Beijing was awarded the 2008 Olympics which should spur development in China even more quickly. The CEO of Sohu.com (SOHU), who is co-leading a delegation of 290 businesses to support the Olympics, estimates the government will spend over $20 billion modernizing the city's infrastructure, including sports facilities, transportation systems and telecom networks. In the current market environment, there aren't many businesses in the tech arena with fundamentals comparable to UTSI's. The shares trade at 25x estimates for fiscal 2001 and 19x forward projections. It's also worth mentioning UTSI has beat consensus estimates by an average of 12% over the prior four quarters. With its demonstrated operating results and attractive addressable market, we believe UTSI represents a compelling investment opportunity for the investor with a longer-term time horizon. -- Michael Ashbaugh, Briefing.com |
