The conference call is worth listening to. This article from RCR Wireless News includes some points from that presentation. Specifically interesting:
*Audiovox margins @ 4% on over $270 million revenues reduce blended gross margins for the quarter to 15%. (That 4% is on previously developed handsets with an ASP of close to $180, and UTStarcomm plans to introduce low-cost handsets under the Audiovox and UTStarcom names. Those will not be higher margin, to say the least).
* "International", according to Mike Sophie, was $120 million of $740 million in revenues. Hong says that was "on track for this quarter", but it's a long way from the 50% targeted for 2005. I wouldn't be surprised to see them deflect the reality next year by ringing in some Audiovox revenues, which are currently separate from International. "China" was $355 million, blamed on a "slow economy", and more specifically... there was $100 million not finally accepted in time (by Telecom, apparently), which they will move in to '05 ( if it happens). UTStarcom blames the management shakeup engineered by the State Council and MII, during which top management rotated among China Telecom, China Mobile, and China Unicom. Netcom's head was very recently appointed and spared the rotation. Capitalist observers, like Goldman-Sachs, were appalled by this degree of State control. But you don't have to read too tightly between the lines to understand that this move was specifically targeted toward unearthing corruption at the highest levels, which is in fact wasteful of State Assets. It will be interesting to see if that $100 million gets done. In any event, that's not the only money pushed into '05. Look back to last quarter, and find Japan Telecom's $290 million going to '05 too, without raising overall revenue targets, stratospheric at $4 billion. That was brought out by a questioner.
* The last question was directed to Hong. Basically...how does PAS Xiaolingtong service stand wrt pricing to the user, now that GSM and CDMA prices to subscribers have fallen? Hong asked for clarification of this simple question, got it and tap danced all around it, finally saying sub growth is bad all over, but we did better. Pure non sequitur. Sophie asked the questioner if that answered his question. "Uh huh". The analysts look bad here, and they don't like that. Their own ignorant, slothful fault, but they tend to blame the company for the bum steer.
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UTStarcom shares dive as company cuts 4Q revenue expectations
By Mike Dano
Jan 7, 2005
Investors lashed out at wireless vendor UTStarcom Inc.-sending the company's stock down more than 23 percent to around $15.32 per share-following the company's announcement that its fourth-quarter revenues will be well below its previous guidance.
Some analysts also reacted with hostility, as both Smith Barney Citigroup and Banc of America Securities downgraded their "buy" opinions on the company. Others were a little more forgiving.
"Despite yet another stumble in its transition, we remain cautiously optimistic for UTSI's future and believe that the company will be able to turn things around in 2005," wrote analyst firm ThinkEquity in a note to investors. "We are establishing our 2006 estimates and maintaining our accumulate rating and price target of $18."
After the market closed Thursday, UTStarcom announced it expected revenues for the fourth quarter of between $740 million and $745 million, way below its initial guidance of between $875 million and $885 million. The company said it would post a loss in the quarter of between 40 cents and 45 cents per share.
Analysts polled by Thomson First Call predicted the company would have posted $874 million in revenues in the quarter and earnings of 1 cent per share. UTStarcom is scheduled to report its full fourth-quarter results Feb. 8.
UTStarcom blamed its dismal expectations on sluggish sales in China. The company sells its PAS network gear and handsets in the country. It said there were disruptions associated with changes in senior management at the main carriers in China, and a shift of decision making away from regional entities and toward carrier headquarters. UTStarcom said the disruptions caused delays in both the execution of contracts and final acceptances. The company also said both China Telecom and China Netcom did not implement the anticipated increase in promotional spending at the end of the year from which UTStarcom has historically benefited.
However, UTStarcom said its new Audiovox handset business did better than expected and will likely contribute around $270 million in revenues. UTStarcom said its China business will generate around $350 million and its international business around $120 million. The company said its core business enjoyed margins of around 21 percent, and its Audiovox handset distribution business had margins of around 4 percent.
"While the transformation we have undertaken explains much of the volatility we have experienced, a loss of this magnitude is unacceptable. In addition to the progress we have made in the international business, we are also reducing expenses and continuing to focus on gross margin improvement and have aligned the organization along three major business areas for increased focus," said Hong Lu, the company's chief executive officer and president. "I believe that 2005 will be the year when we successfully complete the process of transformation and position UTStarcom for sustainable long-term growth."
In other UTStarcom news, the company said it is now shipping the Audiovox CDM-8615 to Bell Mobility in Canada and Metro PCS and Cellular South in the United States.
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