Hopscotching Across Asia In Search Of Cash
BY AMY REEVES
INVESTOR'S BUSINESS DAILYThe New America
Friday, May 23, 2003
IBD New America Index
In the U.S., the telecom industry is still getting over a late-1990s supply glut. But in much of the world, the great telecom networks are still being built.
For a dozen years, UTStarcom Inc. (UTSI) has worked in the biggest developing market: China. Though based in California, the telecom gear maker gets more than 80% of its revenue from China. Its market share there runs around 60%.
Having conquered the biggest Asian market, UTStarcom is moving on to the second biggest: India.
"If you take a look at India, it has demographics very similar to China's eight years ago," said Mike Sophie, the firm's chief financial officer. "It has a billion people, but only 35 million fixed phone lines. In an environment such as this, we realized we could grow in a very big way."
'India, India, India'
UTStarcom entered India in October 2000, when it signed a deal to provide broadband gear to an area in the country's northwest.
Since then it's cut more and bigger deals.
Last month Tata Teleservices Ltd., India's largest private basic-service operator, contracted a deployment of 56,000 lines using the same technology.
UTStarcom also has made moves into Vietnam, Japan, Panama and Eastern Europe. But analysts agree on where the action is.
"It's India, India, India," said analyst Kevin Dede of Merriman Curham & Ford Co. "There are some interesting things going on there from a regulatory perspective."
The once-closed Indian market has opened to more competition in telecom. UTStarcom sells its gear to both Bahrat Sanchar Nigam Ltd. — one of the nation's old-line phone companies — as well as newer players such as Tata.
Though the Indian and Chinese markets are similar, UTStarcom doesn't yet have the relationships in India it has in China.
Hong Liang Lu, the firm's chief executive and co-founder, is a Chinese-American. After visiting China more than a decade ago — and finding how frustrating it was to make a simple phone call — he smelled a business opportunity.
Lu founded Unitech in 1991, selling gear exclusively to China. In 1995 it merged with Starcom, another telecom provider run by Chinese-Americans.
UTStarcom is so well regarded in China that it was recently allowed into a meeting that was supposed to be open only to Chinese companies, says analyst Joe Noel of Pacific Growth Equities.
"They're so close to the telecom carriers there, they really know what's going on," said Noel, who has no professional relationship with UTStarcom. "(The firm) pulls a lot of weight."
Eyeing New Markets
UTStarcom is interested in more than just Asian countries, however. It's also scoping out business in Africa. Noel says the firm is specifically targeting Nigeria, though Sophie says it could be one of several nations.
"It's a market with a lot of people, with a very low teledensity," Sophie said. "If they've got the money to buy the equipment, it's a market we'll go after."
His firm isn't ignoring the rich countries, either. Its connections with Japanese software giant Softbank — Lu was once a business partner with that firm's founder — helped UTStarcom nab a deal to supply gear for Yahoo Inc.'s (YHOO) DSL service there.
The Yahoo deal takes a new approach to broadband. It skips over the asynchronous transfer mode systems that most broadband networks use and instead works through an Internet Protocol network.
For the nontechies out there, that means it saves energy and money.
UTStarcom sells this new approach not only in Japan, but also in Taiwan, India and Latin America.
Meanwhile, the firm is trying out rural telecom networks here in the U.S.
In March it agreed to buy $100 million worth of assets from 3Com's (COMS) CommWorks division. That brings in a number of contacts with U.S. telecoms such as Sprint Corp., (FON) Verizon Communications Inc. (VZ) and SBC Communications Inc. (SBC)
"(The buyout) will give us a sales and support organization here in the United States, so we're quite optimistic about our growth in North America," Sophie said.
For now, the foreign focus keeps UTStarcom's profit growing at slump-defying levels. Its first-quarter earnings more than doubled from the prior year to 33 cents a share. Sales were up 80% to $330.5 million.
Analysts polled by First Call expect full-year earnings to rise 62% to $1.52 a share, then hit $1.79 in 2004.
Questions have been raised about potential accounting problems of companies with heavy operations in China. The country has a reputation for business corruption.
Still, Dede downplays those fears.
"I don't think there's much end-market risk for them," he said. |
