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Technology Stocks : UTStarcom Inc. (UTSI) -- Ignore unavailable to you. Want to Upgrade?

To: quartersawyer who wrote (309)	7/15/2004 8:03:07 PM
From: quartersawyer	Read Replies (1) \| Respond to of 438

TMF's Bill Mann baffled by UTSI's drop. ------------------------ July 15, 2004 At year's beginning, when everyone in the world was all hot and bothered about the "sure thing" of China's economic ascendancy, we had a simple warning, borne of years of watching such sure things: "Watch out." One particularly incoherent Ivanhoe Energy (Nasdaq: IVAN) shareholder promised to write me every single day as the company continued to plow to ever higher prices on the back of its China projects. The company is down nearly 70% in the interim. I don't hear from him much, though I would note that the stock is up today. I miss my friend. Maybe he'll write. Right when everyone got all excited about China, it slowed. It slowed even more when its central bank cranked down on domestic borrowing. Add in some good old-fashioned securities fraud among some big Chinese companies like ChinaLife (NYSE: LFC), and the love affair, perhaps predictably, cooled off in a hurry. That the speculative excess is being purged is a good thing. It must be remembered, though, that just because China's growth to the sky story has been discredited doesn't mean that the overall trend isn't true. And some of the companies that are making money in China have been savaged in the market along with the ones losing money to China. I try to track both kinds of companies. One of the former, UTStarcom (Nasdaq: UTSI), continues to have significant growth and contract wins in China and elsewhere, though its stock has been battered along with nearly every other "China story." Were UTStarcom given a seat on the rocketship along with other China-centric companies that would be understandable. It wasn't. At present, the company trades at a P/E of about 15, and after I make some cyclical adjustments to its cash flows from operations, I calculate free cash flow to be at about the same level. The company has a net cash position of some $350 million, lowering its enterprise value further. UTStarcom's business is one that has specific application to low-income regions. Its core product is discount wireless phone equipment and handsets. Yes, mobile phones, the same business where Nokia (NYSE: NOK) is getting slaughtered by a global glut. But UTStarcom's application is a little different. Their hand-phone technology has limited reach, which matches well with -- you guessed it -- people with limited financial means who would like the freedom of wireless phones and who do not require much mobility, in areas where legacy telecom infrastructure is rare to nonexistent. How much of China falls under this definition? Try most of it. At the moment, UTStarcom equipment services some 32 million such customers in China alone, mainly through China Telecom (NYSE: CHA). The company recently signed a $55 million deal to provide IP-based coverage to China Telecom customers in Shanghai, where the company estimates it holds more than 50% of the infrastructure market. Where else is the company operating? It signed a deal in May with Chunghwa Telecom (NYSE: CHT), Taiwan's national carrier, to provide broadband services. It also is launching programs in Chile, Honduras, and elsewhere in Latin America, and most recently signed a messaging services contract with American VoIP carrier Vonage. But it seems that UTStarcom is painted with three brushes: telecom, which is bad; China, which for the time being is bad; and wireless, which is also bad. That's fine. UTStarcom has used the negative sentiment to launch a 5 million share buyback campaign, as well as an acquisition of Audiovox's (Nasdaq: VOXX) handset division, which has posted 50% revenue growth over last year. And yet, the stock continues to drop. Sometimes the stock market simply makes no sense at all. .... Bill Mann owns shares in Chunghwa Telecom. Does UTStarcom qualify as a Hidden Gem? Come see what Tom Gardner and his guest analysts dig up each month. A free trial is yours for the askin'. ----------------------------------------------------------- I wrote to him, among other things: "Netcom and Telecom will soon develop true mobile networks, possibly within a merged condition. A merger with China Mobile or Unicom would create a market for the PAS/GSM handset, but the PAS forte has been low cost service, inferior and dependent on a superabundance of fixed copper infrastructure, but still low cost and serviceable while Netcom and Telecom were without mobile licenses. New contracts with new 3G mobile licenses will pit UTS against the big boys, who will be focused. UTS has no experience with CDMA, notwithstanding their vaunted associations with Datang and Qualcomm. Unless UTStarcom retains its suspiciously favorable political connections, their position in China will turn way down, and they will never be able to reproduce their Chinese experience anywhere else in the world." Maybe they had decision makers in China buying UTSI stock at the end of '02, and if Hong is lucky, they still own it. Or are those the shares the company might buy back? The Softbank deal was pretty fuzzy like that, just backwards.

To: quartersawyer who wrote (309)	10/29/2004 4:16:45 PM
From: quartersawyer	Respond to of 438

UTStarcom bid too high on a broadband systems integration project for MTNL in India. Ericsson got the business. [$88M] indiantelevision.com MTNL is a State-controlled telecommunications operator, soon to be merged with BSNL, the other (much larger) State-controlled Indian operator. That kind of business is critical to weaning UTSI from WLL/PHS in China, but UTStarcom is among stiffer global competitors than it faced in late 2002 rigging PAS in China. ------------------------------- A fast-growing and lucrative Chinese telecom market has been UTStarcom Inc.'s (Nasdaq: UTSI - message board) bread and butter, fueling the company’s rapid growth and aggressive forecasting throughout the past two years (see UTStarcom Reports Big Profit and UTStarcom Posts Record Q1 ). But the company's meteoric rise may be tapering off (see UTStar Cuts Estimates, Board Member Resigns and UTStarcom Accounts for Errors ). Growing pains and competitive pressures now have analysts wondering how fast the vendor can win some significant deals in other countries. Earlier this week, UTStarcom again reported a drop in quarterly earnings, which company officials blamed on shrinking margins in the Chinese market. It's not that UTStarcom's revenues in China are down. The problem is that cutthroat competition means UTStarcom keeps less money from each sale. The company's third-quarter net sales were $645 million. That's 10 percent greater than the $584.4 million it reported last year -- and better than analysts’ consensus expectations of $591.5 million. It's noteworthy that UTStarcom had already adjusted its guidance downward on September 20 from between $695 and $700 million to between $590 and $600 million. While its revenues were up, the company earned $5 million, or 4 cents a share, for the quarter ended September 30. That's down from $59.1 million, or 46 cents a share during the year-ago period. Analysts’ had predicted earnings of 3 cents per share for the quarter. CFO Mike Sophie explained that downward pricing pressure and increased competition are eroding margins in its Chinese market, while the company works to develop higher-margin markets in Japan, North America, and Latin America. Company officials and analysts agree that UTStarcom's future is tied to developing markets outside China and the company is now challenged to survive those growing pains. “There are two ways you can reduce your focus on China,” says analyst Joe Noel of Pacific Growth Equities Inc.. “You can grow in other places to the point where China’s percentage [of sales] goes down, or you can simply cut in half the business you are doing in that market; UTStarcom is doing a little of both.” Noel believes that China can remain a strong source of revenue though 2005 while the company develops new markets. “China is not growing quickly now compared to the rapid growth of 2002 and 2003; but China has traveled a long way down the road with UTStarcom technology for three years now, and they can’t turn back now.” Some, however, are concerned that UTStarcom's diversification isn't happening quickly enough. “China was still 91 percent of the company’s business this quarter,” notes analyst Reginald King of W.R. Hambrecht & Co. “They say that number will go down to 50 percent in early 2005, and they told us it would begin changing in the second quarter, then in the September quarter, but we are still not seeing much progress in that direction." King says the main objective of the company's most recent conference call was to reassure analysts that the company has good reason to remain confident about, and committed to, its 2005 earnings estimate of $4 billion in sales and between $2 and $2.20 in earnings per share. “I know that we are going through a temporary period of volatility," said UTStarcom CEO Hong Lu on the call. “However I am not running the company for the success of just one or two quarters; I am focused on delivering long-term growth, profitability, and a dominant market position.” — Mark Sullivan, special to Light Reading lightreading.com