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Axe Falls at UTStarcom

The numbers are in for UTStarcom Inc. (Nasdaq: UTSI), and not just for tardy 2006 earnings -- the company is laying off 700 staff, roughly 11 percent of its workforce, it announced Wednesday.

The staff cuts are part of the restructuring announced last month by Peter Blackmore, the company's chief operating officer and CEO designate. (See UTStarcom Unveils New Look.)

The earnings announcements are for the third and fourth quarters of 2006. Like many tech companies, UTStarcom stopped filing quarterly earnings while the company reviewed its books to account for stock options expenses. (See UTStarcom Reports 2006 Earnings and UTStar to Restate Earnings.)

Asked about the layoffs in a conference call with analysts yesterday, Blackmore was vague, noting that each sector of the company was examined. Cuts were made in an attempt to bring each segment to profitability, or at least break-even, by next year.

UTStarcom aims to cut its quarterly costs by $10 million to $15 million, officials said last month. These layoffs, however, will produce savings of $21 million per year, the company said yesterday -- a figure that averages to barely half the target.

But UTStarcom says the rest of the cost savings won't come from big layoffs. Small ones, perhaps. "There may be some minor tidying up," Blackmore said.

Possibly more interesting to analysts was UTStarcom's investigation into sales practices in one part of China. The company had warned earlier that some revenues had been improperly recognized, and the total came out yesterday: $278.6 million for the years 2000 to 2005.

"The reason for the restatement was that some of these sales contracts had commitments for future deliverables, and therefore revenue had been recognized prematurely," CFO Fran Barton said on the conference call.

While there's no effect to UTStarcom's cash reserves, that $278.6 million -- along with $97.7 million of on-paper net income -- will have to get redistributed to future quarters.

"Parts of it will even go as much as eight more years," Barton said, estimating that the revenue effect per quarter will come out to around $8 million.

Regarding the tardy 2006 earnings, also announced yesterday, analysts knew UTStarcom would be in the red. But the third and fourth quarter numbers came in worse than expected.

For its third quarter, which ended September 30, 2006, UTStarcom reported revenues of $601 million and net losses of $43 million, or 36 cents per share. Analysts were expecting losses of 32 cents per share, according to Thomson.

In the fourth quarter, ending December 31, 2006, UTStarcom clocked in with revenues of $704 million and losses of $42 million, or 35 cents per share. Analysts were expecting losses of 34 cents per share.

UTStarcom shares fell 18 cents (3.7%) to $4.75 in after-hours trading last night.

— Craig Matsumoto, Senior Editor, Light Reading

bollocks187 12/5/2012 | 3:00:56 PM
re: Axe Falls at UTStarcom This practise of overstating revenue is true for ZTE and Huwaei so UTS is not alone. it mist be difficult in China to actually track performance.
bollocks187 12/5/2012 | 3:00:56 PM
re: Axe Falls at UTStarcom Looks like the COO is getting to grips with the company. Next step is to quickly make him the CEO. Hong could not fix the problems or was in denial to save himeself.
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