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UTStarcom Profits, Revenues Growing

While telecom vendors are whining about SARS, UTStarcom Inc. (Nasdaq: UTSI), which sees most of its sales in China, is today reporting a 75 percent year-over-year profit jump for its second fiscal quarter of 2003.

The company is reporting a profit of $39.4 million, or 33 cents a share, for the quarter, compared to a profit of $25.7 million, or 22 cents a share during the year-ago period. UTStarcom's net sales for the quarter were $405.8 million, compared to $231.5 million in net sales reported in the second quarter of 2002. Wall Street analysts were expecting the company to earn 30 cents a share on revenues of $391 million.

The company is also raising its yearly earnings estimates for the second time this year. It now expects revenues for 2003 to be in the range of $1.80 billion to $1.82 billion. It expects revenues for its third quarter to be in the range of $495 million to $505 million, with earnings per share somewhere around 42 or 43 cents a share.

At least one analyst this year has bought into UTStarcom's story over the long term. Pacific Growth Equities Inc.'s Joe Noel raised his 2004 revenue estimates for the company to a whopping $2.5 billion, a number that might end up being conservative if UTStarcom continues growing at such a quick clip.

Noel wrote last month that he expects 24 percent of its total sales to be from wireline equipment, such as DSLAMs, DLCs, and optical transport gear (see UTStarcom Climbs on Estimate Boost).

Now that UTStarcom has shown it's a survivor, it's worth asking what companies UTStarcom may buy as it keeps expanding and trying to win more business outside of China. So far this year, the company has bought 3Com's CommWorks group, an established business; Xebeo, a struggling startup; and RollingStreams, a development stage startup (see 3Com Completes CommWorks Sale and UTStarcom Nabs RollingStreams, Xebeo). It has also started quietly reselling gear from Turin Networks Inc. in an attempt to provide transport switches for U.S. carriers (see UTStarcom Tiptoes Into Transport).

— Phil Harvey, Senior Editor, Light Reading

BlueWater66 12/4/2012 | 11:44:47 PM
re: UTStarcom Profits, Revenues Growing Are they really that good? I've just pulled up their numbers (part of a Credit Suisse report) and a couple of things caught my attention ...

1) Inventory has increased to $795M from $119M last year.

2) Accounts payable (called Days Payable Outstanding in their report) is now AVERAGING 166.2 days. Let me repeat - 166 days to pay vendors on average. My god, how do people do business with them???

3) Inventory turns are 1.1

4) They have a large "deferred revenue" number that has been rapidly increasing. What is hiding behind that.

If I were thinking about investing in them, I would be somewhat concerned. Payable number is interesting :-)

My two cents. Comments? Maybe I'm missing something. CSFB made no mention of any of those points.
grapsfan 12/4/2012 | 11:44:36 PM
re: UTStarcom Profits, Revenues Growing Good eyes, BlueWater. Nice to see people looking for things that make a good company, rather than just "they've got good technology."
These numbers, especially their inventory turns, are brutal. If you have nearly a year's worth of inventory in-stock, that's terrible.

That's a fixable issue, however. One could expect a startup to not have a lot of good data on manufacturing rates and shipping. Their business booms, probably somewhat unexpectedly since things in general are still slumping. A quick ramp-up can often lead to those kinds of problems. I haven't looked, but I'd be curious to see what their DSO (Days Sales Outstanding) rate is, because it's one thing to have a lot of stuff lying around, but quite worse to also take a long time to get it there.

There's no excuse, however, for the DPO number. Burning your vendors is no way to run a business. Eventually, people will stop selling them their frames, chips, whatever...tough to make hardware without hardware.
Physical_Layer 12/4/2012 | 11:44:02 PM
re: UTStarcom Profits, Revenues Growing I have no real knowledge of this company, so just a quick comment on financials in general.

DPO should not be that high but if they have a lot of expenses that are billed right at the end of the quarter this would lead to a high number. Just a possible explanation.

Inventory turns ... yah, 1.1 is pretty crap.

Deferred revenue means they have taken payment for something that can't yet be considered revenue, ie, say you get an upfront cash payment for some tooling that you must make, and you haven't yet delivered the tooling. You could record it as deferred revenue, since the rev is essentially guaranteed as long as you deliver on your part of the bargain. Some people like to see growing deferred rev.
WiserNow 12/4/2012 | 11:43:53 PM
re: UTStarcom Profits, Revenues Growing UTStarcom is a throwback. Because they have much of their cost basis in China, paid at Chinese wages, they've skated easily till now, using bubble-like methods. Cheap, quick and fix-it-in-the-field mentality is not well received these days. It is also a killer if you build up inventory of merchandise, later found to be flawed, so it needs rework before it can be sold.

UTStarcom has quite a bit of heritage from Ascend Communications, who mastered this mentality. Not sure it plays well in today's market. I don't remember the name, but one of the Directors from Ascend joined UTStarcom's board.

I love seeing companies post profits, but I wonder what their profits would look like if the DPO number were more sensible and if they scrubbed their inventory numbers.

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