UTStarcom Logs Bittersweet Q4
The Alameda, Calif.-based company announced late Thursday it had fourth-quarter revenues of $685.5 million, besting Street estimates of $664 million. Revenues were also up sequentially from $635.3 million last quarter, but down about 8 percent from last year’s $742 million.
The company reported a net loss, after special items, of 60 cents per share. The Street had expected a loss of only 54 cents per share. (See UTStarcom: Waiting for IPTV.)
The company waxed gloomy in guidance for the first quarter of 2006. The Street had expected revenues of $631.3 million, but UTStarcom management is committing to only $505 million to $535 million. (See UTStarcom Names COO.)
UTStarcom stock was trading at $6.60 in late-day trading, up a penny (0.15%) after closing Thursday at $6.59.
The management believes the company will return to profitability in late 2006 or early 2007. But investors remain wary of the company’s promises, as several chronic problems seem alive and well at UTStarcom.
The first problem involves the accurate reporting of revenues. (See UTStarcom Delays 2003, 2004 Filings and UTStarcom Files Amended 2003 Report .) UTStarcom said it couldn’t release a full set of fourth-quarter results because it is looking into possible reporting irregularities related to a $22 million dollar contract signed in 2002. (See UTStarcom Tackles FMC .)
The company’s handset business brought in $348 million during the quarter, but analysts remain cautious on the business.
“Our concern is that the organization may have underestimated the difficulties associated with designing differentiated wireless handsets, homologating the product within wireless operators, and getting shelf space among a myriad of competitive offerings,” Jefferies & Co. Inc. analyst George Notter wrote in a research note. (The monkey is still researching "homologating"; the word may violate LR publishing guidelines.)
UTStarcom’s once-mighty PAS handset business continues to flag. The business is focused on providing low-cost wireless phone service in rural China, but demand has collapsed over the past 18 months. The company sold only $93 million in PAS handsets and $128 million in PAS infrastructure during the fourth quarter.
Management has long pledged to reduce dependence on the Chinese market, but 30 percent of the company’s revenue still comes from there. And analysts remain concerned. “Risks to our investment thesis primarily surround UTStarcom efforts to diversify its revenue stream away from the Chinese market and the PAS systems business,” says Prudential Equity Group LLC analyst Inder Singh in a research note.
"As the company seeks to build new business relationships involving new products and markets, revenues and profitability could deviate significantly from our forecasts,” Singh adds.
On a brighter note, UTStarcom’s broadband business -- which includes its mVision IPTV hardware and software products -- had a fairly solid quarter fueled by income from its deal with SoftBank Corp. in Japan. The business unit reported revenues of $97 million, up from $32.9 million in the third quarter. (See UTStarcom Rolls With New IPTV Name.)
The large jump was caused by a delayed recognition of a $40 million IPTV payment from Softbank, UTStarcom says, but even discounting that, the broadband business showed healthy growth. (See UTStarcom Stung by Softbank.) UTStarcom had projected revenues of only $65 to $68 million for the quarter. (See Softbank Focuses on UTStarcom's mVision.)
“Management attributed the Q4 upside to higher CPE sales, noting strong IPTV set-top box business associated with Softbank which should continue going forward,” Notter notes. (See UTStarcom Lands China DSLAM Deals.)
— Mark Sullivan, Reporter, Light Reading