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UTStarcom Unloads Q3 Warning

UTStarcom Inc. (Nasdaq: UTSI) today reported that its second-quarter revenues had grown by 5 percent, and it beat analysts' estimates for the quarter (see UTStarcom Reports Q2, Adds CFO). But concerns about the company's restructuring and third-quarter projections dampened any optimism executives exuded on the conference call.

The Alameda, Calif.-based company reported a second-quarter loss of $74.7 million, or 65 cents per diluted share, on revenues of $723 million, compared to a profit of $44 million, or 33 cents a share, on revenues of $689 million during the year-ago quarter.

UTStarcom’s numbers were better than analysts' expectations; they had projected UTStarcom losing 77 cents a share on revenues of $735 million, according to Reuters Research.

But concerns over the company's coming quarter took the stock down a notch. In normal trading on Tuesday, UTStarcom shares slipped $0.28 (3.17%) to $8.54. After hours, the stock fell another $0.64 (7.49%) to $7.90.

The vendor expects it will lose between 35 cents a share and 40 cents a share on revenues of between $660 million and $680 million during the third quarter. Analysts were expecting UTStarcom to report revenues of $778 million for the third quarter, according to Reuters Research, a figure off by at least 14 percent.

UTStarcom's second quarter numbers include restructuring charges of approximately $20.7 million, or 16 cents per share. The company expects the restructuring to be completed in the third quarter, CFO Mike Sofie told analysts Tuesday. It's worth noting that analysts' expectations for next quarter don't usually include one-time items like restructuring charges.

Of the 1,400 employees the company is firing as part of its restructuring, Sophie says, UTStarcom has already cut 960. Sophie says the company expects to return to profitability during the fourth quarter of this year.

“While I think it is prudent to remain cautious, I think there is reason to be optimistic about UTStarcom’s future prospects,” says CEO Hong Lu.

The company announced that Francis Barton will take over Sophie's role as CFO next month. The move was necessary because of the “increasing complexity of the organization,” Lu says.

UTStarcom reports $490 million in wireless infrastructure equipment sales; $342 million in handset and CPE sales; and $74.2 million in broadband equipment sales.

Apart from UTStarcom's stated strategy to internationalize its business, the company’s CDMA business is ramping up in China (see UTStarcom Lowers Q4 Guidance). UTStarcom announced earlier this month it would make an initial shipment of 250,000 handsets to China Unicom Ltd. (NYSE: CHU). China Unicom is the second largest CDMA operator in the world with more than 30 million subscribers.

In fact, thanks to its CDMA handset sales in China, UTStarcom's second-quarter revenues rose 5 percent from a year ago. The company says 40 percent of its total revenue came from China during the quarter. UTStarcom told analysts earlier this year that only 20 percent of its revenues would come from China by the end of the year.

The company also announced a deal in which it will deploy approximately 500,000 IP DSLAM lines with China Telecommunications Corp. (NYSE: CHA). (See UTStarcom Lands China DSLAM Deals.)

The company said late last year it expects $4 billion in revenues for 2005.

— Mark Sullivan, Reporter, Light Reading

paolo.franzoi 12/5/2012 | 3:06:39 AM
re: UTStarcom Unloads Q3 Warning
Point directly to negative gross margin products.

seven
alcaseltzer 12/5/2012 | 3:06:38 AM
re: UTStarcom Unloads Q3 Warning I thought they said at the end of Q1 that all 1400 affected employees would know by June 30. But they've only let 960 go? What about the other 440?

Phil - time to stop doing video lovefests with Bill Huang and ask some hard questions.
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