UTStarcom: Waiting for IPTV
UTStarcom Inc. (Nasdaq: UTSI) reported decreased revenues and widening losses in the third quarter, as the company continues searching for new revenues to fill the void left by its diminished PAS handset business. (See UTStarcom Reports Q3.)
Officials described the company as in a product transition that will eventually see eroding revenues replaced by new CDMA and IPTV products, but the timing is somewhat vague. The promise is that this will happen in the 2006/2007 time period, according to CEO Hong Lu.
CEO Lu also said the disappointing revenue numbers are seasonal, caused by carriers discontinuing handset promotions during the summer months.
"We will continue to build on our current strengths -- DSLAM, PAS, and handsets -- while we move to new revenue opportunities like IPTV and CDMA, and there the opportunity is great," Lu told analysts Thursday.
The company reported a loss of $402.7 million, or $3.40 per share, on revenues of $635.3 million, compared with earnings of $5 million, or 4 cents a share, on revenues of $645 million during the year-ago quarter.
Thomson First Call analysts were expecting a net loss of 70 cents a share on revenues of $627 million.
As part of its restructuring plan, UTStarcom took several large “goodwill” and related tax charges totaling $341.4 million during the quarter for various assets it determined are “below book value.” On a per share basis, the charges represented a loss of $2.89. (See UTStarcom Stung Again.)
The company says it has substantially reduced operating expenses and will continue to identify new areas where it can reduce costs during the fourth quarter. More staff reductions are coming in the fourth quarter.
The company warned analysts and investors October 5 that it would miss third-quarter targets mostly because of $40 million in IPTV equipment revenue that had been pushed out to the fourth quarter. (See UTStarcom Stung by Softbank and UTStarcom Warns on Q3.)
But the company’s IPTV business remains less than 10 percent of its revenue, so a delay in payment from one IPTV customer seems somewhat of a red herring. IPTV, at least in the near term, isn’t a big enough business to bring back UTStarcom’s glory days, even if everybody pays on time. (See UTStarcom Plans New Brand.)
Lu believes the IPTV and CDMA markets will, in time, become key sources of revenue for the company. “We expect it will be lumpy from quarter to quarter, but smooth out as products roll out in 2006 and 2007.”
Lu says his company’s PAS handset business in China, which is expected to account for 20 percent of fourth-quarter revenues, remains a big part of UTStarcom’s future.
"This will be an ongoing revenue source for us. PAS handset users are expected to top 100 million in China by end of 2006, which will translate into new infrastructure and handset sales.”
For now, UTStarcom’s bread and butter appears to be its Personal Communications division, the wireless device manufacturing business it bought from Audiovox Communications Corp. (Nasdaq: VOXX) a year ago. The division brought in $364 million of the company’s $635 million in revenue in the third quarter, and the company expects the division to contribute 50 percent of its revenues in the fourth quarter.
The Personal Communications division, with the help of some third-party manufacturers, produces handsets, handheld PCs, and wireless modems. The company says it sells its devices mainly to carriers in North and South America, and it now supplies every CDMA carrier in the U.S. and Canada.
By contrast, UTStarcom’s broadband division, which includes its IP DSLAM and IPTV infrastructure businesses, brought in only $33 million of the company’s revenue during the third quarter, CFO Fran Barton told analysts Thursday. (See Softbank Expands With UTStarcom.)
UTStarcom’s geographic mix of sales has also changed radically in the last year. Sales to China accounted for 33 percent of total third-quarter revenue this year, compared to 91 percent in the third quarter of 2004.
UTStarcom expects to bring in total revenues of between $650 million and $680 million in the fourth quarter, and a loss per share of between 45 cents and 55 cents. It also expects more restructuring charges, but only between $20 million and $25 million.
Analysts tracked by First Call expect a fourth-quarter loss of 15 cents per share on revenues of $760 million.
— Mark Sullivan, Reporter, Light Reading