UTStarcom Posts Q4

ALAMEDA, Calif. -- UTStarcom, Inc. (NASDAQ: UTSI) , a global leader in IP-based end-to-end networking solutions and services, today reported select financial results for the fourth quarter and full-year 2004 ended on December 31, 2004.

The company will conduct a conference call today, Tuesday, February 8, to discuss these results. The call will take place at 1:30 p.m. PST/4:30 p.m. EST.

"While the difficult environment that UTStarcom faced in China led to disappointing financial results in the fourth quarter, we also took a number of important steps toward strengthening the company and made significant progress in our corporate transformation in both the fourth quarter and full year 2004," said Hong Lu, chief executive officer and president of UTStarcom. "Throughout the year, we announced several major international contract wins in new markets and launched a number of what we believe are disruptive and innovative solutions that will allow us to leverage our strengths and capitalize on the current trends in the telecom industry."

"My goal as CEO in 2005 is to focus on execution and a return to profitability and predictability to drive value for our shareholders," added Lu. "We intend to build on the experience we gained and lessons learned this year with the confidence that we are positioning UTStarcom for sustainable long-term growth."

Key Results:

Income Statement:

Sales:

Net sales for the fourth quarter of 2004 were $742.0 million, an increase of 15 percent over net sales of $643.6 million reported in the fourth quarter of 2003. Full-year net sales increased to $2.7 billion, an increase of nearly 38 percent over net sales of approximately $2.0 billion reported in 2003.

Backlog at the end of 2004 was approximately $1.2 billion, as compared to $1.06 billion backlog reported at the end of 2003.

Gross Margins:

Fourth quarter consolidated gross profit margin was 14.2 percent of sales. Gross profit margin for the historical business (excluding the Personal Communications Division business acquired in November 2004) was 20.1 percent of sales. Gross profit margin for the Personal Communications Division business was 4.3 percent of sales.

Operating Expenses:

Total operating expenses for the fourth quarter were $173.0 million, or 23.3 percent of sales. SG&A expense for the fourth quarter was $102.2 million, or 13.8 percent of sales, while R&D expense was $65.2 million or 8.8 percent of sales.

Net Interest and Other Income/Expense:

Net Interest and other expense for the fourth quarter 2004 ended as a net benefit of approximately $1.4 million.

Pre-Tax Loss:

Pre-Tax loss for the fourth quarter of 2004 was $66.4 million, consistent with preliminary results announced on January 6, 2005.

Income Tax:

When the Company announced its preliminary results on January 6, 2005, it had anticipated an income tax benefit of approximately $15 to $17 million for the fourth quarter and income tax expense of $5 to $7 million for the full- year 2004. The Company now anticipates an additional income tax benefit for the fourth quarter as well as a benefit for the full-year 2004. The benefit is driven by the sources of profits in the various tax jurisdictions in which we operate. For 2004, the Company had losses in high-tax jurisdictions and profits in low-tax jurisdictions, the net of which is a benefit for the quarter and the year. Additionally, the Company has experienced increases in its expected effective tax rates in certain jurisdictions in which it operates. As a result, the Company's deferred tax assets in those jurisdictions have increased resulting in additional benefit. The company is still in the process of determining the extent of the expected income tax benefit and the resulting Net Income and Earnings Per Share calculation.

Extraordinary Loss:

Pre-tax extraordinary loss for the fourth quarter of 2004 was $1.2 million.

Net Income/EPS:

As a result of the anticipated tax benefit discussed above, the Company now anticipates its net loss to be smaller than its initial guidance given on January 6, 2005. The Company expects to complete the tax benefit analysis and final Net Income and Earnings Per Share results over the course of the next few weeks and will publish full financial statements when complete.

Selected Key Balance Sheet Items:

The results reported above are subject to finalization pending the completion of the company's annual audit of its financial statements by its independent registered public accounting firm. The Company anticipates a timely filing of its 2004 Annual Report on Form 10-K.

UTStarcom Inc.