UTStarcom Readies Plan B

The new management team at UTStarcom Inc. (Nasdaq: UTSI) has rejected the prospect of any dramatic moves, such as selling the company, instead hoping that restructuring and a healthy dose of IPTV can turn the vendor's finances around.

In a conference call late Wednesday, executives updated investors on UTStarcom's troubles with stock options and accounting, while also introducing recently hired president and chief operating officer Peter Blackmore, who's eventually going to take over the CEO spot. Longtime CEO Hong Lu will move to the chairman's role at that point. (See UTStarcom Intros COO.)

They also said that while UTStarcom had hired Merrill Lynch & Co. Inc. back in October to explore "strategic alternatives," including a sale of the company, nothing that extreme will be happening. (See UTStarcom Mulls Alternatives.)

"In the end, we concluded that the potential value of the company that could be unlocked by a series of internal initiatives was greater than that of any external options being offered," CFO Fran Barton said on the call. To decide on those initiatives, UTStarcom will thoroughly review all its operations, he promised, looking for potential changes to help bring the company to profitability.

Executives also updated investors on two major accounting issues. In the case of stock options, UTStarcom's internal audit did uncover options backdating, Barton said.

The damage? UTStarcom will take a total of $28 million in non-cash charges spread across the years 2000 through 2006. That's going to force the company to restate earnings from 2000 through 2005 (earnings for the full year 2006 haven't been released yet). Barton said the company doesn't know when the restated earnings will be completed.

The other problem has to do with some sales contracts in China, signed a few years ago. A UTStarcom internal audit uncovered some irregularities, and, apparently, the trick is to determine which quarter the revenues from these orders should have gone into. "As of now, we do not have a timetable for the conclusion of this work," Barton said.

Due to its stock options investigation, UTStarcom hasn't filed earnings since the second quarter of 2006. But on the call, the company did give a peek at what its bookings and cash holdings have been for the past year.

Table 1: UTStarcom's Numbers
Q2'06 Q3'06 Q4'06 Q1'07 Q2'07
Bookings ($M) 545 646 636 552 557
Cash* ($M) 658 617 671 573 528
Fiscal year ends in December.
* Includes cash equivalents and short-term investments.
Source: UTStarcom.

Operating expenses, meanwhile, are running at $130 million to $135 million per quarter, UTStarcom said, compared with $180 million during the second quarter of 2005, the last time UTStarcom submitted a full financial report.

Executives laid out several goals for the company's recovery, most of them revolving around cost-cutting. But they also think UTStarcom's broadband products offer a ray of hope -- particularly the RollingStream IPTV platform that's being sold in Asia.

"Many of our initial IPTV deployments in China are undergoing network expansions," Barton said on the call. UTStarcom has contracts with China Telecom Corp. Ltd. (NYSE: CHA) and China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906), and its IPTV platform is serving an estimated 310,000 subscribers, Barton said. UTStarcom is also beginning to win IPTV business in India, he said.

Blackmore said he has pledged to "communicate strategy" to UTStarcom's employees by the end of August.

— Craig Matsumoto, West Coast Editor, Light Reading

Pete Baldwin 12/5/2012 | 3:04:33 PM
re: UTStarcom Readies Plan B Only two analysts asked any questions on the call. Maybe it was the awkward hour -- 7:00 p.m. Eastern, to accommodate Hong Lu being in China. Or does it reflect the kind of interest UTStarcom gets from Wall Street lately?

Anyone want to share any early impressions of Blackmore?
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