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UTStarcom Sheds Some Wireless Weight

The new-look UTStarcom Inc. (Nasdaq: UTSI) is taking shape, as the company is now selling off a second wireless division in hopes of focusing on higher-margin businesses like IPTV.

Today, the company announced a deal to sell off its Personal Communications Division (PCD) to an arm of AIG Investments . The sale would have PCD keep its management team and morph into Personal Communication Devices LLC, an entity that would have AIG Vantage Capital as its lead investor and UTStarcom as a 2 percent owner. (See UTStarcom Sells PCD.)

UTStarcom's handsets business unit would design devices for -- and sell them to -- the new PCD LLC.

The deal would net UTStarcom $240 million in cash plus potentially $50 million more depending on how PCD performs. UTStarcom expects the deal to close in the next two days.

The sale comes on the heels of UTStarcom selling its IP CDMA business -- called the Mobile Solutions Business Unit (MSBU) -- early in June. But UTStarcom is holding on to the Personal Access Service (PAS) wireless business developed for China.

All this redefining started 10 months ago, when UTStarcom chose to stay the course rather than sell itself off. Peter Blackmore was recruited as the new CEO-to-be -- he officially became CEO this morning -- and he defined core focus areas for UTStarcom: IPTV, broadband, and next-generation networks. PAS was also flagged as something UTStarcom would keep, although Blackmore verbally doesn't group it with the other core areas. (See UTStarcom Readies Plan B, UTStarcom Unveils New Look, and UTStarcom Names CEO.)

The company didn't say it would sell everything else, but units like PCD and the IP CDMA business got earmarked as separate businesses, each being held accountable for becoming profitable.

It's unclear when UTStarcom decided to start selling off the wireless businesses, but in the particular case of PCD, the company says it identified 14 potental buyers and wound up with four offers.

PCD wasn't a good fit with UTStarcom's direction, officials said on the call. And while PCD's business was improving, it wasn't enough.

PCD recorded "single digit" gross margins, CFO Fran Barton said on the call, adding that without PCD, UTStarcom's gross margins could land in the high 20 percent range.

The short-term question for UTStarcom has been about profitability. The company said its cash flow would be break-even by the end of the year, but that was with PCD attached. Barton said UTStarcom will provide a new forecast with its second-quarter earnings, likely to be released at the end of July.

UTStarcom officials wouldn't detail what their cash levels will be like after the sale closes, but it seems likely the company's cash outweighs its short-term debt, which Barton said sits at $35 million.

UTStarcom shares were up 12 cents (2.2%) at $5.59 near the end of the trading day.

— Craig Matsumoto, West Coast Editor, Light Reading

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