Monday, September 14, 2009

Bull Flag

While the message boards is full of the usual negativity (understandable by the way), UTs stock chart has formed a "bull flag".

Vital Signs

Bull flag formations involve two distinct parts, a near vertical, high volume flag pole and a parallel, low volume consolidation comprised of four points and an upside breakout.

The actual flag formation of a bull flag pattern must be less than 20 trading sessions in duration.
Most flag patterns occur at the middle of the larger move higher for a stock.

Upside breakouts often lead to small 2-3% rallies followed by an immediate test of the breakout level.

If the stock closes below this level (now support) for any reason the pattern becomes invalid


The pole measured a hefty 84 cents ($2.36-$1.52), give or take a few cents. This consolidation (symmetrical triangle or pennant) breakout is at $2.05-2.1 range. That would put UT close to $3 within a month IF this played out.

As with TA, "timing" may be a little off (head fakes) and you should look for volume confirmation.

Have a good evening.

Thursday, September 10, 2009

DESCA, IPTV, Trading Range, Profitability, and Partner

Reseller Agreement with DESCA -

ALAMEDA, Calif., Sept. 9 /PRNewswire-FirstCall/ -- UTStarcom, Inc. (Nasdaq: UTSI - News) today announced a Reseller Agreement with DESCA, a Miami-based infrastructure and telecommunications networking company and wholly-owned subsidiary of eLandia (OTC Bulletin Board: ELAN - News). The Agreement will help accelerate UTStarcom's expansion into 14 markets in Central and South America with the support from DESCA's team of more than 700 sales, service delivery professionals and customer service agents.

These are a couple of comments from the message boards,

"TTM of revenue for the holdin g company is $211MM. The 3rd and 4th Q are their strongest quarters so don't go by the first 6 months. Also, DESCA is just 1 of 3 or 4 operations of theirs so the total reveue is higher for the entire holding company (ELAN)They have $30mm in cash with no real long-term debt other than a $17MM capital infrastructure project that makes them $$. The receivables are $50MM and CSCO capital is the reason why they have short term debt. CSCO demands payment very quickly. So they have short term debt like any other company would to pay the vendor. The receivables take care of that. Why don't you call the company and ask then about the DESCA deal? It looks like DESCA has a lot of stock coming to them based on performance and that's why they sold the 30% for little cash. They want the stock at low prices where there is far more upside. They stand to make a lot of money by taking future stock considerations. "

"ELAN is the holding company. revenue for TTM is $211MM. DESCA accounts for 80% of the revenue. DESCA's revenue is at least $170MM. It could be more. I had heard that the company was planning on $300MM in revenue in the coming year 2010 and 2011. Also, remember, most companies in the world saw declines in revenue throughout the recession so that is not something to look at. The CEO over there came from Telefonica USA which is a subsidiary of the largest telecom company in the world- telefonica Espana. he went there b/c they have an amazing growth platform ahead of them. UTSI WILL do well with this partnership. Actually, both companies stand to do very well with this partnership. Hope this helps you. DESCA also has very high achievements and is a top CSCO vendor in may categories."

I'd like to add that this agreement does a few things:

1. The company gets to work with a local partner to market their products in 14 countries.
2. They get added revenue while introducing products into small to mid-size projects. Those DESCA clients exposed to UT products (may be better or cheaper) will start building confidence in UT products.
3. They can cut costs/scale back employees in these areas while still maintaining a foothold.
4. They continue to sell their IP besed products (rather than handsets for ex.) and generate revenue from their core products. UT has spent significant money on R&D for their core products over the years so they just need new markets without having to spend a lot for marketing/trials.
5. The company can get a set margin for their products (with agreed pricing) as DESCA orders them and get paid earlier.

IPTV market share - From the same DESCA PR, "UTStarcom is the IPTV market share leader in both China and India. UTStarcom is also the market share leader in India's broadband market."

Blackmore has mentioned that there was a slowdown in IPTV in China due to the carriers focus on 3G this year. While UT will lose some contracts as per the last blog posting shows, UT should still be well positioned (if not better now) for the boom projected for the next few years.

New stock trading range - The stock had traded in the $1.4-1.8 range for the last few months and finally broke out last week. Its interesting to note the $1.88 "high" on the last trading range and the same price it hit this week after coming down from $2.36 last week. While not important for long time holders, traders need to pay attention to these things so they are buying and not selling at the lower end.

Profitability - The sale of non-core assets, the move back to China, the massive cost cuts, outsourcing manufacturing, partnering all point to a focused and aggressive plan by Blackmore and the company to get to profitability despite the world recession, slow ramp of core products, and collapse of PAS and Japanese revenues. While shareholders have still suffered a lot, I like the moves and believe Blackmore can unlock significant shareholder value as they drive towards profitability.

Partner - Blackmore mentioned the US partner in one of the previous conference call and discussed the partner (with investors) as filling in product lines that UT did not have and vice versa (for example GPON). While the DESCA partnership is good, this did not look like the "partner" that Peter was talking about. I asked one institutional investor to check and confirm if there was another partner Peter was talking about and got confirmation that this was not the partner that Peter was talking about. They are also working with multiple potential partners.

Closing comments - I'd like to reiterate that a sale is probably not in the works for various reasons but this is actually a very good thing as the stock is (I believe) tremendously undervalued. My discussions with management with the stock in the $3-$5+ range and more suggest they believe the best way to get to higher share prices is to get to profitability. Of course, shareholders could not have agreed more but it looks like this new path (see above) to profitability has more chances of success (rather than just hoping hundreds of millions in revenue would come in).

Tuesday, September 1, 2009

ZTE win in Anhui, China

"Reportedly, this award is for 300,000 IPTV lines, to be deployed over 17 cities and counties in the province. It will provide comprehensive Internet TV services including direct cast, video-on-demand, time-shift, and value-add. Huawei, ZTE, and UTStarcom bidded on the contract. Eventually, ZTE won."

There hasn't been a lot of news regarding UT but the above win by ZTE over UT is a concern prompting cries of selling out the company.

Chinese shareholder Techbroker stated last year in a note to management:

"....Ironically, IPTV's boom day in China is likely UTStarcom's doom day -- We have two too aggressive, too successful and competitive, and too big competitors waiting out there for the same day too. They will offer zero or negative bet price to get you out of the business if they see the booming day is coming...."

Today, Tech states: "This latest serves a wake-up call to Blackmore and the Board: UT's last and only hope is finally gone now."

Is it???

Here is what Blackmore mentioned in the last CC:

"Our IP TV wins during the quarter include expansion contracts with China Telecom across a broad range of provinces, which include Fujian, Hainan, Shenzhen, and Shanghai. A partnership with CCTV also enabled China Telecom's first IPTV deployment in Hunan."

So, it is not cut and dry that ZTE can just muscle them and win all the contracts in iptv.
UT did $80m in core revenue in Q2 and bookings were tracking well. The Q2 bookings was the same as Q1 revenues if you subtract the Korean handset but since Q1 had some more PAS, the core part is improving.

I'm surprised with the 300k line deployment contract in Anhui since that shows even with the focus on 3G, iptv is picking up. IPTV is something the comapany will fight to defend. If they have to tweak their pricing a little bit, this would be worth it.

After all, their OPEX/quarter is not $130m or $60m but going to be under $25m.

Blackmore adds:

"Let me now turn to bookings. In the second quarter we continued to see good demand for our IP systems business in our target markets, and I'll discuss some wins in a moment. Based on our sales pipeline for the balance of 2009, we continued to expect to have good booking levels in the second half of the year."

I'll end this post with an earlier post on yahoo today,

On an earlier post this year, I brushed aside Shadow's and Coach's call for "more information" saying they needed to slash and burn. They have done the slash and burn. They also say they are focusing now on earnings and higher margins (hence letting go of handsets and not going after every broadband tender out there).

However, this loss to ZTE on iptv is critical and we definitely need information regarding this. IPTV is UTs higher margin product that they have put their hopes on. Is ZTE going for the kill and severely underpricing UT, in which case the board has to do a major about face regarding operating the company and looking for an exit point. Or did they just lose this by a few % points and the market reinforces the potential of IPTV in China. Only the company knows this.

As for having no choice but to sell out, thats not true. They have 2000 employees still after the restructuring. Others have much less (look at a Sonus for ex. at under 1000) I'm not making a case that this is a good thing (for them to keep restructuring if the revenue doesn't come in). Just that if you are playing this for a buyout, it might not happen soon. It does tip the balance more on the sell out option rather than the operational route (which some institutions are already grumbling for.....)

One thing on the building.. I am FOR selling it of course but that may be more of an indication that the company continues to operate the business than selling out completely.

Have a good day.