Sunday, February 15, 2009

Management/BOD roles & responsibilities

For this posting, I will respond to fellow shareholder Shadow. Shadow writes:

"I suppose the fact that sales have declined from $2.7 billion to $850 million per year is the fault of the BOD and has little to do with the stock price being where it is now? UTSI tried to buy revenue streams but that strategy failed for lots of reasons. So basically, the company became a startup again. Strip away PAS, PCD and purchased technology revenue for the past 5 years and what would you have for sales? Not much. Big sales in Japan for a year or two but not nearly enough to compensate for the huge PAS loss which continues. Japan sales were just a temporary blip anyhow and have not been sustained."

Sales of PAS peaking and declining have been well projected so this should not be a surprise to management/BOD. I would actually argue the other way and say PAS sales which are still in the hundreds of millions have given the company a huge advantage compared to normal startups the last 4 years. Shadow mentions the "failed strategy", reliance on PAS, PCD and other purchased technology, Japan. This is precisely why management/BOD have to take the full brunt of the blame.

"So this company is truly a start-up in many ways, a baby company severely impacted by the present economic decline while it is still in its infancy."

Again, how many startups have this amount of resource? Infancy? Tech companies don't survive this long unless they are successful or have huge resources.

"What is even worse is that the vision for this company by Hong Lu, right or wrong, is to build an international telecom equipment supplier. Company has the technology to accomplish this and that is why it is so interesting to me. Unfortunately, it had almost no accounting department or backoffice, little marketing and sales outside of China, only PAS marketing and sales experience in China, currency problems that blocked fair competition (with Chinese companies) and faced widespread regulatory and legal issues that blocked deployment of one of its main technologies, IPTV."

The vision, technology, and opportunities are what drew most shareholders into the company. I am not arguing that but blaming the current state to accounting, marketing, currency, and even the competition/regulatory AND not to the management/BOD misses the point. You can have quarterly or even yearly slip ups but the monumental collapse in the share price was multi-year and continuous. The management and BOD's role is to management/oversee a company through good AND bad times/situations. If the mangement/BOD decided to invest in an end-to-end iptv systement and bet the farm and it doesn't work, who do you blame?

"I believe Ying Wu's plan called for focusing the company entirely on IPTV in China and it is not clear his strategy would have worked. Speculation that company could have been sold for $10 a share at one point, is simply just that, speculation. If anyone has a link that proves this was an actual offer that was made, please post it."

The company went into a strategic study to potentially sell the company because it thought the shares were underpriced. This came from the Chairman at the time Thomas Toy. They had offers for atleast parts of the company. This was in late 2006. Toy also mentioned they were worried that some of the offers would not be able to close because of the subprime conditions. Again, this was in late 2006. The stock traded in the $7 range and went to $11. If they wanted to do a deal at $10 or somewhere at that range, they could have done it.

"I think Barton and the members of the BOD did the job they were brought in to do. That was to create a global business infrastructure without which you just couldn't go to large carriers and do contracts. They resolved all the SOX issues, back options issues, SEC filing issues and almost all legal issues that have been pending."

I have documented my frustrations with Barton for years (before the blog). I recall even being very frustrated with the lack of financials when the stock was at $8! so that tells you how long it took them to resolve those issues. The company was at the brink but got lucky in their gemdale/infinera investments and not to mention a final surge in their PCD operations, which was mostly due to the resale side (not even their own design units). As for the BOD, their job is to safeguard shareholder value, which they have not done.

"I agree with you that bookings did not materialize as projected. Why didn't they? If you know, then I would like to hear about it. Without knowing the "why", I find it inappropriate to blame management. Blackmore was awfully shore Q4 2008 sales were going to ramp much more than they actually did. Why didn't they? If it was because of the economic tsunami sweeping the world, is it inappropriate to blame management? The problem is that this failure occurred on top of all the other poor guidance issues from Mike Sophie and Fran Barton."

As I've said many times, the company has many many good reasons for poor performance.......When was the last good year...2004.

"The key to this company right now is Peter Blackmore and I just don't have enough information right now to judge him. My instinct is that he is a straight shooter and will fire employees who don't deliver what is expected of them and get new people who can do the job better. Seems to me that is what has happened in the past 6 months. Maybe not fast enough for some, but you have to be careful how you size a company like UTSI, that is striving to become an international telecom equipment supplier. Success hangs in the balance so the stock price is undervalued."

Peter gave shareholders a lot of hope at the beginning but more recently, is losing the confidence of shareholders and the street. He himself is not as confident and doesn't take responsibility for the failed guidances/expectations. What happened to profitability? What happend to achieving his target expense metrics? What happened to the revenue ramp of a few hundred million? What happened to the street/investor interaction?

"Fran Barton's compensation was appropriate when compared to prevailing Wall Street valuations. Ridiculous compensation is what the guys at Merrill Lynch got for bonuses last year after helping to destroy the banking system in this country and driving the economy into the deepest and longest recession since the Great Depression."

Comparing Barton to the financial CEOs is like comparing UT to Nortel. Check with Blackmore on what he thinks of Barton's compensation and performance.

Every chance I've had with management/BOD (and thats only a handful of times), I've brought up two things. Shareprice and compensation. In November of 2007 and March of 2008, I've frankly said, if the company can't turn it around, you better go back to a strategic alternative of selling the company before resources dwindle.

As a shareholder, the choices we have during the last 4 years have mostly been bad (sell at a price you think is ridiculously undervalued or stick it out and hope). While I always have hope, its clear that management/BOD have not shown the ability to manage/oversee and create any shareholder value. If they cannot step up now, I hope they start stepping down and let others take over (whether their positions personally or to sell to another company).