Wednesday, March 18, 2009

Failure of the BOD

Why is the current board still in control of this company? If there was a "stress test" for determining competency of the board, how do you think the UT board would score?

Lets forget for a moment the $800m+ of losses retained on the books, the 4 years of continued operating losses, the musical chairs of management, showering management with mega salaries, bonuses, retention/exit compensations, and the sub $1 stock price (down 90+%), etc etc.

Coming into the worse recession since the 1930s depression, what budget plan did they sign off on for 2009. Continued losses of $10m, 50m, 100m.....NO, They "approved" losses of $150m or more. Are you kidding me? Some investors (sorry Shadow) say the company knows much more than the shareholders. Again, are you kidding me?

Here is part of the reply of the company for the all the emails sent last week: "We would remind you that we have been very active in the last 18 months.We defined the core products and have divested or initiated the wind down of all the non core businesses - a process that we expect to complete by July 2009; we have improved our net cash position from $180mat Dec 2007 to $314m at Dec 2008 and we currently have no debt."

Every year, the company trumpets their "accomplishments" rather than face the tremendous destruction of shareholder value. Last year, they mentioned the payment of the convertible bond, the sale of Gemdale/infinera, the completion of all the filings, the opex cuts, the resolution of certain material weakness, the repatriation of funds from China. The result of all of these accomplishments - further declines in the shareholder value (both tangible book value and actual share price) and going farther from breakeven.

So, excuse me for taking any of their "accomplishments" and efforts with a grain of salt. The bottom line is shareholders are faced with a stock that is about 1/5th of the tangible book value and about 1/3 of the cash.

The current opex target of $60m at the end of the year is simply undefensible. How much should they spend in Brazil, Taiwan, India, Russia, Latin America, and on and on if the returns are so minimal. They have the technology (as they have mentioned) but the markets are not ready. Why put in more money until you see some developments?

Sigma Designs has quarterly R&D of $3m+. UT had been maintaining an R&D of over $40m for quarter after quarter. When asked last year if they would develop their chip to be compatible to the China standard media processor, they responded that they will not spend the money until there is a clear standard developed. Sigma competes with Broadcom so its not impossible to be profitable competing against larger companies.

Sonus has revenues that are 1/3 to 1/2 UT and they are cutting costs to break even. Their valuation is atleast tangible book value.

So, even after years and years of losses, the plan for 2009 is even MORE losses and degradation of the stock price.

I hate to be so negative but every shareholder I have talked with can see that their cost is extremely high and that the board is non-existent. Again, why even have a board if this is the kind of shareholder destruction they have presided over?

It amazes me when I see other shareholders campaign against the board (like Bill Ackman going for 5 board seats in Target). I don't follow Target but I'm sure there are not many other companies that are not basically nationalized run worse or governed as poor as UT. The board simply has not done their duty to look after shareholder's interest and its time for them to go. I encourage shareholders to write the company expressing their opinions. Yes, we don't know the inside information but to believe the board can enhance shareholder value better than shareholders is ridiculous to say the least.