Wednesday, December 15, 2010

2010 Chinese International Exhibition

This article came out in early October that talked about UTs new logo and products/focus in the Chinese market. It might also be the reason the stock rallied to the mid $2s at the time prior to the revenue fall announcement.

Heres part of the article translated (poorly):

IPTV and new media as a pioneer in interactive video, UT Starcom, the torrents use their own research and development (RollingStream) IPTV system, launched the world's leading creative, and meet the needs of the real operators may be operational, management, flexible fit the three-screen integration of carrier-class end to end broadband TV solution for triple play help meet the needs of operators to build comprehensive business solutions. Through years of research and development in the area of the accumulation of interactive video, rushing (RollingStream) system has become the industry's leading open, multi-service, multi-service broadband terminal multimedia service platform, and with large-scale commercial world. Data show that the end of 2009, UT Starcom's IPTV system has become China Telecom , Shanghai, Shaanxi, Fujian, Zhejiang, Anhui, Hainan, Yunnan, Ningxia, Jiangxi and other branches of the IPTV system, the main partner in China Continental-scale deployment of IPTV commercial system has more than 200 million.

- the last statement I take as over 2m subscribers under UT.

It does have a nice picture of the UT booth and hopefully, that will increase awareness and drum up some Chinese business. Bookings in China which are probably in the $20m/qtr level need to go significantly higher.

Monday, December 13, 2010

Partnerships, Joint Ventures, and Acquisitions

From the proxy materials (under related party transactions),

Yellowstone: In addition, as of the date of printing of this Proxy Statement, we are considering an engagement letter with Yellowstone pursuant to which Yellowstone will act as a strategic consultant to the Company and any of its subsidiaries, divisions or legal/organizational units to assist the Company in establishing or expanding strategic partnerships, joint ventures, acquisitions and the Company's business in Asia consistent with the Company's goals. The terms of the engagement letter and the fees payable thereunder are currently being negotiated; however, it is contemplated that we will pay Yellowstone a monthly fee of US$20,000 and certain success fees upon the successful completion of a specific transaction as proposed by Yellowstone and approved by the Company generally based upon a varying percentage of the transaction deal size, with certain exceptions. We will also reimburse Yellowstone's reasonable expenses incurred in connection with the services.

Softbank: Softbank Corp. is an affiliate of Softbank America, Inc., which holds approximately 9.7% of our common stock. During 2009, we recognized aggregate revenue of $28 million (includes $5 million in sales to NEC Networks & System Integration Corp., Japan Electronic Computer Co. Ltd., Nippon Telecom Sales KK and Oki Electric Industry Co., Ltd. for which Softbank Corp. was the ultimate customer) with respect to sales to affiliates of Softbank Corp., including (i) sales of telecommunications equipment to Softbank BB, (ii) sales of equipment and services to Softbank Telecom Co., Ltd, a wholly owned subsidiary of Softbank Corp. and (iii) sales of equipment to BB Cable, an affiliate of Softbank Corp. Our Audit Committee has reviewed and approved the transaction with Softbank Corp.

In addition, as of the date of printing of this Proxy Statement, we, through a wholly owned subsidiary, are finalizing an agreement with ZTE (H.K) Limited ("ZTE"), a company incorporated in Hong Kong (the "ZTE Agreement"). Pursuant to the ZTE Agreement, we will agree to form a special purpose company incorporated in Hong Kong with ZTE (the "HK SPV") for the purpose of making and holding an investment in a high speed mobile data communication service business affiliated with Softbank Corp. (the "Softbank Affiliate"). We will agree to pay 176,000,000 Japanese yen (approximately US$2.17 million) for 35% of the equity of the HK SPV and provide a loan of 595,000,000 Japanese yen (approximately US$ 7.32 million) to the HK SPV. ZTE will agree to pay 327,000,000 Japanese yen (approximately US$4.03 million) for 65% of the equity of the HK SPV and provide a loan of 1,105,000,000 Japanese yen (approximately US$13.60 million) to the HK SPV. The
U.S dollar equivalents are based on the exchange rate of 81.105 Japanese yen per U.S. dollar. The HK SPV plans to use the paid-in capital and shareholder loans to invest in the Softbank Affiliate. Our Audit Committee has reviewed and approved the transaction.

Depending on the side of spending you are on, the above is either going to be positive or negative on paper. This is a company that has cash as its strongest asset. If it can use it well to transform the company, then I am all for it as a transformation and turnaround is what we are looking for. The Yellowstone fee is minimal to what they have been paying their managers and resulting performance. On the flip side, spending for the sake of spending would obviously be negative.

The joint venture with ZTE (which ZTE is this?) seems interesting and could contribute right away to the relationship with Softbank and potentially boost company revenue in Japan much faster.

The amount of revenue and bookings are not enough at this stage to support their expenses so the company has to decide how long to keep up that expense base or act more aggressively to generate more revenue. For them to a player in the iptv/telecom-cable infra in 3 major countries no less, I would think they have to generate significantly more revenue and be aggressive for growth (and thus my vote for continued investments).

Wednesday, December 8, 2010

Random info on UT and industry related news

Value of Network convergence infra spending:

"A report by the iChina Research Center, says that the Three Network Convergence related market will reach RMB 688 billion over the next three years, of which, RMB 249 billion will be spent on migration and construction of infrastructure for both telecom and cable networks, set-top boxes and content management and media service platforms, with the remaining RMB 439 billion generated through content demand and media consumption."

So, about $30B over 3 years will be spent. From the same UT PR,

"IPTV subscribers in China will be about 7 million by the end of this year and 10 million by the end of 2011."

"According to, China Telecom had 5.36 mln IPTV subscribers as of August 2010, accounting for over 82% of national IPTV users."

According to recent Chinese articles, UTs share is over 2m subscribers and 33%, which is consistent with the overall numbers so by end of 2011, it could be 3m+ users.

From same article above, Shanghai has another tender and results should have just come out.....

National IPTV network status:

"According to the statement, the platform network has already joined with sub-networks of radio and television organizations in five pilot regions in Sichuan, Hubei, Beijing, Shenzhen and Shandong."

Key statement there was Radio as UT acquired Stagesmart and deal with Cristar. Also, UT has already mentioned winning some cities in the pilot.

China Telecom investing CNY15B ($2B) in EPON in 2011.....whats UT share?

In Japan with Softbank, see this interesting article...

Softbank Proposes Fiber Broadband Highway for Japan

Statement of Jack Lu in the earnings CC,

"Finally, for our broadband business in Japan as we shared on the last call that we passed all of soft SOFTBANK BB’s quality control test. We have already started to receive purchase orders from the clients for our key end technology in Tokyo, Osaka and Nagoya. As a result, we expect a sizable increase in 2011 once this initial rollout proves themselves."

SIZABLE increase???

Jack Lu:

"So, while we continue to cultivate the telecom space with pure equipment based sales, you can see that the opportunity in China in with three network convergence is significant, and I see it as my job to ensure UTStarcom and its investors win a significant portion of the upside."

UT PR on Q3 accomplishments:

"the Company won a project with Jinan City's Cable Network as the exclusive broadband solution provider"

"the Company won IPTV projects with operators in Sichuan (already announced), Hubei (new), Henan (new) and Shenzhen (new)"

(Good wins that are the same cities to the pilot cities of the National network cities)

"the Company expanded a previously established revenue sharing relationship with South Media Interactive Co., Ltd, the interactive business unit of South Media Group, to add HDTV options to their IDTV offering, be responsible for the development of interactive products and provide operational support services to the platform "

"the Company announced a strategic partnership with a company controlled by a national level broadcaster to provide technology and operational support for Internet TV service in China and abroad"


Unfortunate to see the stock doing so poorly in light of the bull market and year-end rally....The street (or atleast some investors) may finally be giving up on the company/stock as it pushed the price below the investor buy in price and way below cash ($338m + $34m more in restricted cash = $372m or about $2.4 in total cash).

Anyway, the above shows the market for their products are healthy and growing. The key as always is the amount of share they can win and how fast.

If you are a bagholder like myself, atleast you should know what you've got and what the "hope" is.....