Turnarounds That Haven't Turned Around: UTStarcom (UTSI)

UTStarcom Inc. (NASDAQ:UTSI) is one of the former high fliers that crashed and burned, despite its US-based operations with what was huge leverage in China.  In the past it had grown and grown but then when it had massive accounting irregularities and restatements the gig was up.  For quite some time it was also unable to complete its SEC filings. That is now in the past, or so it seems, and the company is NASDAQ compliant now.  But the company’s stock hasn’t been able to turn around into something resembling a growth tech stock. 

The problems surfaced in 2004 and became massive in 2005.  Since the big drop in early 2005 these shares have seen $10 prints briefly but the stock was unable to hold.  At the end of 2003 this was a $40+ stock and before that had spent most of 2001 and 2002 in a $15 to $35 range.  TODAY the stock is about 10% off its 52-week lows of $2.43, but almost 75% down from the $10.32 high of the last 52-weeks.

This was a steady decliner for the first half 2007 after briefly hitting $10 and then it really hit skid row in late summer before trying to mount a recovery back to $5.00.  That also failed.  But the good news is that on a linear support line these lows here within that 10% downside from here have held over and over.  In this wacky market it is impossible to say all the bad news is priced in, but if you are a pure chartist you will see this too.

If you like to find heavy short interest stocks you need to look no further.  The bets are massive here with some 28.89 million shares short as of the last data in December.  That is over 29% of the float, although down about 2 million shares from the prior reading.

This actually screens cheap on the surface with a $335 millionmarket cap and a net tangible asset level of $653 million.  But theproblem is that the company is losing money and is expected to losemoney into the future with slightly negative to flat revenues ahead.So it really appears that the company has basically another year thatit can continue to chug along before the net tangible values come downto meet the stock’s market cap.  Technology stocks tend to make poorvalue stocks.

UTStarcom manufactures, integrates, and supports IP-based networkingand telecom solutions (broadband, phones, handsets, and solutions) on aconverged wireless and wireline basis.  With IPTV catching on in themanner it is finally coming in at in the US and abroad, the opportunityis there.  It just hasn’t been able to make that major push.Management was bolstered last summer with a new President/COO and it ismore than obvious that things haven’t yet changed from moving statusquo.

Wall Street research firms have abandoned this one.  It has majorwork to rectify these losses.  If it can lower the losses and get backto even somewhat of a growth model, then this stock could be a majorturnaround candidate.  But right now it has all the aspects of a deadstock.

• Why Are So Many Turnarounds Failing? (EK, PFE, RAD, TYC)

• To see coverage on more technology failed turnarounds you can read… Yahoo!…  Sun Micro…. Unisys… Bearingpoint…. Motorola…. JDS Uniphase…. Nortel… Micron Tech….
   

Jon C. Ogg
January 4, 2008

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