UTStarcom Inc. (UTSI)

Q4 2010 Earnings Call

March 11, 2011 8:00 am ET

Executives

Jack Lu - CEO

Edmond Cheng - CFO

Analysts

Jie Liu - Auriga USA

Richard Greenburg - Donald Smith & Co.

Presentation

Operator

Thank you for standing by for the UTStarcom's fourth quarter and full year 2010 earnings conference call. (Operator Instructions)

It is now my pleasure to introduce your host, Jing Ou-Yang, Investor Relations for UTStarcom.

Jing Ou-Yang

Welcome to UTStarcom's fourth quarter 2010 earnings conference call. We distributed our earnings press release earlier today, and you can find a copy on Newswire Services or on our website at www.utstar.com. In addition, we have posted a presentation on our website which you can download to use to follow along with today's call.

On today's call, we have Mr. Jack Lu, our President and CEO; and Mr. Edmond Cheng, our CFO.

Before we get started, I will read the company's advisory on forward-looking statements. This call will include forward-looking statements on topics that include, but may not be limited to the company's restructuring initiatives, IPTV revenues, profit margins and projected business model.

Forward-looking statements are generally indicated by such words as will, expects, estimates, goals, plans, or similar words. These statements are forward-looking in nature and subject to risks and uncertainties that may cause actual results to differ materially. These include risks and uncertainties regarding the ability of the company and to realize anticipated results of operational improvements, the company's ability to successfully compete, to supply GEPON broadband products, the company's ability to successfully integrate recent acquisitions, execute its business plan and manage regulatory matters, as well as risk factors identified in its latest Annual Report on Form 10-K, quarterly reports on Form 10-Q and the current report on Form 8-K as filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

In addition, today's call will include certain non-GAAP financial measures. The most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures is attached to the earnings press release issued earlier today and filed in the Form 8-K with the Securities and Exchange Commission.

I will now turn the call over to our President and CEO, Mr. Jack Lu.

Jack Lu

As Jing mentioned, you can follow along on today's call by following the presentation from our website at www.utstar.com.

Please move with me to Slide 4. As I mentioned in our press release I am pleased we exceeded our adjusted revenue target for the year, and had a positive operational cash flow in the fourth quarter of 2010. The changes and the restructuring of the last year are beginning to pay off, and we expect this to enable UTStarcom's return to profitability. Last quarter, I talked about our top-level management transition. I am pleased that we continue to gain momentum as a team in refining our focus and strategy.

At the end of the year, we announced a new corporate structure, combined the two existing business units to better support our strategy and align the company for sales and marketing performance.

Our three new strategies have already opened opportunity for us, China's cable and telecom network operators in interactive TV, and we expect this strategy to bear fruit in the year ahead.

As a reminder, the new strategy has three main points; first, return to China; second, targeting telecom and cable operators in parallel; and third, providing equipment and services.

Turning to the Slide 5 and looking at our major demand drivers, as I mentioned in our last call, the Three Network Convergence related market is projected to reach RMB688 billion in the coming three years.

According to a report released in January by a Chinese government regulator, the State Administration of Radio, Film, and Television, or we call it SARFT, at the end of the year 2010, in China, there were 187 million households with cable TV, an increase of 6.9% from 2009. There are 88 million with digital cable TV, a 39% increase from the previous year. Nearly half of this group, or 43.5 million, have completed the two-way digital migration.

Finally, there were 4.1 million interactive digital cable TV household subscribers, and 6.7 million IPTV subscribers. This illustrates the large potential demand from the cable TV network operators in China for our multimedia communications and the broadband products.

While China's cable operators are relatively less technologically capable than their presence on the telecom side, they are more eager to find new high growth opportunity for their business, such as interactive TV. Because of this, our expertise in building and supporting the operations for interactive TV platforms are able to help them to build the technology platforms that allow them to offer interactive TV services to their subscribers.

We are leveraging this expertise to target the more than 2000 cable TV network operators in China now.

On the telecom side, all the major Chinese telecom operators are conducting tenders to expand their fiber optical broadband networks, some of which we are participating in.

Moving on to Slide 6, I want to take this opportunity to highlight our third strategy of equipment and services, which consist of our new Operational Support Service business. Our existing telecommunication equipments, products and technology, especially our RollingStream platform allows our clients to provide end-to-end solutions, including video content service and other value-added services like online gaming, online shopping and video phone service through their networks.

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