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Author: whatismyoption Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 489  
Subject: UTSI Update Date: 9/17/2006 6:52 AM
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Update 17 Sep. 06
On Sep 16: 8.63 USD down 0.22
Continue to hold

These are my update notes for my position in UTSI, though after revisting my investment thesis and seeing the turnaround continue I do think UTSI are worth taking a look at. At the bottom I link an excellent post of Sigma8squareds, which is well worth reading for anyone interested in the company.


• UTSI made a new 52 week high this week at 9.25 and has powered past the BlueHawk price target.
• Time to check the last two quarters. They blew away analysts estimates, with -.09 and -.18 instead of the estimated -.68 and -.47.
• This is well ahead of where I was projecting and bodes well for next year, fingers crossed.
• Cash flow dropped in Q2, but cash flow is often lumpy. However, one of the main reasons was an increase in inventory which could be a red flag if that trend continues. I hope it was a one quarter event in anticipation of increased sales. In the conference call the CFO said primarily a reflection of inventory build up in PCD in anticipation of higher revenues in the third quarter.
• Revenue continues to decline; however, management appear to have almost resized the company to lower operating expenses to an appropriate level. From this point if revenues start to increase then good net income should follow. CFO did state that they believe revenue has bottomed and future quarters should be higher.
 
Earnings History Sep-05 Dec-05 Mar-06 Jun-06
EPS Est -0.70 -0.54 -0.68 -0.47
EPS Actual -3.40 -0.17 -0.09 -0.18
Difference -2.70 0.37 0.59 0.29
Surprise % -385.7% 68.5% 86.8% 61.7%

Earnings Est Current Qtr Next Qtr Current Year Next Year
Sep-06 Dec-06 Dec-06 Dec-07

Avg. Estimate -0.29 -0.19 -0.73 -0.51
No. of Analysts 11 11 12 12
Low Estimate -0.51 -0.41 -1.18 -1.22
High Estimate -0.17 -0.10 -0.59 -0.12
Year Ago EPS -3.40 -0.17 -3.93 -0.73

Revenue Est Current Qtr Next Qtr Current Year Next Year
Sep-06 Dec-06 Dec-06 Dec-07

Avg. Estimate 594.82M 659.61M 2.43B 2.55B
Low Estimate 501.00M 448.00M 2.09B 1.59B
High Estimate 625.00M 746.00M 2.76B 2.85B
Year Ago Sales 635.31M N/A N/A 2.43B

Conference Calls
Q2 2006 http://seekingalpha.com/article/15323

• Q2 was the fifth consecutive quarter in which we generated positive cash flow from operations
• encouraged by continuing traction we demonstrate in key target markets such as IPTV, next generation broadband and wireless networks and handsets in the multiple geographies during the quarter
• pleased with our balance sheet performance as we showed continued improvement to such items as cash, accounts receivable and short-term debt.

Forward Looking Statements
• From a quarterly perspective we believe that Q3 and Q4 will show revenue growth, and we continue to work towards returning to profitability, which we expect to happen by the first half of 2007.
• For the third quarter of 2006, revenue should be approximately $590 to $625 million, which is consistent with current Wall Street estimates.
• GAAP EPS guidance for Q3 is a loss of approximately $0.23 to $0.33 per share
• There is a possibility of a one time event that would favorably impact the P& L and cash in either the third or the fourth quarter of this year. We are targeting cash flows from operations, excluding one-time events, to be break even to slightly negative in the third quarter
• We seem to be at the bottom of our revenue curve, and have reasonable expectations for sustained revenue growth from here

Q1 2006 http://china.seekingalpha.com/article/12448

Previous Post of Note
http://boards.fool.com/Message.asp?mid=22877658 excellent post by Sigma8squared. Great background and discussion.

Spreadsheet
http://tinyurl.com/j6jqc Nothing much in this at the moment, just the financials and free cash flow. Though I will update it in the future.

Cheers
Dean
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Author: whatismyoption Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 482 of 489
Subject: Re: UTSI Update Date: 9/17/2006 7:30 AM
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Just to put a stick in the ground. Here is my two minute guesstimate:

My Estimates, in 000s
	
YTD 1,145,717 Analysts High
Q3 600,000
Q4 665,000
2006 2,410,717 2,430,000 2,760,000
Q1 610,000
Q2 640,000
Q3 660,000
Q4 710,000
2007 2,620,000 2,550,000 2,850,000
8.7%
Profit 50,000
Shares 120,840
eps 0.41

2007 P/E Estimates
0.3 0.41 1
20 6.00 8.28 20.00
24 7.20 9.93 24.00
28 8.40 11.59 28.00
32 9.60 13.24 32.00


"using yahoo growth esimates for
5 years, mean 30, will use 15"
P/E Estimate
0.60 0.83 2.01
20 12.07 16.64 40.23
24 14.48 19.97 48.27
28 16.90 23.30 56.32
32 19.31 26.63 64.36


Return 1 Year 34%
5 year 22%

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Author: Sigma8squared Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 483 of 489
Subject: Re: UTSI Update Date: 9/17/2006 9:30 PM
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UTSI made a new 52 week high this week at 9.25 and has powered past the BlueHawk price target.


Hey Dean,


Who is BlueHawk?


The company has done a great job of fixing its' Balance Sheet. It also has gotten the PAS HS margins back to the 30%+ area and is doing ok introducing some new in house handset models into the ACC distribution. Negatives are the rest of the business continues to struggle and the expenses never came down as low as I think they needed to. Wallstreet seems to like the stock a little better and I think 1.5x tangible book(~10 a share) shouldn't be asking too much if things stay steady and prospects for new business stays alive.

I think your next years EPS estimate is too optimistic but the Wallstreet concensus may be too pessimistic. Put me down for a single digit negative GAAP EPS(negative 1-10 cents a share).

Regards,

-Jim








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Author: whatismyoption Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 484 of 489
Subject: Re: UTSI Update Date: 9/17/2006 11:44 PM
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Hey Jim,
Thanks for the reply and your estimate for next year. I was hoping you'd comment.
I should have taken that BlueHawk comment out before posting online. They are an Investment Research firm and I had access to their stock scorecard for a while. The scorecard was mechanical so the price was not based on detailed examination of UTSI.

You said
I think your next years EPS estimate is too optimistic but the Wallstreet consensus may be too pessimistic.
I think you are right on with this call, though I think you held back and omitted the word “way” as in way too optimistic ;-) I had originally put down at 80 cent eps hoping to give people an easy target to get some bearish views, then decided even 40 cents should still elicit bearish views. However, I'm going with that number now as my wild dreams number.

The main bearish views I read are around the declining PAS sales. I think that is old news and the company is positioning itself in new markets, though really I still have to read a lot more to really understand them. Reading your posts has helped a lot.

Here is where they see revenues in Q3:
• Revenues from our PCD (Personal Communications Division) should contribute approximately 55% of total revenues.
• In the PAS handset segment, revenues should be approximately 12% of total revenues.
• Wireless infrastructure revenues should be approximately 18%.
• Broadband revenues should be approximately 10%.
• Services revenues should be approximately 5%.


Thanks Jim; and whether the price rise comes from positive eps or from expansion to 1.5x tangible book value, I see value and will continue to hold. I think the risks have diminished and they are demonstrating themselves to be a viable concern.

Just to go on an on. I first came across UTSI from Michael Murphy who flogs a newsletter I briefly subscribed to. Here is his original call and my quick thoughts from early this year..
Buy UTSI under $10 for a move to $25 this year.
I was tired of taking peoples unsubstantiated views as gospel and had just begun delving in to the world of valuations. Here is what I thought then.
What the heck could he have been basing these numbers on?
High est eps for 2007 is .28 which would give it a forward p/e of 90, ludicrous!
So let us imagine they start hitting all their targets and p/e goes back to recent high of 30 from mid 2003, that would imply .83 earning in 2007. Yeah right Michael, can I have some of what you're smoking.

Cheers
Dean

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