Investors lashed out at wireless vendor UTStarcom Inc.-sending its stock down more than 23 percent to around $15.32 per share-following the company’s announcement that its fourth-quarter revenues will be well below its previous guidance.
Some analysts also reacted with hostility, as both Smith Barney Citigroup and Banc of America Securities downgraded their “buy” opinions on the company. Others were a little more forgiving.
“Despite yet another stumble in its transition, we remain cautiously optimistic for UTSI’s future and believe that the company will be able to turn things around in 2005,” wrote analyst firm ThinkEquity in a note to investors. “We are establishing our 2006 estimates and maintaining our accumulate rating and price target of $18.”
After the market closed Thursday, UTStarcom announced it expected revenues for the fourth quarter of between $740 million and $745 million, way below its initial guidance of between $875 million and $885 million. The company said it would post a loss in the quarter of between 40 cents and 45 cents per share.
Analysts polled by Thomson First Call predicted the company would have posted $874 million in revenues in the quarter and earnings of 1 cent per share. UTStarcom is scheduled to report its full fourth-quarter results Feb. 8.
UTStarcom blamed its dismal expectations on sluggish sales in China. The company sells its PAS network gear and handsets in the country. It said there were disruptions associated with changes in senior management at the main carriers in China, and a shift in decision-making away from regional entities and toward carrier headquarters. UTStarcom said the disruptions caused delays in both executing contracts and final acceptances. The company also said both China Telecom and China Netcom did not implement the anticipated increase in promotional spending at the end of the year from which UTStarcom historically has benefited.
However, UTStarcom said its new Audiovox handset business did better than expected and likely will contribute around $270 million in revenues. UTStarcom said its Chinese business will generate around $350 million and its international business around $120 million. The company said its core business enjoyed margins of around 21 percent, and its Audiovox handset distribution business had margins of around 4 percent.
“While the transformation we have undertaken explains much of the volatility we have experienced, a loss of this magnitude is unacceptable. In addition to the progress we have made in the international business, we are also reducing expenses and continuing to focus on gross margin improvement and have aligned the organization along three major business areas for increased focus,” said Hong Lu, the company’s chief executive officer and president. “I believe that 2005 will be the year when we successfully complete the process of transformation and position UTStarcom for sustainable long-term growth.”
In other UTStarcom news, the company said it is now shipping the Audiovox CDM-8615 to Bell Mobility in Canada and Metro PCS and Cellular South in the United States.
