Transcript Operational Support Services

Corporate Presentation
NASDAQ: UTSI
December 2011
Disclosure & Forward Looking Statements
This investor presentation contains forward-looking statements, including statements regarding the
Company's strategy to reduce operating expenses, ability to achieve profitability, investment in
selective products and certain geographic regions, diversification of business and customer base,
transition to a new business model and anticipated or assumed future financial results. Forwardlooking statements are based on current expectations, estimates, forecasts and projections about the
Company, the Company’s future performance and the industries in which the Company operates as
well as on the Company management's assumptions and beliefs.
These forward-looking statements are only predictions and are subject to risks and uncertainties
related to, among other things, the ability of the Company to realize anticipated results of operational
improvements, increase bookings, successfully transition to a new management team and
headquarters location and execute on its business plan, as well as risk factors identified in its latest
Annual Report on Form 10-K, as amended, Quarterly Reports on Form 6K and 10-Q and Current
Reports on Form 8-K, as filed with the Securities and Exchange Commission. Therefore, actual results
could differ materially and adversely from the Company's current expectations. We undertake no
obligation to update these forward-looking statements to reflect events or circumstances occurring
after the date of this investor presentation.
The Company is in a period of significant transition and in the conduct of its business is exposed to
additional risks as a result. This investor presentation also includes financial guidance and information
about the Company previously disclosed during the Company's 2009, 2010 and 2011 earnings
conference calls, restructuring announcements on December 18, 2008 and November 9, 2009 and
other filings with the Securities and Exchange Commission. Such guidance and information reflects
the Company’s information and expectations as of those dates and this presentation is not intended to
confirm or update that information and expectations.
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Agenda
1
Corporate Overview
2
Market Dynamics & Growth Strategy
3
Financial Overview and Outlook
3
CORPORATE OVERVIEW
Company Introduction
 A leading provider of interactive, IP-based network solutions in iDTV, IPTV,
Internet TV and Broadband for cable and telecom operators
 Technology and services expand and help modernize communications
networks, giving operator customers the capability to provide their
subscribers with interactive communications experiences while opening up
increased revenue opportunities for operator clients
 The new service business represents a “business model innovation” that
leverages UTStarcom’s current core technology and management
background to generate more recurring, higher margin returns.
Share Price:
Shares Outstanding:
Market Cap:
Legal Counsel:
Auditors:
$1.37 (as of December 9, 2011)
155.4 m
$212.9 m (as of December 9, 2011)
Wilson Sonsini Goodrich & Rosati
Price Waterhouse
5
Investment Highlights
 Focused on achieving breakeven in 2011
 Strong existing relationships with leading telecom, cable and media
players in China and across the rest of Asia
 Well positioned to benefit from China’s Three Network Convergence
policy and development
 Diversifying business model into high-margin new service business
(“Operation Support Business”) with recurring revenues
 Diversifying customer base to broaden profit opportunities
 Strong cash position and no debt
6
Our Positioning and Growth Strategy
A leading
provider of interactive, IP-based network
solutions in iDTV, IPTV, Internet TV and
Broadband to cable and telecom operators
Strategy 1: Return to China
Strategy 2: Telecom and
Cable in Parallel
Strategy 3: Equipment
AND Service
• Enables focus on Chinese
and Asian markets
• Leverage Three Network
Convergence (TNC) policy in
China
• Senior management close to
client decision-makers
• Improved internal
communication & lower costs
• Core IP technology applied
across different networks
• Strong competitive edge and
opportunity with both
telecom and cable operator
• Demand for interactive
services creates opportunity
for equipment AND services
revenues with higher margin
earnings
• New service business model
moves UTStarcom up the
value chain and closer to
interactive TV operators
Our existing telecommunication equipment products, RollingStream technology
and sales channels are the foundation of new service business, which taps a
major opportunity in video content services over the broadband network and internet.
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RollingStream Technology
SOLUTION AND VALUE
TO CUSTOMER
PRODUCTS OR SERVICE PROVIDED
TARGET
CUSTOMERS
RollingStream®
Technology: provides
customers market leading interactive TV
solutions
RollingStream enables operators to
1.Telecom
provide IPTV, iDTV, Internet TV, mobileTV, operators
video information and other industrial
applications. Hardware includes:
2. Cable
operators
Infrastructure
Components:
3. TV stations
and content
Video Storage and
OSS
license holders
Streaming Servers
who, in China,
run broadcast
Terminals:
control
IP STB
Dual-mode STB platforms
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Broadband and NGN Solutions
SOLUTION AND VALUE
TO CUSTOMER
PRODUCTS OR SERVICE
PROVIDED
TARGET CUSTOMER
Broadband Solution:
provides high
bandwidth network
infrastructure for
communications
networks
• PTN
1.Telecom operators
TN725
2. Cable operators
• MSTP
NetRing 4K
NetRing2500
• G/E-PON
BBS 4000
NGN Solution:
Provides a multiservice IP-based soft
switch system for
voice, data, mobile
and multimedia
operations
TN705
ONU
1.Telecom operators
2. Cable operators
Call server
Media Gateway
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Leading Market Position China
Focus Area
UTStarcom’s Achievements
Interactive
Television
(including IPTV,
iDTV & Internet TV)
 Currently leading IPTV market share in China
 Contracts won from both cable and telecom operators in Zhejiang,
Fujian, Anhui and Shenzhen to expand IPTV system
 Won 10 contracts with city level cable operators for iDTV
 Built 6 IPTV Broadcast Control Platforms out of 12 TNC pilot cities
 Will launch Internet TV platform through Stage Smart acquisition in
the first half of 2011
TNC Broadband
Infrastructure
 Launched EPON fiber access projects in 10 regional cable markets
 Won China’s first PTN contract for Cable MSO in Sichuan province
Smart Grid
 Approved as a qualified EPON supplier for China State Grid
Company
 The first EPON supplier to China’s electricity grid companies and
supply EPON product to the provincial Electricity Grid Company in
Ningxia
10
Leading Positioning on APAC Market (I)
Market & Focus
Area
UTStarcom’s Achievements
South Asia:
IPTV:
 Cooperate with MTNL, BSNL, Bharti, SLT and other leading South
Asia operators to secure our market leading position
 Exploring a joint venture with local partner in India with better
government relations and local market support to retain and extend
leading position in IPTV sector
 Successfully launched GEPON project with BSNL
 Received the first Purchase Order of IPTV systems from TOT in
Thailand in the fourth quarter of 2010
Focused on IPTV
and Broadband
Broadband:
 Currently have more than 30% market share
UTStarcom Confidential
Leading Positioning on APAC Market (II)
Market & Focus
Area
UTStarcom’s Achievements
Japan:
 50% of SoftBank Broadband (SBB)’s MSTP transmissions. SBB is
currently Japan’s 3rd largest telecom operator
 Preferred PTN supplier of next generation IP transmission
equipment for SBB
 Continue to receive sizable orders of PTN product in year 2011
Focused on
Broadband
Taiwan:
 Won sizable MSTP and PTN contracts from Chunghwa Telecom
Focused on
Broadband
UTStarcom Confidential
Market Dynamics & Growth Strategy
China’s Three Network Convergence:
a growth catalyst for UTStarcom
Equipment Spending & Network
Buildout
Media
Platform
Spending
16%
Set Top
Box Sales
28%
Telecom
Network
Buildout
42%
Cable
Network
Buildout
14%
 Three Network Convergence (TNC)
is the Chinese government policy
dedicated to integration of telecom,
broadband and cable TV networks
 Three Network Convergence
related market will reach RMB
688B over the next three years,
including RMB 249B on equipment
and network buildout and RMB
439B from interactive media user
demand
Pilots concluded and
expansion drives ahead
Focused on cable / teleco
two-way entrance
National Implementation
Policy Launched
2010
Pilots Conducted
2010—2012
2013—2015
Source: iChina Research Center, 2010.4, “Analysis of Market Size, Industry and Region for Three-Network
Convergence” and policy directives issued by China’s State Council.
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Strategy 2: Parallel Growth Opportunities
Service
•
•
TNC will increase
opportunities with
cable and telecom
operators because of
infrastructure
investment
Our Broadband,
RollingStream video
platform and mSwitch
NGN solutions help
meet the TNC needs of
both sectors
Cable
Telco
Interactive video
services
4million
(iDTV)
6.7million
(IPTV)
Broadband service
<5million
>100million
Bi-directional
network
percentage
<25%
100%
Voice services
none
>1 billion
187 million
88 million
none
TV and
Digital TV service
Source: SARFT Report January 2011 and UTStarcom
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New Business Model of Cable Operators
Traditional TV
Channel
Basic
Service
(1)
Revenue Structure of Cable Operators
58%
Subscribed
Channel
90%
42%
10%
Information
Channel
US
China
Value-Add
HD Channel
Basic
ARPU Comparison among Countries
USD
Video on Demand
Service of Cable
Operators
Value-Added
Service
Time Shifting
Over Cable
Online Gaming &
Shopping
Broadband
Network Service
Data Service
GDP per
Person
Private Network
Service
UTStarcom Confidential
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Strategy 3: Our Operational Support Services
 RollingStream platform allows our clients to provide end-to-end solutions including,
video content service and other value added services like on-line gaming, on-line
shopping and video phone service through their networks
 Cable network operators need partners that can provide continued technological and
operational support services for these platforms
 Operational Support Services (OSS) expands our revenue stream with higher margin,
recurring revenues
Enterprise
Operators
TV and
Cable
Operators
iDTV
Platforms
Equipment Sales Related
Service Business
Telecom
Operators
IPTV,
Internet TV
Platforms
IP Signage
Platforms
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An Overview of the New Service or “Operational
Support Services” Business
Content
Producers /Providers
VAS
Solutions
RollingStream
Video Platform
Ad Management
Solutions
Content
Distribution
Internet TV Platform by
Stage Smart Acquisition
Mobile TV
Subscriber Base
IPTV/iDTV
Subscriber Base
Internet TV
Subscriber Base
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Recent Business Development

Successfully completed the construction of first Internet TV platform to
support a cable TV network customer

Launched DOCSIS-EOC application (“EOC application”), Packet Transport
Network 735 (“PTN 735”), MS 3005 server and several Wi-FI products at
PT/EXPO COMM CHINA 2011

Won IPTV integrated broadcasting control platform contract in Tianjin and
Zhejiang Province

Won MSTP and PTN contracts from Taiwan’s Chunghwa Telecom, the
largest integrated telecom operator in Taiwan

Entered into strategic revenue-sharing partnership agreement with Wasu
Digital TV Media Group, one of the largest digital TV content providers in
China

Won E-Town 12 square kilometers affordable housing area
telecommunication network project
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iTV.cn: Internet TV for Chinese outside China
Q3 2011
Q4 2011
Commercial launch in North America on
October 1st
 Provides Chinese language content
targeting the Chinese-speaking
population located in North America
 Integrated multi-screen viewing from a
single managed platform
Education
Shopping
Social
 Time and location shifting
 Reliable HD streaming
Gaming
Radio
 Multi-language programming
 Value-added interactive service, such as
distance-learning, gaming and ecommerce
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Financial Overview and Outlook
Third Quarter 2011 Highlights
 Net Income of $8.0 million, or basic earnings per share of 5 cents;
 Revenues of $83.3 million, a 35.7% or $21.9 million increase,
compared to the same period of 2010;
 Gross profit margin of 38.4%, compared to 19.7% in same period of
2010, 37.6% in Q2 2011 and 31.1% in Q1 2011;
 Operating income of $14.2 million;
 Cash balance of US$305.9 million in cash, cash equivalents, and
short-term investments.
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Revenue Trend
 $83.3 million in Q3 2011, 35.7% or $21.9 million increase,
compared to $61.4 million in Q3 2010.
 Nine months ended 2011 total revenue was $237.1 million,
10.1% or $21.7 million increase, compared to $215.4 million in
the nine months ended 2010.
Quarterly Booking Amount
US$ (mm)
70
60
50
Booking
40
30
20
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
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Gross Margin Improvement
 Gross margin for the third quarter of 2011 was 38.4% as compared to
19.7% in the third quarter of 2010.
 Gross margin for the nine month ended 2011 was 36.2% as
compared to 28.9% for the nine months ended 2010.
US$ (mm)
45%
40
34.8
40%
35%
32.1
30
27.2
30%
35
23
25
25%
19
20
20%
15
12
15%
8
10%
Gross Profit
Gross Margin
10
5
5%
0%
0
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
24
Continued Progress in Cost Cutting
US$ (mm)
60%
50
55%
45
50%
40
45%
35
40%
30
One Time Gain
on Divesture
35%
25
OPEX
46
30%
25%
20%
35.4
28
34.7
4.2
30
20
15
25
17.8
OPEX/Sales
10
15%
5
10%
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2010 2010 2010 2010 2011 2011 2011
Total OPEX of Q3 2011 included $4.2 million one time net gain on divestitures.
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Quarterly Profit Achieved
Quarterly Operating Income of $14.2 million…
US$ (mm)
17
14.2
12
9.7
7
2
-3
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
-5.1
-8
-11.1
-13
-18
-18.8
-23
-23.3
-26.6
-28
Quarterly Net Income of $8.0 million…
17
US$ (mm)
11.6
12
8.0
7
2
-3
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
-8
-9
-13
-18
-23
-28
-16
-10.3
-17.2
-23
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Balance Sheet & Deposits
 Strong cash balance of $305.9 million in cash, cash equivalents,
and short-term investment
 Zero debt
Cash Balance by Region
Cash Balance by Currency
China , 43%
USD
32%
Other INR
2%
6%
JPY
20%
Int'l, 57%
RMB
40%
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Reiterating 2011 Financial Outlook
 Total revenue to be within the range of $300 – $320 million (includes
PAS deferred revenue)
 Annualized operating expenses of less than $100 million
 Breakeven in 2011 on a full year basis
 OSS business comprising 10% of total sales in 2011 will be difficult due
to the rigorous due diligence process, detail terms and condition
negotiation with acquisition targets and revenue sharing partners
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Investor Relations Contacts
UTStarcom, Investor Relations
Jing Ou-Yang
T: + 8610 8520 5153
E: [email protected]
Ogilvy Financial
In China:
Agustin Bautista
Tel: +86-10-8520-6166
Email: [email protected]
In the U.S.:
Jessica Barist Cohen
Tel: +1-646-460-9989
Email: [email protected]
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