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Lehman Brothers analysts Jeff Kvaal, Alan Hellawell, and Tim Luke reduced UTStarcom earnings estimates in a note to clients. Key excerpts:

Our checks suggest Curitel's decision to sell direct rather than via PCD should drag more heavily than thought on the March quarter, though Sharp, Casio, and others may help. We also believe UT is not likely to hit our $130M opex target without further restructuring. We trim our March and 2006 estimates well below consensus. Our 2006 ests are $2.6B/($0.85) from $2.7B/($0.69) and vs. ($0.48) consensus.

Drivers for a 2H06 sales recovery include IP DSLAM / IPTV in China, Japan, and India. UT's 4Q backlog may provide a hint (~$1B in 3Q05). Mix shifts and better PHS systems pricing may help margins. Management expects to generate ~$100M in cash by 2H06, further solidifying the company's balance sheet.

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