Lehman Brothers analysts Jeff Kvaal, Alan Hellawell, and Tim Luke released a note on UTStarcom (ticker: UTSI) after the company reported earnings results last night. Key excerpts:
UTStarcom reported preliminary 4Q results slightly ahead of ests, but disappointing 1Q guidance leads our ests well lower. Despite likely further balance sheet progress, negative cash flow from operations may ultimately weigh on cash/share and the valuation. Broadband sales rose 35% QoQ (ex one time gain) driving UT's revenues to $685M, above its $650-$680M guidance, despite weakness in PHS handsets (-28% QoQ) and systems (-16% QoQ). A soft 12.1% gross margin (weakness in PCD and PHS phones) held EPS to a $0.53 loss vs our $0.52 est. Net cash rose to $158M, or $1.30/share, from ~$0 on lower DSOs. However, steep declines in handsets and broadband, plus less opex control than expected, leads UT's 1Q guidance to $505-$535M / ($0.65) - ($0.75). Our low end ests had been $576/($0.35). Despite its $1B backlog, we consider mgmt's 2006 targets of 5-10% sales decline and breakeven by 1Q07 optimistic. Our 2006 ests are $2.3B (down 20%) and ($1.76).
UTSI 1-Yr Price Performance: