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UTStarcom Holdings Corp. Message Board

  • curious_tigre curious_tigre Apr 15, 2005 7:46 PM Flag

    First read of '04 10K

    Gross margin has dropped from '03 to '04:

    China - from 27% to 23%
    International - from 58% to 34%
    Overall - from 32% to 22%
    (PCD's gros margin is 4.3%.)

    SG&A expense rose from 9% to 11%, a significant component of that increase is the $20m increaase in allowance for doubtful accounts, reflecting changes in collectibility trends in China.

    As I said before, 20-21% gross margin seems a net income break-even point for UTSI. If UTSI's Operating expense continues to stay at this percentage level, it better tries to raise margin to stay profitable. So far, handset infra contributes about 62% of overall revenue in '04. I expect that figure to dip below 50% in '05. The downshift in gross margin due to that percentage change will offset the expected rise in PAS margin in China as well as the inclusion of high-margin revenue from Japan (offset by infra revenue decrease in China PAS) this year.

    Overall, I expect '05 margin to decrease from the current 22% level. A dip below 20% is possible given continued pressure UTSI is facing in the market place, and a lack of new infra contracts activities in the last 6 months. Because of the 6-9 months revenue recognition cycle, any infra contract has to be signed by the end of June in order to be included as revenue this year.

    By the way, UTSI got a tax benefit of $6.9m from the US after claiming a domestic loss of $19.7m before taxes. It also obtained a $19.6m tax benefit from deferred tax assets from China as a result of changing tax rate as they move into their new facilities. This benefit could be reversed in '05 pending UTSI's new application for tax status there.

    Without counting such unknown factors as tax credit, I'd expect UTSI to nearly break even in net income for '05, with a good possibility of negative earnings.

    tigre

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