More CC notes ...
From UTSI call (with plenty of my own color and interpretation) ...
Pace of growth and acquisitions finally got away from them. No way to add that many acquisitions, add that much personnel, add that many new clients, do that much new business, and expand into that many new geographical territories that rapidly without a bit of indigestion.
Beat the top-line handily $690 million (actual) vs. $660 million (expected), but missed on the bottom-line by a penny. However .... they missed closing a single deal by exactly one day (it was closed and booked the first day of this quarter) that would have added a full point of gross margin and 3 cents to eps -- which would have led to a "beat by 2 cents".
Aside from execution issues that really don't appear to be long-term problems, there is a real problem with price competition on handsets in China, which management charitably described as "fierce" but might also have been described as "completely savage bordering on lunacy".
The company's clear and palpable fear ("the competition's just giving phones away") has led it to hold top-line forward guidance in-line, but lower forward guidance for EPS by 7%. But it was also equally clear that they couldn't articulate the specific metrics they were lowering -- leading one to conclude they simply want the bar lowered in case they run into more unexpected trouble, and that straight execution would lead to an upside surprise next quarter and raising guidance back up.
Management appeared to be mildly frightened -- this is the first time since the company went public in 2000 that they didn't beat estimates.
Otherwise, their strategic plans in Africa, India and Latin America are all on track and the two things they really needed to do (1- diversify geographically from 85% China to 50%-60% China, and 2- acquire capacity to compete in 3G in preparation for transition of some PAS networks to 3G), they are well on their way to accomplishing.
One final note ... UTSI has good ties not only to the Chinese central government but to provincial governments too, and obviously has a good view of the Chinese economy generally and the consumer level economy. Their take is that the government has been quite successful in dialing down the overheating in a way that hasn't slammed on the brakes too hard. UTSI thinks the industrial economy (construction, infrastructure, real estate development) has slowed to the 8%-9% target (and some pressure is coming off the power grid and raw materials), but that the government is not impeding the consumer economy, so spending on consumer electronics, etc. continues growing rapidly. The number of new customers UTSI and its partners are signing up are staggering.
And not from the UTSI call, but as an example .... this past year, more than $300 million worth of "luxury electric razors" ($300-$500 price tag) were sold in China.
My own editorial on China is this: if someone tells you China is going to slam on the brakes and cause a shock felt here they simply haven't done much research on what's really going on over there. It is simply amazing.
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