Do the folks at UTStarcom (Nasdaq: UTSI) know their own business? Once again, the company missed the bar on revenue -- a bar that it itself set.
Revenue in the second quarter grew 5% from the year-ago level but missed the company's own guidance of $740 million given last quarter. On a (slightly) more positive note, the company did manage to bring gross profit margin in within the guided range -- squeaking in with 15.1% (down from 25.6% last year).
The makeup of the revenue wasn't really all that surprising, and the company reaped about 40% of its sales from China (down from about 90% last year). So despite management's decision to give over the first 10 minutes of the call to talking mostly about China, the company is making progress with expanding beyond China.
I am pleased to say that the balance sheet looks alright. UTStarcom did a good job of reducing working capital needs and actually posted $44 million of positive operating cash flow for the second quarter. Likewise, it's in pretty good shape with respect to debt and liquidity. Although not a balance sheet item, I would point out one interesting item -- the company's backlog decreased from $950 million in the first quarter to $915 million.
In conjunction with the earnings announcement, UTStarcom announced the hiring of Fran Barton as CFO. Mr. Barton has served in a similar capacity at Atmel and should be a strong hire for a company that has had accounting control issues in the past.
Once again, though, the revenue estimates will be heading lower. Management is now projecting revenue of between $660 million and $680 million -- well below the current mean estimate of $778 million and down roughly $50 million sequentially.
UTStarcom has a loyal following, and I know I'm going to be hearing from it again. I'm going to hear about the market share in China, about how PAS in China isn't dead yet, about all these great deals it has, and about how I'm being mean. I'll simply point out that I heard this all at $20, $15, and $10. Get the picture?
UTStarcom isn't dead, but I still can't find a compelling reason to trust this management team. Either it doesn't have a firm grip on the direction of its own business at this point, or business is pretty sluggish. Take your pick, but neither situation is a good one. Is there potential for this business and this company? Sure. Will it realize that potential? I'm not so sure about that.
The communications equipment business is a tough one, and UTStarcom hasn't distinguished itself of late. At this point, I'd rather own a telecom services provider like Philippine LongDistance (NYSE: PHI), America Movil (NYSE: AMX), or Motley Fool Income Investor recommendation Telecom New Zealand (NYSE: NZT) than an equipment vendor like UTStarcom. After all, I'm in this game to make money, not to stick by a company that isn't getting the job done.
For more on the less-than-stellar history of UTStarcom:
Fool contributor Stephen Simpson
owns shares of America Movil.
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