UTStarcom in China

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Case Details:

Case Code : BSTR184
Case Length : 15 Pages
Period : 2001-2005
Organization : UTStarcom
Pub Date : 2005
Teaching Note :Not Available
Countries : China
Industry : Telecom Equipment

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Diversification Strategy

The emergence of third generation cellular network technologies that provided superior voice and data transfer capabilities was also a threat to PAS - UTStarcom's bread and butter business.

In the event of MII's granting of cellular licenses, UTStarcom's two biggest customers - China Telecom and China Netcom would shift to third generation cellular networks. These factors forced UTStarcom to reconsider its single market, single product strategy. UTStarcom decided to diversify the geographies it served. The company decided to pursue a strategy aimed at selling its established products to new customers in developing countries like Brazil, Mexico, Vietnam, Thailand and India. UTStarcom considered India an important market and started with a liaison office at Gurgaon in May 2001 and later converted it into a full fledged branch office. The company targeted Indian telecom operators both in the public and private sector...

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The Problems

Analysts were concerned about UTStarcom's acquisition of Audiovox's handset division. They believed that the acquisition which was made for $165 million in cash, could affect the cash flow position of the company.

On July 27, 2004, UTStarcom reported second quarter gross profit margins of 25.4%, lower than the forecasted gross profit margins of 27%-28%. The fall in margins was attributed to supply chain problems outside China. The company's share prices dropped from $25 to $18. In August 2004, UTStarcom ran into accounting problems when it was discovered that an equipment sale worth $1.96 million did not qualify as a sale for the second quarter of fiscal 2005 but was wrongly recognized as revenues. On account of this, the company had to delay its SEC filings by five days. This event led to a further share price drop of 14% to $15.45...


Exhibit I: Pas Value Proposition
Exhibit II: Utstarcom Share Price Chart
Exhibit III: Utstarcom -- Key Financials (2000-04)
Exhibit IV: China Telecom and China Netcom - Equipment Investments


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