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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"UTstarcom's success to date has largely resulted from a tight focus on seizing the golden opportunity offered by PAS, and management runs the risk of losing its way as it attempts to simultaneously introduce new products and conquer new markets." 1

- Donald N. Sull, Associate Professor, London Business School, in 2005.

"UTStarcom is a company that is transforming itself from a single technology, single country focus to one of a global provider of diversified telecommunications and networking solutions and services to carriers worldwide." 2

- - Jeff Clarke, Member, Board of Directors, UTStarcom, in 2005.

Introduction

The US-headquartered UTStarcom witnessed tremendous growth in the Chinese telecom market over a ten year period between 1994 and 2003. The company's revenues rose to $2.7 billion in the fiscal 2003-04 from $10 million in fiscal 1994-95, earning itself a place in the Fortune 1000 Club.

Analysts attributed UTStarcom's success to the ability of the company's top management to identify opportunities in the Chinese market and exploit them fully. UTStarcom realized the need for low cost, limited mobility telecom services in the Chinese markets and catered to this need using its Personal Access System (PAS). The PAS allowed fixed-line operators provide limited mobility to its subscribers. China Telecom, the largest fixed line operator in China, was UTStarcom's biggest customer. However, by early 2005, UTStarcom started facing problems because of its single product, single market focus. The emergence of new technologies like 3G3 threatened the popularity of PAS technology and forced the company to offer new products and enter new markets.

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In May 2005, UTStarcom announced that its PAS business would decline by 40-50%. The company also announced that it would cut 1,400 jobs. In a filing with the SEC, UTStarcom wrote, "As the PAS market has matured, we believe that it may level off in the near future.

In addition, the increase in handset competitors entering the market during 2004 has resulted in decreased average selling prices and margins. If additional handset competitors enter the market or if competitors decide to further reduce pricing, our sales of PAS handsets may be adversely impacted."4 In its efforts to overcome these problems, UTStarcom also decided to outsource its IT and supply chain operations. Mike Sophie (Sophie), Chief Financial Officer (CFO) of UTStarcom commented, "Alongside our continued efforts to diversify our product portfolio and increase our international presence, we are taking the necessary steps to realign the company to better meet the demands of our new market reality.

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1] From the book, Made in China by Donald N. Sull, Harvard Business School Press, Pg 178, 2005

2] "UTStarcom Names Jeff Clarke to Board of Directors," PRNewswire, January 13, 2005

3] 3G refers to the third generation of wireless mobile technologies that allow the transfer of both voice as well as data. 3G allows data transfer speeds of up to 2 Mbps in fixed applications and works over both GSM and CDMA

4] "SEC Form 10-K Filing (Page 72)," www.utstar.com, December 2004

 

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