UTStarcom (UTSI) Announces Corporate Steps to Improve Financials: Outsource Manufacturing Operation, Optimize R&D; Sees $40-$45M Charge in Q2

June 11, 2009 4:16 PM EDT

UTStarcom, Inc. (Nasdaq: UTSI) today announced a series of corporate initiatives that are expected to focus the company resources on the products and regions likely to drive revenue growth and where UTStarcom has a strong competitive advantage.

The company's initiatives will also bring its annualized operating expenses below $100 million representing a greater than 50% reduction from current levels. The savings will result from a series of initiatives that are designed to improve the company's business model and, by the end of this year, reduce the employee headcount to less than 2,000 marking a greater than 50% reduction from the current level. The company expects the majority of these measures will be initiated in the third quarter of 2009 and will be completed by the end of the fourth quarter 2009.

"Today's announcement represents a significant change in our business model. Collectively, these initiatives are aimed at returning UTStarcom to profitability as quickly as possible," said Peter Blackmore, UTStarcom's CEO and president. "However, it does not fundamentally change our strategy which continues to focus on IP-based products in our major markets of China and India. We remain committed to maintaining our essential R&D and sales capabilities to help us achieve growth in our IP-based infrastructure products."

The significant aspects of the initiatives include:

• In Q409, the company plans to outsource its manufacturing operation to benefit from a variable cost business model and improve the company's cash flow cycles.
  
• The company plans to optimize its R&D spending by focusing on selected products. R&D remains a strategic priority for UTStarcom and it will continue to invest in products with technological differentiation likely to drive revenue growth and improved gross margins.
  
• The company plans to aggressively continue its rationalization of facility locations and general administrative costs while maintaining a strategic presence in the most attractive markets.

Restructuring Charge

In Q209, the company expects to incur a restructuring charge of approximately $40-$45 million, primarily consisting of one-time severance benefits. The company expects the cash impact related to these charges will occur in Q3 and Q409.

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