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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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MARCH 2, 2004
Why UTStarcom Is a Telecom Star CFO Michael Sophie credits its strong sales to a focus on technologies that are "fast-growing" and "allow carriers to make money" UTStarcom (UTSI ) isn't your typical telecom-equipment outfit. In the four years since its initial public offering, its sales have increased ten-fold, to $2 billion in 2003. Over the same period, during one of the industry's worst downturns, revenues of rival Lucent Technologies (LU ) shrank 78%, to $8.5 billion. What's UTStarcom's secret? It focuses on the world's highest-growth markets -- and on selling the most in-demand telecom gear. Last year, it reaped 80% of its revenue from China, where telecom is growing at double the pace of the overall economy, says Lawrence Harris, an analyst with Oppenheimer & Co. in New York. HIGH HOPES. It's also selling wireless gear and handsets, as well as equipment that enables high-speed Internet access, in red-hot markets such as India and Latin America. For certain types of gear -- such as technology used for local wireless access that 800 cities in China have deployed -- UTStarcom holds 60% share of the world market. Its ambitions run high: UTStarcom hopes eventually to get 50% of its sales from outside of China and to reach $10 billion in total revenue. Already this year, it's on track for a 30% revenue increase, says Chief Financial Officer Michael Sophie. How will it and other phone-equipment makers navigate the rough waters of telecom industry consolidation? Sophie talked about these and other issues with BusinessWeek Online reporter Olga Kharif on Feb. 27. Here are edited excerpts of their conversation: Q: Last year, you more than doubled your sales -- while most other telecom-equipment suppliers were barely growing. What are you doing differently? A: We've focused on high-growth markets such as China, whereas most telecom-equipment providers have concentrated on markets that aren't growing, such as North America and Europe. Plus, we're trying to focus on technologies that we think are fast-growing -- and that allow carriers to make money. [The wisdom of this] was highlighted in the U.S. several years ago, when a lot of suppliers were selling lots of equipment to competitive local-exchange carriers that weren't making money and that eventually went out of business. We always want to make sure that carriers are making money with the equipment we're providing. If we can make money, if carriers can make money, and if consumers like the services -- that's a sustainable business model. Q: One such technology you provide is something called PAS [personal access system]. How does it allow carriers to make money? A: PAS is essentially a mini-cellular network: As long as you're within a certain geographic area -- say, a city -- you can make and receive wireless phone calls to and from anywhere in the world. But if you leave that, your phone -- which looks very much like a cell phone -- won't work. We've found that in markets such as China, 95% of people never leave their geographic area 95% of the time. What's special about our equipment is that it's designed for markets such as China, where people can only afford to spend $5 or $7 a month on phone service. We've designed our products to be very cost-effective, so carriers can get two- and three-year paybacks, and it's driving profitability for them. Q: Could we see this technology in the U.S.? A: While there may be some opportunities here to offer coverage of corporate and university campuses or rural cities, those are niches. The country already has broad wireless coverage. So we're focusing more on markets that don't have that infrastructure, such as China, Latin America, the Middle East, and Africa. Q: What kind of equipment do you expect to be in demand in the future in those and other markets? A: We see several trends in telecom. The first one is that more voice traffic is moving from regular phones to wireless phones. So we see demand for our equipment. And with the move to 3G [next-generation] wireless networks, which allow for data services and more voice capacity, we're looking at a better than 70% compound annual growth rate for such wireless equipment. Second, people want to reach the Internet and get short text messages -- that's why we're also focusing on equipment that links high-speed Internet lines to the telecom network. It can allow phone companies to provide video streaming over their existing copper wires, so they can get additional revenue. We're already selling equipment in Japan that allows for 46 megabit-per-second downloads for video-on-demand-type services. We see such equipment, a space that we dominate, having 72% compound annual growth from 2002 to 2005.
BW MALL
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