UTStarcom a Near-Term Hold

UTStarcom (UTSI - Analyst Report), a provider of IP telecom and mobile equipments, announced encouraging first quarter 2008 financial results, above our estimates. This was primarily due to growing acceptance for the company's IPTV solutions and personal communications devices as a result of the introduction of new high-end products.

Favorable product-mix and cost synergies helped UTStarcom improve margins. We believe market demand for the company's IPTV and optical transport solutions remains firm as opportunities appear respectable at several carriers in Asia and Latin America. On the other hand, we do not expect UTStarcom to achieve profitability anytime soon.

In addition, the market for IPTV solutions is highly competitive which may hinder efforts to improve the company's earnings power. We, therefore, maintain our Hold recommendation with a higher valuation target in view of expected sequential growth and further margin improvement.

Although we believe earnings fluctuations will continue over the near-term, ongoing deployments of IPTV networks at numerous carriers worldwide, and other associated high-speed broadband service requirements, may improve overall business visibility for the company. We, therefore, maintain our Hold rating with an increased six-month target valuation of $5.50, based on an EV/Sales ratio of 0.15x our fiscal 2008 sales estimates, as we gradually close the gap with peer comparisons.

Nalak Das contributed to this report.

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