UTStarcom has announced strategic initiatives that together advance its efforts to transition into higher growth, more profitable areas and enhance the value of the business.
Specifically, these strategic initiatives include:
-The acceleration of the growth of the Company’s media operational support services business.
– The divestiture of the Company’s IPTV equipment business which will become a privately-held, standalone company.
– The appointment of former Board member and technology industry veteran William Wong as Chief Operating Officer, effective immediately. Wong will transition into the Chief Executive Officer role at UTStarcom upon close of the divestiture transaction.
Jack Lu will leave UTStarcom to lead the IPTV equipment business once the divestiture transaction closes.
These initiatives stem from decisions made by a Strategy Committee of the Company’s Board of Directors. The Strategy Committee, led by independent Directors, was convened in the first quarter of 2012 to identify opportunities to accelerate revenue growth, bolster profit margins, improve operational cash flow, and increase shareholder value. After evaluating several potential strategic options, the Strategy Committee determined the best way to achieve these goals is to concentrate capital and resources on building out value-added services, divest non-profitable parts of the business, and move into high-growth areas, such as media operational support services.
As part of this strategy, the Company will divest its IPTV equipment business, which will become a privately-held standalone company. Once the divestiture transaction closes, Lu will lead the new IPTV equipment business, thus leaving his position as UTStarcom’s Chief Executive Officer. The divestiture is a means of effectively redeploying capital to support higher return opportunities, particularly in the value-added services area. It accelerates UTStarcom’s ongoing transition into a higher growth business and will have an immediately positive effect on the Company’s margin structure and profitability profile. The IPTV business currently accounts for approximately one-third of revenue and is expected to negatively contribute to the overall Company results. This strategic initiative will significantly reduce UTStarcom’s expenses by $17 million per year.
“A result of an extensive review of potential options, this transaction offers the best solution for the Company to exit a non-strategic business segment and leaves UTStarcom with a dynamic core business well-positioned for future transformational initiatives,” said Xiaoping Li, Lead Independent Director and Chair of the Strategy Committee. “Importantly, the divestiture preserves the parts of the revenue base that have higher profitability and stable growth prospects. It also provides excellent continuity for IPTV customers, who can expect the same level of service and commitment from the new company. Lastly, it helps provide clarity for business partners, employees, and shareholders on UTStarcom’s priorities and strategic direction.”