Uh.. oh.. UTStarcom

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They say when its too good to be true, it probably is! For a few years the break neck growth and gigantic momentum of UT Starcom has confounded many in the telecom space. It kept on winning business – everywhere from Vietnam to China to Africa to India. It started selling DSL gear at Filene’s Basement prices. It kept offering sweet deals to carriers world wide, in the process becoming a $2.7 billion company. Impressive… right! Wrong! Today the company announced that it needs another 15 days to file its annual report because it needs more time to assess its internal financial controls.

UTStarcom also said it expects an adverse opinion from its auditor regarding financial controls at Dec. 31, 2004. The company said management had identified material deficiencies in financial reporting because it had too few people skilled in accounting, in related party transactions and in monitoring the accounting of its foreign units. The company is still reviewing its controls and may discover other problems, it said. (SmartMoney)

(Other company with lack of financial controls – Nortel!) Still makes you wonder when you are a company growing at such break neck speed — y-o-y increase in sales is close to $800 million — better idea into one’s financial-health is a good thing.

Now for something that makes me go hmm! Sometime in 2001 some UTStarcom employees helped finance and form a company called MDC Holdings, and another entity called Beijing MDC Telecommunications Co., Ltd. Then in 2002, a venture capital fund affiliated with a principal shareholder of UTStarcom made a capital investment in MDC Holding. (Could that principal owner be Wu Ying, president and CEO of UTStarcom China, since he seemed to be the biggest shareholder in the company as of September 23, 2004!) In December 2004, UTStarcom exercised a warrant for common stock in MDC Holding for which it paid approximately $0.8 million for a 19% ownership interest. All this is fine and dandy, except somewhere in the press release the company points out that it analyzed the “transactions entered into between MDC, the Company and their customers. ” As a result of all this wheeling-and-dealing, UTStarcom took some lumps. I am a little confused – company executives owned a piece of this MDC, its biggest shareholder invested in it via a VC fund, and it was doing business with UTStarcom. Playing cosy eh! Or perhaps just business as usual –Someone please decode it all for me!

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Kory Doszpoly

The company a friend of mine co-founded here in the US is trying to gain footing in India. Accoring to him the whole telecommunication business in these third-world countries is a mess. Companies come and go almost on a daily basis.

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