Global growing pains: UTStarcom adjusts guidance

UTStarcom announced today that its third quarter earnings are expected to fall between two to four cents per share with sales ranging from $590 million to $600 million. Analysts were expecting around 34 cents per share on revenue of just under $700 million.

Though known largely as a wireless vendor in China, the company blamed a broadband contract with Japan Telecom, which also was announced today, and U.S. accounting practices for the revision. The company signed a $290 million deal to provide Japan Telecom with iAN-8000 Multi-Service Access Nodes as part of a nationwide broadband buildout. Additionally, UTStarcom will be providing professional services including helping manage Japan Telecom’s sales promotion program as part of the contract.

And therein lies the rub, according to Michael Sophie, CFO for UTStarcom.

"It is the service element of that contract that has a direct effect on how and when we’re able to recognize the revenues," he told analysts this morning in a conference call to discuss the new financial guidance.

Because the equipment and services are considered linked, revenue recognition requirements using U.S. GAAP rules requires that the company defer 100% of the money received from Japan Telecom until both elements have been completed. And while the equipment will be delivered in the third and fourth quarters, the professional services revenue will not be collected until 2005.

The contract, however, represents another significant move for the company as it continues to move toward a more global strategy. UTStarcom recently signed a deal with Telmex in Mexico to provide IP DSLAMs, details of which will be emerging soon, CEO Hong Lu said on the conference call.

"This builds on our first two significant DSLAM wins in Europe and provides significant proof of the value of our product," he said. "Our IP DSLAMs clearly are taking share on a global basis."