UTStarcom investigates premature revenue booking

UTStarcom’s board of directors has begun an independent investigation of the circumstances surrounding the premature recognition of revenue from a contract with an Indian customer.

The company reported a total of $22 million in revenue from the contract between 2003 and 2005, with a gross profit margin of less than $1 million.

The investigation was requested by the company’s management based on accounting issues that surfaced in December, UTStarcom said on a conference call Thursday afternoon.

The company reported preliminary revenue of $685.5 million for the fourth quarter and a preliminary net loss of $20.6 million, or $0.17 per share. That net loss is down considerably from the $402.7 million loss the company reported for the third quarter of 2005, accompanied by the announcement of plans to lay off 500 employees. The company actually eliminated 1200 employees in the fourth quarter, ending the year with 6300 employees, having begun the year with 8000.

In October, the company revealed it was the subject of an ongoing investigation by the U.S. Securities and Exchange Commission.

“2005 was a difficult year for UTStarcom,” Chief Executive Officer Hong Liang Lu said during the conference call, promising incremental improvements in 2006. “You should not expect a quantum leap, but you should see steady progress each quarter.”

Chief Operating Officer Michael Sophie added, “In 2006, you should also look for additional IPTV activity with tier-one carriers in India and Latin America and competitive carriers in Europe.”

The company expects its annual revenue to drop 5% to 10% in 2006, yeilding another net loss this year.