Peter Blackmore – Chief Executive Officer Viraj Patel – Interim Chief Financial Officer

[Paul Weyner – DLS Capital] Andrew Rosenburg – Footprints Asset Management Bill Choi – Jefferies & Co.

I would like to welcome everyone to the UTStarcom Q3 2008 earnings conference call. (Operator Instructions) Mr. Hutton you may begin your conference. Mr. Hutton: This is Barry Hutton. I'm the UTStarcom's Senior Director of Investor Relations. I want to apologize for the delay in starting the call this afternoon. There were some delays in getting our filings across the newswires which did happen at 5:00 eastern time. We wanted to give you a little bit of time to review those results before the call. With me today are Peter Blackmore, our Chief Executive Officer and he will provide an update on our company including highlights relative to certain key business units, Viraj Patel is our Interim Chief Financial Officer and he will give the segment details of our Q3 financial results and fourth quarter guidance. And finally before opening the call for questions, Peter will close with some brief comments about 2009. Before the call begins, formally I would like to remind everyone that some of the information that will be discussed today constitutes forward-looking statements. Actual results could differ materially from our current expectations. To understand the risks that could cause results to differ, please refer to the risk factors identified in our latest annual report on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form AK which are filed with the Securities and Exchange Commission. In addition, today's call will include pro form non-GAAP financial results. The most directly comparable GAAP information and a reconciliation between the pro form non-GAAP and GAAP figures is attached to the earnings release issued today. The reconciliation is also available on our web site in the investor relations section. Now I'd like to turn the call over to Peter.

Thank you for joining our call. Earlier this afternoon we issued our third quarter financial results which included revenues of $181 million which did meet our guidance. Our gross margins of 32% and operating expenses of $92 million were both favorable to our guidance. Our operating expenses declined by $24 million year over year reflecting the actions in recent months and reduced our operating loss to $35 million. In addition I would like to highlight that as of September 30, we had a net cash position of $331 million. This is $150 million increase in net cash compared to December 31, of last year and clearly the stronger balance sheet would be an advantage during the current uncertainty in the financial markets. I'd now like to look briefly at our corporate strategy and business unit detail. As you know, we are in very volatile economic times. In this environment it is very important that our management team remains focused on executing the company's strategic plan. During the third quarter, we hit some very important milestones along the way and we expect to achieve more of these in quarter four and early 2009. In order to emphasis our competitive position, I want to highlight our strategic priorities which tie directly to our business model and long term prospects. Our strategic priority has been to streamline the company and create increased focus on the IT based products and services which specifically include IPTV, Next Generation Networks and the IP broadband offerings. During the third quarter we rationalized some of our non-core assets. On July 1, we sold our personal communications division in a deal that effectively ended the company's activities as an equipment distributor and then on July 31, we completed the announced divestiture of RCD portion of our mobile solutions units. With these additional rationalizations complete rest assured that we shall continue to action to remove any intellectual property that will not deliver value in the near term at the same time we will further reduce our cost base. Our strategic priority is growing our leadership position in the rapidly developing economies across Asia, Latin America and parts of Eastern Europe. We have a particularly strong presence in China and India and these regions tend to have a strong drive for new technologies and want to build out their telecom networks as a national focal point of their government. We have not yet seen significant reduction in the CapEx budgets for new technology and the major tier one carriers in these two countries. Like everyone else, we're watching this closely but clearly we are in a better position in our choice of target geographies than many companies. In China we continue to be the market leader in IPTV and very importantly we have made our first entrance into China's cable market and I will discuss that more when I highlight our multi-media communication activities. China's industry restructuring has shifted responsibilities among the carriers and UTStarcom Incorporated are getting new business for PDSN which I'll also refer to later. Our third strategic priority is maintaining strong carrier relationships to which we deliver products in our key markets, especially in times of economic uncertainty, carriers want to work with partners they know and trust. Part of our sales strategy is to cross sell and up sell services to our current customer base. The trust that our customers have with UTStarcom is evidenced by the multiple contract expansion and products installed recently from current customers such as China Telecom, PS&L, and Brazil Telecom. Our fourth priority is to maintain a strong balance sheet. Considering where we started in 2008, I'm particularly pleased with our September position. In March we fully repaid the $290 million in convertible notes and interest and during the third quarter we repaid all of our short term debt. In the light of the rapid deterioration in the financial markets, our ability to complete the PCD divestiture in July had clearly been advantageous. As I said, I'm pleased to say that at September 30, our balance sheet had $331 million in cash and short term investments against zero debt. Let's look at the business units in a little more detail starting with the Multi-media communications business unit. This business unit continues to perform well. The Olympics were a clear test of our IPTV systems technological scope and capacity and our success in this test is indicated by letters of acknowledgement from Shannon Metcom, Shannon Unicom and Best TV. As of September 30, our global IPTV system had 1.1 million subscribers which represents a 15% growth since June 30 and since the beginning of the year 57% growth. In the IPTV area we have three meaningful achievements. First, we had another example of moving from an initial pilot to deployment in a major province in China as we had already done in Shanghai. We won an important expansion contract with China Telecom in the Fujian province which further illustrates our ability to obtain repeat business from the existing client base. Second, we had a breakthrough in the cable market in China with a new contract in a key province. This is important because as of December 2007, the China cable market served approximately 160 million households. So our ability to enter this market presents a strategic advantage relative to future opportunities. Thirdly, we continue to manage our existing R&D in IPTV inter-related areas. In October we announced our second contract for an IP advertising system. This one was with [Bestone] subsidiary of China Telecom. The fact the advertising systems use our existing R&D investments and the IPTV capabilities to expand the customer relationships and obtain new revenue streams. This year the project we'll create a video information network with 3,500 terminals in office buildings, supermarkets and schools across the Hunan province. By the end of the project we expect to support over 10,000 terminals in this region. Similar to IPTV, the Multi-media segment has also had success in the area of next generation networks both in new contracts and deployments. A year ago Brazil Telecom launched its IPTV services with us. In September we expanded the relationship by using our NGN solution to power their fixed mobile convergence network which customers use from fixed line, to wireless devices; our technology helps Brazil Telecom retain more callers on its network. As a result, NGN enables Brazil Telecom to have better customer retention and revenue opportunities. We believe our growing reputation in Latin America will lead to more opportunities in this region. And finally, in the PDSN area, we're excited that we have won the largest share of the PDSN market in China at 40%. In India, moving to the broadband business unit, in India [inaudible] has formally awarded us a contract which is phase two Multi plex project which we alluded to in the last earnings call. Our third quarter bookings include approximately $70 million for this contract which covers many of our products including D-Slam, N-Slam, RPR and CPE. In the fourth quarter we expect to receive additional purchase orders on this contract valued at between $5 million to $10 million. As we've discussed before certain aspects of the Phase one contract caused us to incur some financial charges over time. I want to make it clear that we have learned some lesson that will help us better manage Phase two. I'd like to point a few of these aspects out. We have a better pricing structure including an improved mix of products which we expect to lead to high gross margins. We are cooperatively taking efforts to mitigate shipping costs. We started building the equipment earlier in the process which gave us extra time to ship equipment by sea instead of by air thereby reducing these costs substantially. On Phase two we have much stronger project management. During Phase one, we learned to better anticipate project time lines and requirements of what is a very complex roll out. In planning the execution of this contract, we have structured the contract milestones accordingly for Phase two. I'm also pleased to see recent broadband success in the Middle East region which we are working to develop. While we have two contracts in the Middle East, and these are a tier one carrier in Israel named Begek. They have ordered an initial M-sam order and we had competition from Alcatel, Lucent and Teledata as we won that contract. An additional Telecom also gave us an order for M-sam and in this case we beat Alcatel Lucent. Both of these represent new customers using for UTStarcom. Let me briefly comment on hand sets. Following the July divestiture of PCD our handset segment now includes two businesses. First, we continue to provide PAS terminals to China. As we stated before, the PAS handsets business is declining as the industry looks toward 3D networks. We are launching a number of CDMA handsets for 2009 in China. And the second business our divestiture of PCD. On the third quarter 2008 was the first time period which our career in handsets segment will design and build these units were called third party sales and Varaj will discuss how this different business model impacts revenue margin at OpEx levels. I'd now like to move to some important sector highlights. As you know, Varaj Patel has been appointed our Interim CFO while also serving as our Controller and Chief Accounting Officer since 2005, and he also has previous CFO experience. Craig Samuel joined us as Senior Vice President of Business Strategy and Integration, and in this new role, Craig will manage the effort to develop emerging product opportunities, maximize our intellectual property portfolio and further rationalization of the company. Our new Senior Vice President of International Sales and Marketing will formerly join us on Monday, November 10. Louis Domingai has extensive experience in Latin America and Asia and well established with a range of telecommunications customers. He joins us from Unisys where he was the General Manager of world wide Regional Sales and Operations and has a very strong background in telecommunications as well. We are also strengthening our sales and marketing efforts in China. We have hired a Senior Sales Executive to complement Robert Woo's ongoing leadership role as the CEO of China. We are strengthening our sales and go to market activities. And lastly, we hired a new Senior Vice President of Supply Chain last month. [H. D. Goad] joined us last from the Venture Corporation where he served as Director of Global Supply Chain. H.D. will grace our Hangzhou, China office. I have every confidence he will drive further efficiencies in our global supply chain. I'd now like to turn the call over to Viraj to discuss third quarter results and our fourth quarter guidance.

As you know this is the first quarter for which we are reporting results without PCD. In order to make the year over year comparisons relevant, I'll report certain non-GAAP results which have been adjusted to reflect 2000 results as if PCD were a separate entity at that time. As Barry mentioned earlier, we have prepared a non-GAAP reconciliation covering each of those metrics for each of the quarters of 2007 through the current quarter. Those tables are attached to the earnings release issued earlier this afternoon and are also on our web site. In the third quarter we had revenues of $181 million compared to non-GAAP revenues of $248 million a year ago. This result is impacted by areas in which we previously expected the declines, mainly PAS infrastructure and PAS handsets. We did see revenue growth in our IPTV solutions and NGN solutions in this quarter compared to the quarter earlier year. Gross margins in the period were 32% much stronger than the non-GAAP gross margin of 16% recorded last year. The strong margin results in Q3 were driven sales of high margin NGN product and certain other one time activities such as supply rebates and reduction in our third party commissions. In contrast, the 2008 results were negatively impacted by certain one time charges including some planned exit of non-core products. Regarding operating expenses, our efforts to reduce the expense levels were successful in the third quarter as OpEx came in at $92 million including a $3.5 million net gain from divestiture so OpEx is $96 million for quarter three. More importantly, the third quarter results reflect the ongoing operational improvements as well as reduction in expenses related to certain Legacy issues that we expect to benefit from going forward. The third quarter 2008 OpEx level represents a reduction of $17 million compared to Q2 and $24 million reduction compared 3Q of last year. This results in a third quarter operating loss of $35 million compared to $51.5 million a year ago. Below the operating loss line, we did recognize an unrealized loss of $11 million from current devaluations and $4 million in write off related to our long term investments. These items are recorded in the other expense line. Our net interest income is $1.7 million reflecting our hard cash balance following the divestiture of PCB and lower interest expense as we repaid all our debt during the year. We incurred a tax expense of $8.5 million for the quarter. Net net, our net loss was $56 million or $0.45 loss per share in this period compared to $55 million last year or $0.46 loss per share from a year ago period. Before I discuss the segment results, I will highlight our cash usage and our cash position. For the nine months ending September we have used $32 million of cash flow from operations. This year to date usage reflects our operating losses offset by strong working capital management earlier in the year. In addition, the intention of our cash flow reflects over $275 million proceeds from divesting PCD and certain short term investments during the year. As a result, our September 30 cash position is $331 million reflecting the fact that we repaid all our debt during the year. As Peter mentioned, this reflects about $150 million improvement in our net cash as compared to December 31. The debt of the consolidated company, I will give you some information on the segment information. As you know, our company provides a range of products and services to customers globally. In late 2007 we reorganized our company and certain business units to better align the corporate structure with our strategy. At this point I'll give you some color regarding the results and drivers for our major business segments. Our Multi-media communications business unit manages our activities related to IPTV solution, net generation networks and PAS and structure products. Revenues in quarter three were $58 million compared to $58 million a year ago. As expected, we did see the continued decline in our PAS structure revenues as China continued to move toward a 3D system. The past year decline was about 15%. However, we did see growth in our IPTV systems and NGen products which partially offset the PAS reductions in the quarter. The Multi-media communications business had a gross margin of 53% compared to 29% last year. This margin improvement is largely due to sales of our high margin NGN product and a $4 million reduction in accrued third party commissions. Comparatively, the margins in the PAS infrastructure were better this quarter compared to 2007 although the sales of PAS has declined. Our broadband business unit which is responsible for both software and hardware products deployed access to high speed and cost effective data, voice and media communications. The lead products in this segment include M-san, GEPON and MSTP. In the third quarter, broadband revenue was $31 million versus $41 million in Q3 last year. As noted in our last conference call, the year over year decline in this segment is primarily in the CPE product line. Last year CPE was driven by an expansion by Softbank in Japan. As you know our large contracts with BF&L are multiple year implementations and these significant amount of revenues will be recognized upon completion of the work. Gross margin in the third quarter was 10%. In the year ago period the gross margins were -12% which reflected contract reserves that were taken against the infrastructure project in India. And now I'll move on to the handset segment. As Peter stated, you should think of our handset business as two operations. Historically the segment revenues from selling handsets in China, but these operations have declined in recent years as the industry moved toward new technologies. The PAS decline of approximately 40% year over year in line with our previous communicated expectations. The second part of this segment involved the Korea operation which continues to sell and supply a diverse PCD business in North America, for the first time in the quarter totaling $35 million in Q3 of this year. Combining these two operations generated Q3 revenue of $72 million versus $59 million last year. The gross margins for the segment were 21% for this year versus 29% last year. The low margins reflect the shift of the product mix from PAS only to PAS enhanced handset mix in the most recent period. Our book to bill ratio for this quarter is 1.2 which includes a very large order for BF&L phase two that Peter mentioned earlier. Now on to the balance sheet items. Before I point out a few of the key balance sheet items, I'd like to remind you that these may not be easily comparable to prior periods. Clearly the PCD divestiture removed a significant amount of working capital from the balance sheet in Q3. Our September 30 cash equivalent and short terms investments stood at $331 million which includes the cash from the PCD divestiture and this amount represents our net cash because during the period we repaid the last of our outstanding debt. The September 30 balance reflects $150 million improvement in net cash compared to the beginning of the year. Our quarter net accounts in notes receivable of $167 million giving us a day sales outstanding of 76 which is approximately equal to what we had at Q2. Cash flow from operations, in the nine months ended September 30, we used $32 million cash flow from operations. This year operational cash flow usage has been primarily driven by three main factors. First, we recorded loss of $69 million year to date which obviously has a negative implication on our cash flows. The second major factor is the significant purchase of equipment we have made for the Phase two contract in India. This contract is in one of the key markets that is a strategically important contract for us. And finally during the first half of 2008, we generated $60 million in cash from operations through strong capital primarily related to our PCD operations. Despite the net usage of nearly $31 million year to date cash flow from operations our net Cap position as of September 30 were $331 million which is about $150 million increase in net cash compared to the beginning of the year. This was primarily driven by the sale of PCD in Q3 the proceeds of which are reflected in the cash flow from investing activity in our cash flow statement that is attached to the release. I'll now talk about the fourth quarter guidance. Before I make some comments on the fourth quarter guidance, I want to acknowledge that the economic uncertainty that we are operating in today and the potential it could impact our business. As Peter stated, roughly 70% of our business in based in China and India, two countries that are still projected for economic growth in 2009. To date we have not seen the tier one carriers in these countries make cuts to their CapEx plans. With that in context, here's our expectations for Q4. Total revenues should be in the range of approximately $215 million to $235 million. Gross margins should be in the low to mid 20's range which reflect the anticipated shift in the product mix which will include more handsets. The operating expenses are likely to be approximately $95 million with an ongoing emphasis on cost containment and reductions. During the fourth quarter we do plan to initiate certain actions which will lead to meaningful OpEx reductions in early 2009. We expect our Q4 cash flow from operations usage will be approximately $35 million to $45 million which will bring our full year estimate of usage to roughly $75 million which is better than our original initial anticipation of CapEx in the earlier call. I know that many of you have asked us about our use of cash plans for 2009. This quarter as always, management and the Board carefully evaluated all uses of cash including a potential share repurchase. After careful consideration of many factors including the current economic environment we have decided not to do a stock buy back. We believe the company is best served by maintaining a strong cash position. This allows us to maintain the flexibility while we continue to invest in organic growth. At this point, I would like to turn the call back to Peter for closing remarks before we take your Q&A's.

Before I open the call to Q&A I wanted to acknowledge what I did previously commit to providing you with certain information about 2009 business model. In the last three months we have done extensive analysis of the bookings outlook for 2009 across all regions. Currently we continue to see booking growth in developing countries despite the challenges in the global economy. As we have said, 70% of our business is in China and India and if we add in the other developing economies we're marketing like Asia and Latin America, the consolidate number is 85%. China and India continue to have a positive GDPS for 2009 and as a result we are better positioned than many companies, with the emphasis on IPTV and GN soft switch and IP broadband in these target markets. Based on this, we continue to see positive growth in bookings in 2009 and currently we estimate 10% plus. We shall continue to review this. We're also assessing revenue growth. Historically it been easy for us to forecast bookings versus revenue but obviously we want to get both right. Our quarterly run rate on operating expenses has improved a lot in 2008 with the actions we have taken but clearly we need a further significant reduction in 2009. To that end we are developing specific initiatives which reduce our 2009 operating run rate by 15% to 20%. We shall have a call on these details later in the quarter so that you can model 2009 better. And now we'll open the call to questions.

(Operator Instruction) Your first call comes from [Paul Weyner – DLS Capital] [Paul Weyner – DLS Capital]: You talked a little bit about the Korean hand set division. Is that all cash flow positive?

In China it's cash flow positive. The part in Korea that serves PCD is not cash flow positive. [Paul Weyner – DLS Capital]: When do you have to make the decision to make that cash flow positive?

We'll be making a decision Korea this quarter. It's not made yet but it is also one of the things we will include on the call later this quarter because we have to make sure that business is positive in 2009. [Paul Weyner – DLS Capital]: Will you be in a position to tell us how much of an impact that might have?

Yes. We'll absolutely give you the detail on the call. [Paul Weyner – DLS Capital]: The $331 million in cash, does that include any of the $24 million that was held in escrow? Has any of that been released?

No, it doesn't include any money in escrow. [Paul Weyner – DLS Capital]: What are the terms and times for that last $24 million?

I can break that into two pieces. One of them has to do with closing conditions that we're in the process of finalizing with AIG, and the other $10 million gets removed a year from now after the sale of the business. [Paul Weyner – DLS Capital]: So is it safe to say that $14 million we might see by the end of the year?

I would say so.

Potentially. It depends on the closing conditions. [Paul Weyner – DLS Capital]: That $14 million I assume the minus $35 million to $45 million you talked about, that's strictly cash flow from operations? So if you got the $14 million back that would be slightly better in terms of total cash burn.

Yes.

Your next question comes from Andrew Rosenburg – Footprints Asset Management. Andrew Rosenburg – Footprints Asset Management: On the $70 million you recognized in the DS&L contract for the quarter, how much of that flows through into revenues? Is all of that going to come into revenues in the fourth quarter?

That was just a booking. A lot of the equipment is in the process of being delivered in this quarter and next quarter, but the revenue recognition to that is tied to milestones in the contract, so it will come late 2009 to 2010. Andrew Rosenburg – Footprints Asset Management: There's none of that or just a small portion would be in the fourth?

There is no revenue in the Q4 numbers. As I mentioned in part of my comments, these are multiple year implementations and these are large contracts so the revenue recognition happens after the completion of the implementation cycle. Andrew Rosenburg – Footprints Asset Management: The margin profile you mentioned should be better than last year, but will it be better than the 10% you had this quarter from that one specific DS&L deal?

I would expect it to be in the low single digits. Andrew Rosenburg – Footprints Asset Management: You mentioned the OpEx cuts, 15% to 20%. How easy is that to do? Are there restrictions in China that prevent you from doing certain cuts there?

We didn't specifically mention where they would come from. What I would do is in the call later in the quarter we can be explicit where we get that from. We're very confident about the 15% to 20% but obviously I'm not ready to announce the details today. There aren't any particular restrictions in China. We'll do some head counts. The markets we operate on it's fairly straightforward to manage that type of production if we need to do it. Andrew Rosenburg – Footprints Asset Management: You mentioned the China cable being a new market for you. How big is that in terms of revenue? Is it small?

The initial contract is less than $5 million but it was very strategically important because we've broken into the cable market internationally with a cable market in Thailand and we hadn't broken into the cable market in China and we see that it has a lot of potential from talking to this particular customer and other customers. Andrew Rosenburg – Footprints Asset Management: Are there any more of those out there?

We are bidding on additional ones now. Andrew Rosenburg – Footprints Asset Management: How rational is pricing right now with some of your competitors that you see?

It continues to be tough. From these big contracts, broadband products continues to be very competitive so we pick and choose which ones we go after. Despite competitive pricing on IPTV and Ngen, we continue to have a very strong margin structure and we haven't yet seen that impacted despite the competition. That's primarily where we're selling software, so software traditionally has a much better margin profile.

Your next question comes from Bill Choi – Jefferies & Co. Bill Choi – Jefferies & Co.: You mentioned you haven't really seen any impact with everything that's going on in the macro from the tier one carriers, but anything from the smaller guys, the tier two and tier three players in India? Are you seeing any slow down there?

Not in India or China. 70% of our business comes from India and China and so far we're pleased to say we haven't seen an impact. We'll watch it very carefully but so far that's the position.

The other think I'd like to say is that most of our customers that are in India are in very strong financial condition. We haven't seen any effect.

Really it's the big five, BS&O, NT&O, Lance, they're very strong. Bill Choi – Jefferies & Co.: On the handset side of things, did you say the sales in the quarter were $35 million?

No, it was the purchase of the parts for China which is still primarily PAS in the quarter. I just made the comment about CDMA because as PAS declines, the question is how do you replace those revenue streams, and we're launching CDMA handsets so we're launching two late quarter fall for revenues in 2009 and then we have a additional CDMA handsets in 2009, so we can build up a revenue stream to replace PAS. Bill Choi – Jefferies & Co.: The Korean based business was that the $35 million.

I'm sorry, I misunderstood. The $35 million, that's correct. Bill Choi – Jefferies & Co.: How does that compare to last year?

That's well over last year.

If you look at our pro forma information it's all there. You can see it. Part of the reason would be in anticipation of the sale of the business units; the PCD did buy a lot of inventory from us prior to the sale of the business. Bill Choi – Jefferies & Co: Is there any color you can give around margins by segment in Q4? Viraj Patel.: One would expect on the handset side, it would be a lower margin which we expect to be a little bigger proportion in Q4. But consolidated we expect it to be low to mid 20's.

Soft switch should be fine; broadband will depend on the mix of products. The main reason for the margin reduction quarter on quarter was a greater volume of handsets being sold into Korea.

There are no further questions. Are there any closing remarks?

I'd like to thank everybody for listening. We're delighted to talk with you individually and Barry will be reaching out to you. Thanks again for your support.