Linda Rothemund – VP, IR Peter Blackmore – CEO & President Kenneth Luk – SVP & CFO Randy Liao – Director, IR and Global Treasurer

Paul Weiner [ph] Stephen Koffler – Con Brio

Good afternoon. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the UTStarcom Q4 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator instructions) Thank you. Ms. Linda Rothemund, you may begin your conference.

Good afternoon. This is Linda Rothemund, Investor Relations for UTStarcom. Earlier today, we announced our financial results for the fourth quarter of 2009. That press release is available on our company web site at utstarcom.com. On today’s call we have Peter Blackmore, our Chief Executive Officer; Jack Lu, our Chief Operating Officer; Kenneth Luk, our Chief Financial Officer; and Randy Liao, Director of Investor Relations and Global Treasurer. This call will include forward-looking statements relating to among others, the company's restructuring initiatives projected business model, the closing of the sale of our Hangzhou building as well as the BDA investments. Forward-looking statements are generally indicated by such words as “will,” “expects,” “estimates,” “goals,” “plans” or similar words. These statements are forward-looking in nature and subject to risks and uncertainties that may cause actual results to differ materially. These risks include the ability of the company to realize anticipated results from operational improvements, execute on its business plan and manage regulatory matters as well as risk factors identified in its latest annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K as filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. And in addition, today's call will include certain non-GAAP financial measures. The most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures is attached to the earnings release issued earlier today, and filed on a Form 8-K. The reconciliation is also available on our Web site in the Investor Relations section. Now I will turn the call over to Peter.

Good afternoon, everybody, and thank you very much for joining our call today. Normally, Kenneth and I would be in the same location for this call, but this is one of my few weeks back in the United States rather than being in China, so Kenneth and the others and myself are in different locations. So please bear with us if there are any pauses. Let me start with the quarter four financial results, and as you saw earlier today we issued a press release outlining our financial results for the fourth quarter and for the fiscal year 2009. These results reflect continued traction towards executing our restructuring and to positioning the company for 2010, as we delivered sequential revenue growth and continued reductions in our cost structure in the fourth quarter. While Kenneth will provide more details around our financial results for the quarter, I would like to highlight a few items which include revenue was 116 million for the fourth quarter. This sequential improvement was driven primarily by our core business, and we did also recognize some initial revenues from BSNL phase one. The fourth quarter gross margins of 30% are in line with our expectations for our business going forward. Our operating expenses were 76 million, but that does include a non-cash asset impairment charge of roughly 33 million, related to the sale of our Hangzhou facility. Our current rate operating expenses have steadily declined the year, and once outsourcing of the manufacturing is complete, I want to confirm that we will be well on our way to achieving our target of 100 million in annualized operating expenses. Very importantly, we ended the year with 267 million in cash and short-term investments. This was ahead of our plan. It was also an improvement from the end of the third quarter, and so clearly we continue to manage cash very well. Now, I would like to summarize some of the main points of 2009. 2009 was clearly a transformative year to UTStarcom. We undertook a complete strategic repositioning of the company. We simplified our product focus, we streamlined our operations, and we materially reduced the cost structure of our business to improve our competitive positioning and return the company on the path to profitability. We have also become an increasingly Asian focused company, and the pending strategic investment by the Beijing BDA further strengthens this positioning, and should improve UTStarcom ability to tap the high-growth China market, where we are primarily focused on IPTV. Just the recap key accomplishments for the year. Today our businesses are focused on two core technologies, which are IPTV and optical broadband. We successfully divested or wound down all of our non-core assets, including the low margin handset business, and we are now almost completely out of the handset business. We also reduced our support and therefore our cost for certain legacy business. However, we continue to make important R&D investments in the products most likely to generate growth in 2010 and beyond. Our TN product family is a prime example of that. Another area where we will invest is IPTV cable. As we mentioned in our strategic investment call in February, we see a strong market opportunity for IPTV directed at the cable industry, and with the support of the strategic investors we will add a services model for IPTV in addition to our legacy technology sales model to grow this business, and that will also contribute highly visible recurring revenues to our business model. We have changed our go to market strategy to concentrate on China, on India and Japan, where we see the highest growth potential for our business. Across the rest of Asia, Latin America and Europe we have combined sales approach that uses direct sales teams to support current high potential clients, but supplements this effort with channel and OEM partnerships. We have successfully developed OEM partnerships, and will continue to work on building up OEM partnerships in key geographies. Regarding manufacturing, we have finalized the agreement to outsource our manufacturing operations to Sanmina-SCI. Sanmina will provide full electronics manufacturing services for our systems products, which are currently built in our Hangzhou facility. We began transitioning these operations during the fourth quarter; however, because we anticipate a large order from BSNL, we plan to complete the handover of manufacturing operations in quarter two of 2010. The outsourcing of manufacturing clearly improves our ability to manage demand swings, as well as lower our working capital requirements. Regarding the building, as you know we agreed to sell our building in Hangzhou for approximately $140 million less taxes in cash. And this provides a significant infusion of cash to the company. This cash addition further strengthens UTStarcom debt free balance sheet, and provides the financial resources required for the company to prosper in 2010 and beyond. We have also successfully resolved a number of litigations and investigation relating matters that were under way when I joined the company. In December, we settled with the DOJ and SEC for matters relating to the Foreign Practices Act. Frankly, we have increasingly become an Asia focused company as many of the company’s functions are now relocated to China. We have been very clear about our intention to strengthen this presence. So, I was very pleased to announce the strategic investment by the Beijing BDA on February 1. We mentioned on our last earnings call that we were considering moving our headquarters to China, and also that we wanted to hire board members with experience and knowledge of the Chinese market. The strategic investment from the BDA helps accomplish these goals, and should bring significant strategic value to UTStarcom. So in connection with the transaction, we will move our headquarters to Beijing, China, and we believe that will provide advantages. As part of the BDA investment, we will be eligible for tax incentives and other financial and non-financial assistance to the company from the BDA. To reiterate what I said on our last call, we also plan on retaining all our operations in Hangzhou and Shenzhen, and also remain committed to growing our business outside of China. We shall have a board with more familiarity with the China market. As part of the transaction, three new independent board members will be appointed. These appointments will be critical to driving the long-term strategic direction of the company, particularly the IPTV cable opportunity. We have also brought on a Chinese executive, Jack Lu, to lead the company after a transition period. And I was very pleased that Jack joined as chief operating officer on March 1. This investment from the Beijing Development Area is very important to the future and strategic direction of the company, and we are optimistic about UTStarcom’s growth opportunity in IPTV, as our strategy is in good alignment with a series of guidelines recently issued by China's State Council to push forward network convergence among telecommunications, cable television and Internet companies. Let me now briefly move to the business segment highlights. Equally important to the restructuring and the Beijing government investment, growing our core business and customer pipeline to drive 2010 revenues. Some key highlights and developments for the fourth quarter related to our product portfolio and sales pipeline to support our 2010 revenues are as follows. Starting with the Broadband business unit and focusing on the transport TN product, I'm pleased to say we received initial orders from SOFTBANK for our TN solution during the fourth quarter. With regards to phase three of the BSNL contract, we anticipate a significant order in India for phase three in quarter two. The delay of this contract from quarter four resulted in a book-to-bill ratio of under 1 for the fourth quarter. Let me now move to multimedia communications. At our multimedia communication business, we continue to have the leading market share in IPTV in both China and India. As we look towards 2010 growth opportunities in China IPTV market, we note a leading proportion of the industry’s 2009 investment was dedicated to 3-G. But the indications are that 2010 will see a return to significant IPTV investments by the industry. We are seeing good growth and demand for our set-top boxes so far this year, and that is a positive indicator of demand for IPTV. We also won a number of new contracts that are clearly a positive indication to our prospects in 2010. Orders for IPTV came from the Zhejiang Province, and we also had orders from Shangxi [ph], Sichuan, and Hangzhou plus an important upgrade from our Shanghai installation. We also won six new IPTV cable contracts in 2009. In India, we continue to move forward with multiple deployments of projects won in the past. These systems are expected to expand and go live in 2010, and we see additional growth opportunities particularly with Bharti and with BSNL for IPTV. I would like to now hand the call over to Kenneth to provide more details around our fourth quarter and fiscal year 2009 results. Kenneth Luk Thank you Peter, and good afternoon everyone. Before we step in to key business performance, I will start by highlighting the companywide numbers present on both the GAAP and non-GAAP basis. First of all, I would talk about our GAAP results. In the fourth quarter of 2009, GAAP revenues were 116 million versus 241 million a year ago. The vast majority of the year-over-year difference was anticipated, and is directly attributable to the low revenues from our PAS businesses. The decline in PAS revenue wasn’t our anticipation, because in early 2009 the China government formally will allocate the spectrum from PAS to 3-G users. Therefore the use of the PAS technology has been winding down for some time, and is expected to be phased out by January 1, 2012. The GAAP gross profit in Q4 was 35 million or 30% of revenues. This compares to gross profit of 30 million or 12% in the fourth quarter of 2008. Our GAAP operating expenses were 76 million, and also were impacted by certain significant items. One, we reported a non-cash impairment charge of 33.3 million related to the sale of our Hangzhou building. Second, we had 5 million of restructuring charge primarily related to the restructuring initiative which we announced in June 2009. However, even with these charges, we have been able to achieve a 35% reduction in our OpEx year-over-year. The GAAP operating loss in Q4 was 41 million, and this loss was mainly due to the building impairment charge. Included in the other income of 5.6 million, which mainly consists of foreign exchange gains, our fourth quarter 2009 net loss was 39 million or a loss of $0.31 per share. Next, I'm going to take a moment to discuss the non-GAAP numbers, which were issued with the press release. I would like to remind you that the non-GAAP results only adjust for the divestiture of our PCD and wind down of our Korea-based handset operations. But they do not adjust for the restructuring charges or any other special charges or non-cash items. The non-GAAP revenues and gross margins of 2009 were 104 million, and 32% respectively. This compares to the non-GAAP revenue and gross margins of 149 million and 23% in Q4 2008. The changes reflect the anticipated decline in our PAS business, which I mentioned earlier. Our non-GAAP OpEx was 76 million in the fourth quarter. This result compares favorably to the 104 million in non-GAAP OpEx a year ago due to the company's cost-cutting initiatives. We are clearly making progress towards reducing our cost structure, and expect to see additional benefits along with the finalization of the outsourcing of our manufacturing operations. Finally, the Q4 non-GAAP operating loss was 43 million versus a loss of 17 million a year ago. I will now move to discuss the performance of our various business units using GAAP numbers. First of all the multimedia communications. In Q4 our multimedia communication segment had revenues and gross margins of 45 million and 50% respectively. This compares to Q4 2008 results of 81 million and 42% respectively. The multimedia segment revenues were negatively impacted by the winding down of our PAS business in China, however the PAS decline was partially offset by an increase in IPTV system product and IP messaging product sales, as well as by recognition of additional revenue related to our PAS infrastructure product due to the acceleration of the progress in amortization. For infrastructure [ph], our revenue was Q4 was 36 million, which was up from 18 million a year ago. The gross margins in Q4 were negative 8%, representing a significant improvement from negative 57% a year ago. The fourth-quarter results include some initial revenue recognized from BSNL phase one at zero margin due to the previously recorded losses on the contract. For handset, in the fourth quarter the handset units recorded 17 million of revenue comparing with 122 million in the year ago period. This significant decline was due to the winding down of our Korea handset business, and to our exiting from the handset business in China. The gross margin was 33% in the fourth quarter of 2009 compared with only 1% in the fourth quarter of 2008. We are in the process of completing the wind down of our worldwide handset operations, and do not expect our handset segment to make material contribution to our revenue or gross margin in 2010 and beyond. Finally, I will end with a discussion on our cash position at the end of 2009. We ended the quarter with a strong balance of 269 billion in cash, cash equivalents and short-term investments. At the close of our Hangzhou building sale transaction, which we anticipate will be around the end of March; we will receive the balance of the cash proceeds from the sale for roughly 118 million. We have already received a deposit of Renminbi 15 million, which is equal to approximately $7.3 million prior to year end, and received another deposit of Renminbi 45 million, approximately $6.6 million in February 2010. We also expect to receive cash proceeds of roughly 48.5 million upon the closing of the strategic investment by the Beijing Development Area, the BDA. This transaction is expected to close in April 2010. Taking this into consideration, we are very comfortable with our cash position as we believe it is more than adequate to support our working capital needs for 2010. At this point, I would like to give the call back to Peter.

Thank you, Kenneth. I now like to comment on 2010, before we turn the call over to Q&A. So turning to our outlook for 2010, we will not be providing specific guidance for the year at this time. I'm sure you will understand that given the pending closing of the strategic investment from the BDA. However, I do want to reiterate that we remain committed to achieve the target we have shared with you in the past. We remain focused on completing the major restructuring we announced last June, while continuing to drive a healthy sales pipeline for future growth. To reiterate the 2010 target financial model, you will recall the model anticipates annualized revenues greater than 350 million. Our 2010 revenues will be driven largely by bookings from late 2009 and early 2010. In addition, we also have the benefit for over 100 million in deferred revenues, which we shall recognize in 2010 as we get final customer acceptance. For quarter one 2010, we do want to remark that these will be down significantly compared with quarter four of 2009 for several reasons. First, we only expect a few million dollars in handset revenue in quarter one, as the businesses more or less wound down. Second, we expect to recognize less revenue in quarter one from the BSNL phase one contract that we did in quarter four. And finally quarter one as you know is typically one of the weaker quarters of the year for our core business. For 2010, we do expect gross margins in the high 20s. We changed our product mix to focus entirely on IP -based products and almost completely exited the handset business as I said, which tends to both drive lower margins and higher working capital requirements. In 2010, we will also see the revenue and gross margin benefits from the new TN product, which is high margins. We expect annualized operating expenses to be a less than 100 million once we complete the restructuring and outsource the manufacturing. Restructuring progress we have made continues to make us very confident in our ability to achieve this. So, in summary we have made a lot of progress towards improving the financial and strategic positioning of UTStarcom as we went through 2009. We are optimistic about UTStarcom’s growth potential given the strategic investment by the BDA, and we believe we are well positioned to take advantage of the expansion in both the IPTV market in Japan, and also well positioned to grow our broadband in India and Japan. At this point, I would like to ask the operator to open the call and start the question and answer. Operator?

(Operator instructions) And your first question comes from the line of Paul Weiner [ph].

Everyone here.

Hi, Paul.

How are you doing?

Very well. Thank you.

The OpEx reduction, I mean, you guys have been committed to 25 per quarter. Is there – what's the timeframe on transferring everything to (inaudible), and when you can get all the outsourcing complete?

Right. It will be the end of quarter two. So we expect a big reduction in quarter one, and a final reduction in quarter two to get us to that $100 million run rate, and we're on track to do that.

Okay, the other thing is just to make sure I'm correct here. Cash in the quarter went up about $29 million, correct?

Correct.

With $7 million of that coming from the deposit on the building?

Correct.

So was there any other kind of non-operational stuff, did the other 22 come from actual operation in cash management?

Yes, and Kenneth please comment that while he is preparing, it was all operational from good accounts collection and just managing the business well, Kenneth.

Yes, yes. I think exactly that is the case. We had very good collection in Q4.

How much of that kind of benefits from cash management – have you gotten all the low hanging fruit, I mean, are we going or going forward are we looking more into an environment where your cash is going to be truly from operations or is it going to be closer to EBIDTA or do you still have some beneficial cash management things that are going to continue to make your cash look a lot better than your P&L? Like that, I’m just wondering how much longer it can go on.

It's more from operations in the future, but we've given very good cash management instructions to the field. So I would continue to expect accounts receivable collections to be good, but really you're on the right issue Paul that in the future it's more from just running the business well.

Right. So, I got, I mean you're going to – so you’re like – because of the seasonality, I mean you're likely to actually see more cash burns over quarter two and quarter three but obviously much lower than they have been in the past few years.

Not in quarter three, in quarter one and quarter two, and also we have a little bit more restructuring because the cash is recognized when the people leave the company. So we’ll have some restructuring in quarter one and little bit in quarter two as well.

Okay, great. You mentioned, did you say book-to-bill was less than one?

Less than one, correct.

Is that for the entire company or were you talking specifically about the one segment at that time?

No, the entire company.

Entire company, okay.

All right.

(Operator instructions) And your next question comes from the line of Stephen Koffler. Stephen Koffler – Con Brio: Hi there. Back on sort of the cash flow going forward, if you could just repeat some of these details, so you were showing cash at $267 million roughly at the end of Q4. I guess, I heard two additional components. Do you still have cash to collect closing on those building sale, correct?

Correct. Stephen Koffler – Con Brio: How much is that please?

$118 million to collect. We have also already received, but it will be in the quarter one numbers another $6.6 million. So it's $118 million plus $6.6 million and $118 million will come in, the roundabout the close of quarter one. So some of it may come in quarter two. We’re not quite sure yet. It depends on just when the building finally closes. Stephen Koffler – Con Brio: All right, but basically sometime by the end of quarter two, we collect $118 million plus $6.6 million, correct?

Correct. Stephen Koffler – Con Brio: That’s for the building.

Correct. Stephen Koffler – Con Brio: Now, I think you’ve said something about taxes. Are you recording a gain on this sale?

No, we basically took an impairment against book value. You should remember the book value is $160 million. So in quarter four, we have an impairment of $33 million. Stephen Koffler – Con Brio: Okay. So, didn't you say something about taxes related to the building?

You know, taxes – excuse me, I misheard you. Taxes related to the building, that was the numbers I gave you were net of taxes. Stephen Koffler – Con Brio: Okay, so I'm just curious why are the taxes on the sale? Is there a gain?

The taxes are just the normal Chinese taxes on a building transaction. Stephen Koffler – Con Brio: Okay. So it has nothing –

Nothing to do with the capital gain, no. Stephen Koffler – Con Brio: Okay, then I guess the other piece of non-operating cash flow going forward is these investments from the agencies you noted. How much of those and what's the timing again please.

$48.5 million and it's a consortium, about $25 million of that is the Beijing BDA, the balance is a group of investors and the consortium was led by (inaudible) Capital and we expect, and the key element receiving that is closure of the Beijing transaction, which is going through the normal government approval process and we expect it to close in April. Stephen Koffler – Con Brio: Okay. Have you already issued the equity associated with this transaction?

It will be done at closing. Stephen Koffler – Con Brio: At closing. Okay. And how many shares of that?

Just speak up.

Roughly 20 million and 22 million.

22 million. I was just asking 20 million to 22 million shares. Stephen Koffler – Con Brio: Okay, fine. Last question, can you just review the mechanics of the BSNL shipment that led to book-to-bill below 1?

Basically the book-to-bill was without BSNL. Had we got BSNL it would clearly be above 1 because the BSNL order will be large as we did intimate in the past? So we’re expecting the BSNL order in quarter two. Stephen Koffler – Con Brio: Okay. So, what happened there, you know, what's behind the slippage, and why are you confident and are you confident it’s the same dollar amount you’re counting on earlier?

It was a change in management, the key management level, the person who had to put forward the phase three for signature by BSNL. That management position changed in the middle of quarter four, and the new management actually wanted to go through it and make sure they were happy with it and that caused a delay. So we are expecting the order in quarter two as I said. Stephen Koffler – Con Brio: Okay, thanks very much.

Thank you.

(Operator instructions) And there are no further questions at this time.

We’d like to thank you all very, very much for listening to the call. Thank you. And operator, let's close the call.

This concludes today's conference call. You may now disconnect.