Jane Ouyang – IRO Jack Lu – President and CEO Edmond Cheng – Chief Financial Officer

Liu Jie – Auriga USA

Greetings. And welcome to the UTStarcom’s Third Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host for today Ms. [Jane Ouyang], UTStarcom’s IRO. Please go ahead.

Hello, everyone. Welcome to UTStarcom’s third quarter 2010 earnings conference call. Earlier today, UTStarcom announced the financial results for the third quarter of 2010. That press release is available on the company’s website at www.utstar.com. On today’s call, we have Mr. Jack Lu, our President and CEO; and Mr. Edmond Cheng, our CFO. I will now read the company’s advisory our forward-looking statements. This call will include forward-looking statements on topics that include but may not be limited to the company’s restructuring initiative, IPTV revenues, gross margins and projected business model. Forward-looking statements are generally indicated by such words as will, expect, estimates, those, 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 include risks and uncertainties regarding the ability of the company to realize anticipated results of operational improvements, the company’s ability to cause results, certain investments related to a strategic partnership, revenues in the new business model, successfully transitioning to new business -- new management team and the headquarters locations, excluding our business plan and managing regulatory materials, as well as risk factors identified in latest annual report on Form 10-K, quarterly reports on Form 10-Q and the 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. 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 in the Form 8-K with the Securities and Exchange Commission. I will now turn the call over to our President and CEO, Mr. Jack Lu.

Thanks for joining our call today. Edmond and I are conducting this call together from our offices in Beijing, where it is 8 p.m. As many of you know, today is the first time I am participating as a CEO. On today’s call, I would like to talk about our management’s transition and briefly summarize our business strategy, and then turn the call over to Edmond, who will provide greater detail around the financials for the quarter. Regarding the management’s transition, first I would like to thank my predecessor Mr. Blackmore the work he has done. His effort has brought us a good deal off the way and we intend to build on the momentum he created. With the close of the BDA investment and addition of three new Board members, we have accelerated the headquarter move. I am happy to say that Edmond, myself and most of our top management are now based in Beijing two time or spend significant amount of time here. As new management, we are trying to start our leader -- relationships with the investment community on the right foot. To this end, we recently hired new IR professionals based in China and the U.S. to help us to continually improve the level of openness and transparency that we maintained with the investment community and build trust, we know we need from the Street. Moving on to our corporate strategy, you will have seen the three shifts in our business strategy that we announced recently. I’m glad to have this opportunity to share more about this today. As mentioned in the press release, the role had for UTStarcom multimedia and broadband equipment-based business faces a steep climb on its own. We all recognize the need to grow the topline, increased profitability and lower cash burn. The three shifts in our strategy, which is return to China, targeting telecom and the cable network in parallel and agreement end services are a natural even necessary evolution of what we are doing. This shift supplements to the pure equipment-based business with new revenues stream that we expect will have higher margins and more recurring revenues. With this context, I wanted to provide more detail about the shift in our corporate strategy. The first shift is what I like to call return to China. Prior to our listing in 2000, UTStarcom had deep Chinese roots. Privately, we generated more than 60% of our total revenue from China. Now that we have our headquarters in Beijing, we can better focus on Asian markets, which present a greatest opportunity for the company, namely India, China and Japan. This also has the significant side benefit, which I mentioned earlier of improved communication and better control of expenses To better explain the relevance of the return to China shifts, I wanted to say a few words about three network convergences. Following metrics, who have not followed development in the Chinese telecom industry recently, three network convergence is essential to the company’s investment thesis. This is Chinese Central Government policy directed at improving the capability and effectiveness of voice, video and the data communications services across all of the major communications networks, which is telecom, cable TV and broadband Internet. It is targeted to be completed by 2015. A report by I-China Research Center says that the three work convergence related to markets will reach R&D 688 billion over the next three years. Data from the key regulator of this space, China’s State, Administration of Radio Film and Television, sometimes called SARFT indicated that as of June 2010, there were 177 million households with cable TV, 74 million households with digital cable TV, 30 million of which have completed two-way migration. Finally, there are 2 million interactive cable TV households. In July of 2010, total Chinese [savings] in the regions were selected as pilots for three network convergence on a trial basis before national rollout. UTStarcom has already won contracts with some of the pilot cities to provide broadband access and interactive TV equipment and services. I will provide more details on these in a minute. So, while we continue to cultivate the telecom space with pure equipment based sales, you can see that the opportunity in China in with three network convergence is significant, and I see it as my job to ensure UTStarcom and its investors win a significant portion of the upside. The PDA investment is already gives us access to and a deeper understanding of the Chinese government’s agencies that makes decisions about cable and the telecom network spending. The strategic partnership we recently announced is a further evidence of this. The second shift is that we are now pursuing telecom and cable network customers in parallel, because our core IP technology has widespread applications across different networks. We are more than just a telecom equipment provider. Our technology has applications across many kinds of networks, even the smart grids operated by electricity distribution companies. We believe, telecom and cable are the most promising of these potential customers, and we are pursuing them in parallel. It is important to note that triple network convergence policy is an important catalyst in our business with both of these target customers. The third and the final shift in our corporate strategy [can be cause] equipment and services because of three network convergence in China and UTStarcom’s expertise in building and operating the technology and service platforms for IPTV and Internet TV. UTStarcom will see now new opportunities to provide more end-to-end solutions to operators in this space. I would like to point you to three examples of these strategy shifts, as I know some of you have questions about the kind of business UTStarcom may be going forward. First, as listed in our press release, we have signed several deals with local provincial cable operators, where we provide equipment and the technology to enable them to offer interactive TV services. Second, in a strategic partnership, we announced recently we are working to provide the technology and operational support systems for our Internet TV service that we believe we will provide recurrent revenue services. Third, the SMIC deal disclosed in today’s press release sees us providing interactive High Definition TV and value-added services and our long-term revenue sharing arrangement. We are currently working on several other similar deals. While I cannot get into exact numbers for the last two examples today, I wanted to expand on the basic impact we expect they will have on our financial position. First, it is important to understand that because we have to use our own working capital to install equipment and staff technology to on-site, the initial profit contributions are expected to be slightly negative. However, the model is such that we expect to recoup these investments with a greater return and at a higher margin than our pure equipment sales model. Moving from our business in China to India, last quarter, the management thought the BSNL phase three contract was well only its way to PO and a DOT approval. Unfortunately, since then the terms being offered have deteriorated, and they made us uncertain about when, if and how much this confident may be. Given the stage of the negotiations and the uncertainty, we could not discuss this further. Finally, for our broadband business in Japan as we shared on the last call that we passed all of soft SOFTBANK BB’s quality control test. We have already started to receive purchase orders from the clients for our key end technology in Tokyo, Osaka and Nagoya. As a result, we expect a sizable increase in 2011 once this initial rollout proves themselves. With this overview of the recent management position and our strategy, now I’d like to hand the call over to Edmond to share our third quarter 2010 results.

Thank you, Jack. Hello, everyone. Before discussing the key business unit performance, I will start by highlighting the companywide numbers, presented on both our GAAP and our non-GAAP basis. In the third quarter of 2010, GAAP revenues were $61.4 million compared with $70.5 million for the same period a year ago. The year-over-year decrease was primarily due to the onetime of our handset business, which generated $15.6 million in quarter three last year. Q3 revenue was in line with expectations we established in the announcement we pulled out two weeks ago. For the quarter, we have gross margin of 19.7%, which was 11% lower than the second quarter. And we expect the impact of the foreign significant items, $8.5 million in additional inventory reserve and a $1.9 million onetime reserve for unrecoverable output VAT did negative impact our offset by a gain of $5.6 million third-party commission payable, which was previously accrued and has passed the statute of limitations. Without these items above, gross margin will have been in the high 20s. Our GAAP operating expenses were $35.4 million, a decrease of $22.6 million from the same period a year ago. These are results of restructuring and other cost reduction initiatives. We did OPEX, we have booked the foreign significant items. During the quarter, we recorded approximately 2.3 million of restructuring charges. We booked our reserve for prepaid expected income tax of following tax credit of $2.5 million, which we deemed are not recoverable. A total gain of 1.4 million on our divestitures in the sale of China and color PDSN and converting our India business model from a direct to an indirect sales and services model. With the completion of closing down of our U.S. facilities, the divestment of color and the European reseller deal as mentioned above. We have essentially completed refocussing the company’s resources in Asia. We are still working towards reducing our run rate OPEX, to achieve the targeted annual run rate operating expenses for 2011. It is lower than 100 million. We are making sustained progress and are getting closer to our target. The GAAP operating loss in Q3 was 23.3 million, an improvement from a loss of 33.8 million in Q3 of 2009, primarily reflecting our improved cost structures, including in other income of 7 million, which mainly consists of foreign currency gains of 6.9 million due to the strengthening of the Japanese yen, Chinese Renminbi, Indian Rupees and Korean Won against U.S. dollars. Our third quarter 2010 net loss was 17.2 million or a loss of $0.13 per share. Next come to our segment financial results. In the third quarter, our multimedia communications segment had revenues and gross margin of 39.5 million, and 36%, comparing to Q3 of 2009 results of 30 million and 43% respectively. Revenue grew 31.5% year-on-year. As a reminder, we are amortizing the deferred revenue related to PAS through the end of 2011, at the rate of 23 million per quarter. Gross margin associated with the PAS deferred revenue approximately 35%. For broad band infrastructure, our revenue for the quarter three was 21.1 million, which was down from 24.8 million a year ago, comparing with Q3 last year, MSAN revenue decreased by 7 million, service revenue decreased by 3 million. These are, however, partially offset by the sales increase in PDN of 6 million. Therefore the overall sales was a decrease of 3.7 million. The gross margins in the third quarter were negative 8%, a decrease from 32% a year ago. The decrease in gross profit percentage was primarily due to the unfavorable impact of 8.5 million inventory reserve. Without this impact, the gross margin would have been about 30%, similar to a year ago. In the third quarter, the handset business unit recorded 826,000 in sales, a negative 46% gross margin. This is due to we are still clearing our inventory. This compares with 15.6 million at a negative 21% gross margin in the year-ago period. We do not expect our handset segment to make a material contribution to our revenue or gross margin going forward. Any additional handset revenue will be from sales related to inventory clearing. Now, I wanted to talk about bookings and to share the book to bill ratio as a measure for evaluating the business. Without the revenue, our book-to-bill ratio as a metric for measuring the equipment base business. Without the PAS deferred revenue, our book-to-bill ratio for the third quarter was slightly larger than one. With the PAS deferred revenue, our book-to-bill ratio is 0.63. Balance sheet. Turning to the balance sheet and cash flow, we ended the quarter with a strong balance of 338 million in cash, cash equivalents and short-term investments and most importantly zero debt. This cash balance is increased of 30 million in the prior quarter. We continue to improve on our operating cash flow. Operating cash flow for the quarter was negative 12.4 million on GAAP basis, which includes restructuring charges. Q3 operating cash flow is an improvement from Q2 of negative 40.8 million. We generated 34.6 million from investment activities, which came solely from the PDA deal. This amount is set -- is net of issuance cost for the transaction. I would like to remind everyone that the PDA transaction closed in September 2010. Under the terms, UTStarcom issued approximately 18.1 million shares of common stock and options to purchase up to 4 million shares of common stock through November 8, 2010. We have clearly made significant progress in the quarter. At this point, I would like to give the call back to Jack.

Thanks, Edmond. Turning to our outlook for 2010 as we are still in the early days of our leadership of the company, I would like to refrain from providing guidance beyond the three-point plan for profitability that was established by previous management and announced in our announcement two weeks ago. Moving forward, we are considering change in how we report on our business progress to better reflect and to give visibility into our new business. As such, we are committed to coming up with financial and the non-financial metrics that indicate how we are mining the new themes of revenue opened by the strategic shifts, I described earlier. To reiterate, this strategy includes return to China, telecom in parallel with cable and finally, the equipment and services. At this point, I’d like to ask the operator to open us for the Q&A.

Thank you. (Operator Instructions) Your first question comes from the line of Liu Jie with Auriga USA. Liu Jie – Auriga USA: Hello. Hi. Good morning, everyone. Got a few questions for you. The first is, you significantly lowered your operating cash burn in the quarter, so I’m wondering, what did you do exactly to achieve that. And how should we think about your operating cash flow going forward?

Jack. Thank you for raising the question. First of all, we have lowered our operating expenditure and that’s the critical driver for reducing cash burn. And secondly, we have been very focused on working capital management and that would also provide additional cash flow to reduce our cash burn. And going forward, you will see that we continue to focus on these two areas and we continue to drive improvement on operating cash flow as we have that been demonstrated in the last three quarters. Liu Jie – Auriga USA: Okay. So when do you expect it to achieve, say, operating cash flow breakeven? In two quarters or three quarters?

At this point in time, it is still a little bit early for us to make a prediction. We will certainly, later on, maybe in our Q4 earnings announcement, we will provide guidance at that point in time to you and the rest of the MNAS community. Liu Jie – Auriga USA: Okay. All right. So on your OPEX, I know earlier you said that your OPEX for 2011 will be less than 100 million. Could you be a bit more specific, like is it 19 million, 18 million? Do you have a target?

At this point, we still need some more time to work out the details. And as I mentioned before, we will actually provide guidance in our Q4 earnings call. Liu Jie – Auriga USA: Okay. All right. The other question regarding the OPEX is you have a $2 million plus restructuring charge this quarter. Do you foresee any future restructuring charges?

As you can see, we’ve almost completed our restructuring for debt measure. So you had anticipated that these restructuring charges will be dwindling down in the next few quarters. Liu Jie – Auriga USA: I see. Okay. Okay. You also gave a lot of color on the book to bill ratio with and without the past revenue amortization. Do you foresee your book to bill ratio to improve significantly with the past revenue included in the next couple of quarters? Obviously, I know that depends on whether you can sign the [BSNAL] contract or not, but any color will be very helpful.

I understand what you are looking for, Jack. But as you can understand in the equipment business, our recruitment base, it is very unpredictable. And that’s exactly why Jack, our CEO is looking at the three strategic shifts that we are looking at. Primarily, it is to bring the company to a different level of performance with recurring revenue and predictable revenue stream. And if we look at this level of business activities, then the booking numbers will not be as meaningful as the equipment based business. So we will be different metrics for the new business going forward. At this point in time, I would say we would defer that to maybe our Q4 earnings call and we’ll provide more clearer guidance. Liu Jie – Auriga USA: Okay. That’s fine. Thank you.

Thank you.

Thank you.

Thank you. (Operator Instructions) Thank you. There are no further questions at this time. I will turn the conference back over to management for closing remarks.

Thank you for joining us on our third quarter 2010 earnings conference call. We look forward to updating you on our fourth quarter 2010 results in a few months time. Feel free to get in touch with us any time if you have further questions, concerns or comments. Thank you, everyone.

Thank you. This concludes today’s conference call. You may now disconnect.