UTStarcom in China_Case Study_Grp 10_FMG19C

8/4/2019 UTStarcom in China_Case Study_Grp 10_FMG19C

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PRESENTED BY:Varun Bhatia (191181)

Raman Oberoi (191161)

Nitin Garg (191153)

Neena Gangwani (191151)Mohit Keswani (191149)

Gaurav (191139)


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Talks about US Headquartered UTStarcoms tremendous growth in theChinese Telecom market

From 1994-2003, revenues grew from $10 million to $2.7 Billion

Success was attributed to companys ability to identify opportunities inChinese market and exploiting them fully

However by early 2005, UTStarcom started to face problems due to Single product single market focus

New technologies like 3G threatened PAS

This forced them to offer new products and enter new markets

To overcome these problems: Decided to outsource its IT and SCM operations

Continued efforts to diversify product portfolio

Tried to increase international presence


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Established in 1995

Merger of Hongliang Lus and Ying Wus startups, Unitech TelecomInc. & Starcom Network Systems Inc. respectively

By 1995, Starcom had strong relationships with provincialGovernments & Unitech had strong Links with county Governments inChina

Starcom was strong in Marketing and Unitech in finance andmanagement

To take advantage of synergies, Lu & Wu decided to merge thecompanies

Another entrepreneur, Masayoshi Son (Son) acquired 30% stake andjoined as one of the promoters


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The new entity crafted was called UTStarcom

Had headquarters in Alameda, CaliforniaManufacturing facilities in Hangzhou, China

R&D facilities, both in US& China

Sales and Marketing efforts were based in China

Lu took over as CEO and Wu as Executive Vice President

By the end of 1995, UTStarcom had revenues of $10 Million


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In 1988, Teledensity in China was as low as 1.5%

Chinese Ministry Of Information Industry realized the importance oftelecommunication in economic development

By 2000, planned to increase teledensity to 10% in rural and 40% inurban areas

Lu in 1991 realized the tremendous business opportunity

Lu built a facility in Chinese City Hangzhou

Also Wu setup Starcom with R&D facilities in New Jersey, to designand develop Telecom Software


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Rapid expansion of Chinas Telecom Infrastructure increased the

demand for Telecom products

Major Telecommunication equipment manufacturers became interested

Many entered Chinese markets through Joint Ventures Eg: Beijing International Switching Equipment Company (BISC)

UTStarcom sold a wide range of products in China but couldntcompete with bigger companies like Siemens, Lucent Technologies


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Lu & Wu realized, to make big in Chinese market, they needed toidentify a niche

Through market experience and relationships with local governments

carried out research in Chinese market

Found that 50% of Chinas Population was

middle class urban population

highly price conscious

Lived and worked within a small area Rarely travelled far

Realized that a low priced telecom service that allowed mobility within

limited area presented huge business potential


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So developed equipment that allowed subscribers to access fixed line networks

using a mobile handset in a local loop

Technology was known as Wireless in Local Loop

Soon the due realized that technology was not suitable for western

countries and would only serve Chinese middle class

Research team designed a system that interconnected various local

loops

This allowed the subscriber to extend range to entire city

This system was called PAS


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PAS allowed high quality wireless service

Expenditure involved in installing PAS was low:

Switches and billing system already used by fixed lines

Cheaper than conventional mobile technologies

Also, a regulation forced China Telecom to exit mobile telephony and focuson fixed line telecom services

PAS became a major success:

Costed one third of regular mobile service Other benefits for subscribers


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Companys revenues grew from $10 Million in 1995 to $2.7 Billion in

2003 Attributed to companys focus on exploiting opportunities

Single product (PAS) and single market (China) strategy

Companys culture

Strategy was critical

Led company to concentrate its resources on target segment Exploit opportunities to fullest

Prevented the company from pursuing wrong strategies

Enabled it to effectively manage growth

During this rapid growth period:

Concentrated on increasing manufacturing capacity and not developing new

technology

Standardization to monitor operations and research efforts

Reduce costs

Increased efficiency

Economies of scale

Faster installations


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Realized that its growth depended on ability to deliver PAS equipment

and handsets at low cost

So high handset cost could lower the demand in long run

Manufacturing in Japan was stopped and decision was made to outsource

manufacturing in Taiwan and then to further bring down the cost design and

manufacturing was done in China

Lack of management expertise created bottlenecks

Pursued a strategy of hiring experienced professionals from reputedcompanies

China mobile and China Unicom tried to prevent the growth of PAS by

lobbying with MII

To overcome this, they resorted to intense lobbying with MII and got PASdeployments allowed in small and county level cities.

This lobbying was a result of good relationships with their customers

Managements commitment to long term growth helped company to

maintain its focus


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Emergence of 3G network was a threat

Provided superior voice and data transfer capabilities

MIIs granting of cellular licenses would shift China Telecom and China Netcom

to 3G cellular networks

UTStarcom was forced to reconsider one product one market strategy

Decided to diversify the geographies it served

Decided to pursue a strategy aimed at selling its established products to new

consumers in developing economies like India, Brazil

India was considered as the next growth centre for UTStarcom

UTStarcom also diversified its product mix Designed IP based equipment to allow fixed line operators to provide television,

broadband and voice services using IP


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Another Business was manufacturing of GSM mobile handsets Started selling two GSM models in Chinese market

ACQUISITIONS:

Between 2002 and 2004, the company completed a half-dozen

acquisitions that moved UTStarcom into the manufacture and sale

of PAS handsets, equipment that enabled high-speed Internetaccess, and into telecommunications services that competed with

PAS.

Acquired Commworks, which was a major player in CDMA Softswitches and

VoIP technologies, emerging in developed markets

Acquisition allowed Utstarcom to enter North America

Acquired Telos Technologies, that allowed company to expand its portfolio of

IP-based wireless products

Acquired A`udiovoxs handset division in November 2004


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While the company's international revenue has increased, there has

been a maturation of the PAS market in China

UTStarcom has faced a challenging market environment in the region

UTStarcom evolves from a company that has dominated the PAS market in

China into a worldwide supplier of diverse telecom solution

UTStarcom derived nearly 90 percent of its revenue from China, a

reliance that raised the eyebrows of sceptics

UTStarcom moves towards realizing an approximate 50/50 split on China and

non-China revenue as the company enters 2005


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The acquisition of Audiovox Communications Corporation is an

integral part of UTStarcom's globalization strategy to become a

worldwide supplier of diverse telecommunications solutions

UTStarcom announced a number of major international contract wins

and continues to lead the 'IP' migration in the communications industry

with the launch of several disruptive and revolutionary solutions. These

are important proof-points of UTStarcom's success in executingdiversification and globalization strategy

The difficult environment that UTStarcom had faced in China speaks to

the importance of aggressive globalization and product diversification

strategy


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Audiovoxs handset divisions purchase in cash could effect the cashflow position in the company

Lower profit margins in second quarter of 2004

Share prices dropped from $25 to $18

Accounting problems when it discovered sale worth $1.96 million didnot qualify as a sale but was recognised as revenues

Revenues from North America increased and from China decreased to79% from 86%

26% increase in revenue from China in year 2004 as compared to 104%in 2003


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PAS service attracted lesser new subscriber as compared to the previous

year in China

China telecom and China Netcom had reduced investments in PAS


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What have been mentioned as problems for UTStarcom in the case arenot problems in our groups view

UTStarcom's revenues from China operations were adversely impacted

by several factors, including:

an overall slowing of the Chinese economy

maturation of the PAS market

decreased capital spending by both China Telecom and China Netcom

Important proof-points of UTStarcom's success in executing ourdiversification and globalization strategy

UTStarcoms announcement of a number of major international contract wins

and continues to lead the 'IP' migration in the communications industry with the

launch of several disruptive and revolutionary solutions are


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While the transformation explains much of the volatility they

have experienced

A lot of progress had been made in the international business

Globalization and product diversification strategy, will create: long-term shareholder value

Short-term volatility that was experienced as a result of executing this

strategy

belief in the strength of the business in 2005 and beyond

The company has made many of the necessary business decisions

and commenced operational improvements


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UTStarcom in China_Case Study_Grp 10_FMG19C

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