UTStarcom warned that revenues and profits for the third quarter 2005 will be below management guidance provided on August 2, 2005. The company currently expects total revenues of approximately $620 million to $640 million compared to its previous target range of $660 million to $680 million.
UTStarcom cited the delay in recognition of approximately $40 million in revenues related to a contract with Softbank BB for its mVision, IPTV solution for the revenue shortfall. Due to the high-margin nature of the mVision product, the company expects this delay to have a meaningful impact on overall gross margins for the quarter. In addition, overall third quarter gross margins were also negatively impacted by other factors, principally, the recording of additional warranty reserves in the broadband business segment. As such, gross margins are expected to be approximately 9% to 11%. Previous guidance called for gross margins in the range of 15% to 18%.
UTStarcom also said the it has determined that the fair value of some or all of its operating units may be below their book values. As a result, the company is currently conducting an evaluation of its goodwill for impairment. If the fair values of these operating units are concluded to be below their book values, the company will record a non-cash charge to write-off some or all of its goodwill.
UTStarcom also noted that it has received notice of a formal inquiry by the staff of the Securities & Exchange Commission into certain aspects of the Company’s financial disclosures during prior reporting periods. The Company is cooperating with that inquiry.
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