Good afternoon. My name is Angelina and I will be your conference operator today. At this time I would like to welcome everyone to the UTStarcom Second Quarter 2009 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator's Instructions). This call will include forward-looking statements relating to, among other things, the company's restructuring initiatives and projected business models. 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 and execute on its business plans, 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. In addition, today's call will include certain pro forma non-GAAP financial measures. The most directly comparable GAAP information and reconciliation between the pro forma, non-GAAP, and GAAP figures, is attached to the company's earnings release issued earlier today and filed in a Form 8-K. The reconciliation is also available at UTStarcom's website in the investor relations section. Now I would like to turn the call over to Peter Blackmore, Chief Executive Officer.

Thank you very much and good afternoon, everybody. I appreciate you joining our call. I'm joined today by Viraj Patel, our Interim Chief Financial Officer, and I just want to mention that Barry who would normally be on the call has got a very good excuse for not being here, his wife just delivered their second child, a baby boy, this morning. So our best wishes go to them. What I wanted to do is start with a discussion of our progress towards 2010, which I think is the main part of what I'd like to discuss today. It includes an update on our cash position, an update on our progress on restructuring efforts, and also importantly, an update on our bookings. I'm sure you would agree that all of these help drive our momentum towards the target business model we have set for ourselves for 2010. I want to highlight that we ended the quarter with $276 million in cash and equivalents. That means in the first half of this year we used less than $38 million of our cash resources, which is an indication of the increasing stability in our business. As we continue to execute our restructuring and lower the operating expenses significantly, we expect the cash flows to reduce and to stabilize in early 2010. Therefore, we are becoming increasingly confident that we'll end 2009 with plenty of liquidity to grow the company. Since we announced our major restructuring in June, we have made good progress. As an indication of this we reduced the employee base by 1,100 people in June and July. Therefore we're moving very fast and we'll continue to move forwards with further reductions in quarter three. I also want to remind you that our headcount will decline further in quarter four when…

Thanks, Peter. We'll start by discussing the consolidated GAAP results as this afternoon's press release a number of significant items. It's important to note that the majority of the special items relate either to our restructuring announcement or to our Korea-based handset business. In the second quarter of 2009, our GAAP revenues were $80 million compared to $633 million in the prior quarter a year ago. The vast majority of the difference is due to PCD's divesture that was completed in July, 2008, and the continued decline in our past business. The GAAP gross profit in quarter two was $-16 million, or -20%. As indicated in this afternoon's press release, the gross profit was significantly impacted by three major items. First, as you recall on July 1st we announced a settlement with PCD. As a result we took a charge of $11.1 million in quarter two related to that agreement. We also provided an additional charge related to the inventory write-downs of $17.6 million, and for the China handset business we recorded an additional charge of $5.7 million in quarter two. Again as I point out, the majority of these charges relate to our Korea-based handset operation. Our GAAP operating expenses were $70 million, and also greatly impacted by certain significant items. As you'll recall, we recorded a charge of $28 million as indicated in the press release, related to the restructuring charge that was announced earlier. This charge is almost entirely related to one-time severance payments to impacted employees already identified. We'll take, under the smaller restructuring charge in Q3, as the rest of the workforce reduction is finalized. The second item is we have a benefit in our P&L of $10.5 million related to the recovery of bad-debt accounts reflecting our increased success in collecting our old receivables.…

Thanks, Viraj. So at this point I'd like to make a few comments about the rest of 2009, and importantly, our progress going to 2010. Before I do that I'd also like to comment that as I think you all know, we announced earlier this week that Hong Lu is stepping down as Executive Chairman. He will continue to be actively engaged as a board member and we appreciate all his work and really wish him very well as he changes his role. The board also wants to increase its expertise in the China market and we are looking at expanding our board to include board members with more familiarity with the China market. I'd like you to also know that I'm spending over 50% of my time in China. As we are in the middle of a major restructuring and a transition of the company to a new operating model, I will not provide specific third quarter guidance. What we are very focused on is delivering the cash position, the bookings, and the restructuring to position us for our new model in 2010. As I said in June, the business model for 2010 is built around revenues in excess of $350 million, gross margins in the high twenties, and operating expenses below $100 million. Achieving these metrics will drive profitability and our objective is obviously to exceed these numbers. Our 2010 revenues will be driven largely by the 2009 bookings plus a proportion of the bookings in the first quarter of 2010. In addition, we'll also have the benefit of a meaningful amount of deferred revenues, much of which we shall recognize in 2010 as we get a final customer acceptance. For gross margins, I repeat the target outlined in June that calls for a gross margin percentage in…

(Operator's Instructions) Our first question is from the line of Steven Koffler from Khan Real.

Hello. A couple of questions here, if I could I'd like to focus on gross margins a little bit. Did I hear, Viraj, correctly, that the pro forma gross margin did not exclude $5 million roughly in inventory write-down in handsets?

That's right. Because the pro forma table present only excludes the Korea and the PCD business.

All right. So that $5 million write-down that was excluded or — this is confusing, I’m sorry, but it was not excluded — that relates to ongoing handset business?

In China, that' exactly right, Steven.

All right. Then one could easily make the argument that could be excluded. So if we added that back just roughly speaking we would take 5 million divided by roughly 80 million in revenue and add back about six points plus in gross margin? Am I thinking about this correctly?

Yes.

Okay. So if you think about it that way, gross margin was something closer to 20%.

That's correct. That's right.

Okay. I just wanted to make sure I understood that. Now then onto the segments, I mean clearly what's going on with the IP related is great, broadband gross margins at 5% — I forget exactly the breakdown, but I remember from year's past, UTStarcom was competing pretty aggressively against Wawe and others in China for DSL lines. And that's never been a price supportive business, shall we say. I mean is that still a big part of what you're doing in that area and is that the reason or part of the reason for the gross margin?

The main reason was low volume of revenues in broadband. We are being very careful when we target the China business. We've targeted a lot of GEPON that have been specific about which provinces we go into to get a better margin position, but you're right, the China broadband business will always be competitive.

I mean what's the capability of bringing these up to something like the corporate average, and what was the amount of revenue in this area again, I forgot?

For the broadband sector it's about $14 million. A very small percentage right now is in China because primarily it's driven from the international markets, but we have entered the China markets right now.

All right. Again, why are you confident that this can get to something closer to the targets you want from such a low level?

Well, our international business is — we're hopeful of good success in Japan with the transport network TN product. Broadband margins in Japan have typically been very good and the Japan market, I think you can check yourself, it continues to have high margins. We also get high margins from other countries in Asia and so we just have to be careful what we do in the China market to your point. And in India we get reasonable margins outside of the BSNL contract in companies like Barthi, Tata, Reliance, which are good broadband customers.

Okay. Maybe I'll tackle that offline a little later. I've got two other areas of question. I'll just do one now and maybe go back in queue for the other and give someone else a chance. On the Hanzo facility, can you remind us, is that about 2 million square feet?

Yeah, the built-up space is 2.5 million square feet.

Okay. And how much of it is being occupied by UTStarcom now?

It's less than 50% which is why we think we could do very well in a smaller facility more appropriate to our needs, but it's a very nice building.

Yeah, I know. I’ve been there. I'll go back in queue and come back in if there's time.

Very good. Thank you.

(Operator's Instructions) Our next question is from the line of Hamed Khorsand from BWS Financial.

Hi . It's actually Rahiv calling in for Hamed. Sales seem to be declining in China and I wanted to see what the competitive landscape was treating you like there.

So the competitive landscape really hasn't changed throughout this year so just give me a bit more color in your question as to what you're looking for?

I'm trying to see why it seems declining so quickly. I mean is it just the down economy, is it just more competitors are coming in or the competitors are dropping prices —

No, no. I mean, historically it's due ot the decline in the PHS revenues which were ac combination of a lot of handsets and some PHS infrastructure. If you remember in January of this year the Chinese government said the PHS frequency would be stopped by 2011, and that really brought the PHS business to a grinding halt. So that's the primary change in China. What we've then been doing is building up our IPTV business which has been growing and entering the broadband market. But obviously those revenue revamps are slower than the past decline.

Are you anticipating winning more Chinese contracts to ramp up the sales?

Absolutely, both in IPTV we continue to have the leading market share, continue to win contracts, and broadband, as I said in respond to the previous question, will target the broadband market particularly in GEPON and the TN product, but will pick battles to try and get a good margin rather than just go face to face on every bid. But clearly we have a small market share on broadband, so plenty of potential to grow broadband which his a huge market in China.

Do you think you'll be a part of the Chinese activity in regards to network equipment anytime soon?

Well, with the transport network and GEPON products, absolutely, yes. We are already. We won GEPON contracts in quarter one, we won some more in quarter two, and also the PDSN which we won in quarter four last year and there's a follow-on business for PDSN which we just won in quarter two. So both those areas which were new businesses for us, we've broken into the market.

So should we expect to hear more news going forward about more activity?

Yes. We're pushing very hard in the China market. We have dedicated sales teams on broadband and PDSN.

And finally, what measures are you taking to ensure revenue is not hurt by the restructuring you're undertaking?

Well, we're spending a lot of time working with customers, reassuring them — a lot of time also coaching our sales force and we're doing all of the things that you need to do to minimize any impact.

Okay, thank you.

Our next question is a followup from the line of Steve Koffler from Khan Real.

I'd like you to just give us some insights further into India and IPTV, what's really going on there? How many large potential deployments of IPTV are in a reasonable phase or progress or process now, meaning concrete RSPs that could potentially roll out over years to several million users at least? Can you provide some kind of sizing in that way?

Yes. There are three main India customers for IPTV. We're present in all of them. Barthi, which completed its pilot and announced in quarter one this year they would roll out into 20 cities so that has a lot of potential. BNSL which only launched IPTV early this year and they, as you recall, cover the rural cities and their counterpart MTNL, cover New Delhi and Mumbai. So BSNL is rolling out IPTV using our equipment and MTNL also uses our equipment and that was the Asht MTNL I referenced in the commentary I gave on the call. All of these have the potential to grow fast. What predicates it obviously them promoting the product aggressively, plus the broadband rollout in India needs to accelerate because obviously — and that's the other reason we're in India and have a lot of expectations is because of the expansion in broadband and it's a bit chicken and egg. The expansion in broadband is needed for the expansion in IPTV. It can run on slower lines and does do, but it's much more effective on the faster lines.

Right. Do you have any insights working with the customers, how they plan to price the service when they have it available?

It varies. In MTNL the service is actually operated by a joint partner of ours called Asht, and they price it purely on advertising revenues so people would use the Google analogy, but that's their methodology. BNSL has a mixture of advertising revenues plus subscriber charges, Barthi is a little bit more traditional on subscriber charges, but Barthi is also probably one of the most creative companies so it's very clever on market and promotion. But it's still early days in India. I don't want to set the wrong expectation, but the potential is significant, as you can imagine.

Alright, but I mean based on the lead time of order — I understand you correctly to say that the orders you have in India, there are orders in the book for IPTV deployments and those should start to ship or recognize revenue in 2010, correct?

Yes. That's right. The first revenue actually recognizes in quarter two from orders we took in 2008 so it shows you the lag. That was the Asht NTNL which was the first implementation India and we just have recognized our first IPTV revenue in India.

Last question on this, in China when people were talking earlier years about IPTV and the revenue to the OEM, I often heard a number of about $1,500 per line is what you could make. Is there some similar metric or have you calculated or sliced it in a way like that that we could think about?

Not really. The way we get revenue is as follows: we get revenue on the core IPTV infrastructure which depends on how loud it is. They say provide a service for a quarter of a million subscribers, we provide as et of computer equipment and the risk to do that plus — the main area for our revenue there is frankly not the hardware which we get from third parties, but we primarily get revenue from our software, so it's a high margin. And then we get revenue from the set-top boxes and that's a totally different equation. A set-tpo box is, in US dollars, about $50, and teen margin. The only difference there to clarify is just people replace the current set-top one 1.0 set-top boxes in China. With the 2.0 set-top boxes this is primarily a software upgrade as opposed to a hardware replacement, so that will be going on in the next several quarters in addition to new implementation. So it's not exactly the way you wanted it answered, but it's the best way I can give it.

That's okay. I'll actually throw in one more quick one on IPTV — oh, rather on regions. Could you characterize by percentage, if possible, in terms of your deferred revenue and orders, how much is in India?

Well, India's huge because it has BSNL and there the deferred revenue is beyond 2010. So what we were trying to do — be very careful on the call, is talk about deferred revenues which with an FAC could become revenue in 2010 and it's in the 10-Q and you can read it — it is 111 of —

Yeah. It is $110 million.

But that does not include BSNL which would be another 200 million, but that is beyond 2010. So the revenues we can work on with the right FAC to get recognition 2010 it's 110 million.

Steve, if you also look at the financial, there’s the customer advances. A bit part of the customer advances is BSNL. There's $180 million of customer advances which at some point will go into revenue also in the future.

Okay. But that's already included in cash, correct?

Yes.

All right. Is there any potential for them to say well, you know what, we're scaling this back or we need to return this? How, if at all, are you protected from that?

Well it's all being used and they're looking to order a lot more in phase three. So one, the contract doesn't allow that sort of return, but secondly the practicalities are they need more, not less (laughs).

Yeah. And more so, the equipment that we are collecting cash is already delivered to them. That's in production already. It's a commercial revenue producing (inaudible).

Okay. I'll take some stuff offline later. Thank you very much.

Thank you, Steve.

Thanks, Steve.

(Operator's Instructions) There are no further questions at this time. I would now like to turn the call back over to the presenters for any closing remarks.

Well thank you very much, really appreciate you joining the call and thank you for the questions. We got many investor calls tomorrow so I look forward talking to those that have scheduled with us and thank you again for joining us, appreciate it.

Thank you.

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