will shake up its leadership team and spin out its IPTV business into a privately held company. Former board member William Wong will step in as chief operating officer, effective immediately. He’ll ascend to CEO upon completion of the IPTV divestiture, as current CEO Jack Lu will leave UTStarcom to head up the new venture.
The moves come at the recommendation of a strategy committee the UTStarcom board of directors created during the first quarter of the year. The committee was tasked with identifying ways to accelerate revenue growth, bolster profit margins, improve operational cash flow, and increase shareholder value. The recommendations aim to concentrate capital and resources on building out value-added services, divesting non-profitable parts of the business, and moving into high-growth areas, such as media operational support services.
The IPTV business currently accounts for approximately one-third of UTStarcom’s revenue and is expected to negatively contribute to the overall company results. The company expects the IPTV divestiture to reduce its expenses by $17 million per year. As part of the divestiture, UTStarcom will purchase a US$20 million convertible bond that will be convertible into 33% of the new IPTV business's common stock in five years. The company expects to close the transaction by the end of August.
"A result of an extensive review of potential options, this transaction offers the best solution for the company to exit a non-strategic business segment and leaves UTStarcom with a dynamic core business well-positioned for future transformational initiatives," said Xiaoping Li, lead independent director and chair of the strategy committee. "Importantly, the divestiture preserves the parts of the revenue base that have higher profitability and stable growth prospects. It also provides excellent continuity for IPTV customers, who can expect the same level of service and commitment from the new company. Lastly, it helps provide clarity for business partners, employees, and shareholders on UTStarcom's priorities and strategic direction."