Essay About Utstarcom Inc. Case And 4Th Quarter

Utstarcom Inc. Case
(DRAFT – 2007)
CLAYTON M. CHRISTENSEN
CHANG C. HANG
UTStarcom: The Next Lap
Hong Lu (Lu), Chairman and CEO of UTStarcom Inc. which is a rising star in the wireless
communication business, took a deep breadth and sent off an email to announce to all
employees the restructuring plan. He and Ying Wu (Wu), Vice-Chairman and CEO of
UTStarcom China, just attended a board meeting which focused on the future direction of
the company. The bold restructuring plan includes a substantial reduction of headcount by
1400 employees (in contrast to the 3200 new hires in 2004), or about 17% of its 8000
global workforce. It also includes outsourcing of operations in the area of supply-chain and
IT. It expects to reduce the overall operating expenses by approximately $40 million per
quarter with the full effect realized by the 4th quarter of 2005.
Lu ended his email on a reassuring tone: “I believe that our products and services have
excellent market demand. But, to realize our growth targets, we need to first take this
necessary step of restructuring in order to optimise our cost structure.”
UTStarcom Inc has come a long way. It is ranked #13 on Forbes 25 Fastest Growing Tech
Companies for 2005; Fortune named UTStarcom to the 2005 Most Admired Companies
List1. Co-founders Lu and Wu could look back with pride that their earlier decision to go
their own way rather than to simply follow the beaten path of exporting and applying the
most advanced telecoms technologies to China. UTStarcom has succeeded in pioneering
the introduction of the low-cost limited mobile phone system called Personal Access
System (PAS) in China since 1999. It has also enjoyed phenomenal sales growth every
year in both the PAS equipment and its Little-Smart handsets. By 2004, nearly 60% of the
65 million PAS/Little-Smart subscribers in China were empowered by UTStarcoms
equipments. The China market also helped UTStarcom global sales to surge to $2.7 billion
in 2004. In anticipation of the potential slowing down and eventual