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UTStarcom To Sell U.S Handset Division

Alameda, Calif. — UTStarcom will sell off the cellular handset distribution company that it purchased from Audiovox almost four years ago to an investment group whose largest shareholder is AIG Vantage Capital.

UTStarcom, founded in 1991, is selling off its personal communications division as part of a restructuring to focus on its core IP-based communications products for telecom operators in rapidly growing economies in areas such as Asia, Latin America and eastern Europe. During the fiscal year ending March 31, UTStarcom posted a net loss of $195.6 million on net sales of $2.5 billion. Earlier this year, UTStarcom announced plans to sell off another division.

AIG is joining division management and other investors in paying about $240 million to UTStarcom for the business, to be renamed Personal Communications Devices (PCD). UTStarcom could net up to $50 million more over the next three years if Hauppauge, N.Y.-based PCD meets certain financial goals.

UTStarcom will retain a 2 percent stake in the company and will continue to sell cellular handsets that its makes to PCD for sale in the Americas. UTStarcom will continue to sell devices directly to carriers in other areas of the world. The duration of the sales agreement with PCD wasn’t disclosed.

The sale will close in two days. UTStarcom had four bidders for PCD.

Although “the operating performance of PCD has been strong in recent periods,” UT Starcom CEO Peter Blackmore said, the company wants to concentrate on selling IP-based technology to telecom companies “in rapidly growing economies” where there are “low levels of competitive saturation.”

Chief financial officer/executive VP Fran Barton said the divestiture would “remove PCD’s single-digit margins” from the company’s balance sheet and produce fiscal 2008 margins in the high 20 percent range. The sale also relieves UTStarcom of PCD’s working capital “spikes and troughs” and enables the company to focus on “growth areas more likely to provide value to shareholders.”

Annual handset sales by UTStarcom to PCD will be in the $200 million range, he said.

Philip Christopher, president of UTStarcom’s personal communications division, said the change would offer new flexibility. “Operating as a stand-alone business will afford the new company greater distribution and financial flexibility and better positions us to capitalize on emerging market trends and strategic growth opportunities.” PCD “will continue distributing handsets and accessories throughout North America,” he said, “and we remain focused on providing our current manufacturing partners and carrier customers outstanding support and service.”