This Annual Report on Form 10-K contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements are based on current expectations, estimates, forecasts and projections about us, our future performance and the industries in which we operate as well as on our management's assumptions and beliefs. Such statements relate to, among other things, our business plan, expected financial results, new accounting pronouncements, liquidity and access to credit facilities and cash in our China subsidiary. Statements that contain words like "expects," "anticipates," "may," "will," "targets," "projects," "intends," "plans," "believes," "seeks," "estimates," or variations of such words and similar expressions are also forward-looking statements.

Readers are cautioned that these forward-looking statements are only predictions and are subject to risks and uncertainties related to, among other things, our ability to execute on our business plan, China's control of currency exchanges, the decline in the PAS market, ongoing litigation and other items discussed in "Part I, Item 1A-Risk Factors" of this Form 10-K. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We do not guarantee future results, and actual results, developments and business decisions may differ from those contemplated by the forward-looking statements. We undertake no obligation to update these forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-K.

OVERVIEW

We design, manufacture and sell IP-based telecommunications infrastructure products including our primary product suite of Internet Protocol TV ("IPTV"), Next Generation Network ("NGN") and broadband solutions along with the ongoing services relating to the installation, operation and maintenance of these products. In addition, we also sell handsets that are designed and manufactured primarily for the China market. Our products are sold primarily to telecommunications service providers or operators. We sell an extensive range of products that are designed to enable voice, data and video services for our operator customers and consumers around the world. Over the past few years, we have expanded our focus to build a global presence and currently sell our products in several established and emerging growth markets in Asia, Latin America and Europe. We intend to continue to enhance our manufacturing capabilities and improve our internal supply chain and inventory management processes to ensure timely deliveries of quality products. We also intend to continue to implement and enhance our administrative infrastructure to assist our globalization.

We differentiate ourselves with products designed to reduce network complexity, integrate high performance capabilities and allow a simple transition to next generation networks. We design our products to facilitate cost-effective and efficient deployment, maintenance and upgrades.

Because our products are IP-based, our customers can more easily integrate our products with other industry standard hardware and software. Additionally, we believe we can introduce new features and enhancements that can be cost-effectively added to our customers' existing networks. IP-based devices can be changed or upgraded in modules, saving our customers the expense of replacing their entire system installation. Our strategic priorities are summarized as follows:

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º Focus primarily on providing a suite of IP-based solutions including our main product suite comprised of IPTV, NGN and broadband products and related services.

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º Maintain our leadership position in China and India while growing our presence in the key developing economies across Asia, Latin America and Europe.

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º Leverage our strong reputation with telecom carriers and our ability to solve complex network problems.

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º Use our favorable reputation and carrier relationships in China to provide handsets to the China market.

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º Maintain and improve our financial model by strengthening our balance sheet, reducing operating expense levels and increasing bookings. In December 2008, we announced an initiative to transition certain key functions, including finance, to China in order to eliminate functional duplication and reduce operating expenses. Our ability to successfully implement this change in 2009 is a critical part of our plan to achieve profitability and maintain liquidity. We may encounter difficulties in implementing this significant change in a short time period. If we are not successful, we may not achieve the expected benefits despite having expended significant capital and human effort.

Sale of Non-Core Assets

On July 1, 2008, we sold UTStarcom Personal Communications LLC, a wholly-owned subsidiary of the Company ("PCD"), to an entity controlled by AIG Global Investment Group and certain other investors for a total sale consideration of approximately $237.7 million. Pursuant to the terms of the divestiture agreement, we may be entitled to receive up to an additional $50 million earnout payment in 2011 based on the achievement of certain earnings levels of the divested business, Personal Communications Devices LLC ("PCD LLC") through December 31, 2010. We recorded a net gain of $3.8 million from the divestiture during 2008. Additionally, on July 31, 2008, we completed the divestiture of our Mobile Solutions Business Unit ("MSBU") to a global private equity firm. During the third quarter of 2008, we recorded a net gain on divestiture of MSBU of $3.9 million.

Restructuring Programs

On October 2, 2007, our Board of Directors approved a restructuring plan (the "2007 Plan") to reduce operating costs, which included a worldwide reduction in force of approximately 12% of the Company's headcount, or approximately 800 employees. The workforce reduction was primarily in the United States and China. We incurred a restructuring charge in connection with the 2007 Plan of approximately $14.5 million in the fourth quarter of 2007, comprised largely of cash payments associated with one-time severance benefits. We completed the workforce reduction during the first quarter of 2008.

On December 16, 2008, our Board of Directors approved a restructuring plan (the "2008 Plan") designed to reduce operating costs. The plan includes, among other things, winding down our Korea based handset operations ("Korea Operations") and implementing an additional worldwide reduction in force of approximately 10% of our headcount by the end of the second quarter of 2009. In connection with the 2008 Plan, during the fourth quarter of 2008 we incurred a restructuring charge of $13.1 million comprised largely of cash payments associated with one-time severance benefits.

We will continue our efforts to evaluate certain operations and will consider opportunities to divest additional non-core assets and may incur additional costs associated with future actions to further align our business operations and streamline our business processes.

Revenue Effects of Non-Core Asset Sales and Restructuring Programs

The sale of PCD in July 2008 and the anticipated winding down of our Korea Operations are expected to result in a substantial reduction in 2009 net sales. Our 2008 net sales included $879.6 million of PCD sales recognized in the first and second quarters of 2008 prior to PCD's sale on July 1, 2008; there will be no net sales from PCD in 2009. Net sales in 2008 also include $126.0 million of sales to PCD LLC in the third and fourth quarters of 2008, and we presently do not expect the Korea Operations to record sales after the end of the second quarter of 2009. Net sales from PCD and Korea Operations in 2008 aggregated $430.7 million, $448.9 million, $34.3 million, and $91.7 million in the first, second, third, and fourth quarters, respectively. The divestiture of our MSBU operations is not expected to have a material effect on our 2009 net sales.

Asset Impairment

We performed tests of the recoverability of our long-lived assets as of December 31, 2008 due to recurring operating losses, the continuing challenging business environment, a sustained decline in our stock price, and because our estimates of future cash flows for each of our business segments indicated an inability to recover the carrying values of each segment's assets. As a result of this analysis, we recorded an impairment charge of $22.3 million to reduce the carrying value of our equipment and furniture, software, automobiles and leasehold improvements to estimated fair values. In addition, we recorded an impairment charge of $4.9 million to write-off customer relationships intangible assets related to our previous acquisition in 2003 of the Commworks division of 3Com Corporation ("Commworks") as a result of our decision in the fourth quarter of fiscal 2008 to disband our Custom Solutions Business Unit which provided customized telecommunications solutions.

During the quarter ended September 30, 2007, we announced a new organization structure to align our business segments with our corporate strategy. As a result, during the fourth quarter of 2007, we performed impairment tests on goodwill and certain long-lived tangible and intangible assets. Based upon the impairment assessments, we recorded a goodwill impairment charge of $3.1 million, an intangible asset impairment charge of $15.7 million, and an impairment charge of $1.1 million for equipment and furniture, software, automobiles and leasehold improvements (see Note 8 of Notes to our Consolidated Financial Statements included under Part II, Item 8 of this Annual Report on Form 10-K).

Sale of Investments

During the first quarter of 2008, we sold our remaining investment in Gemdale Co., Ltd ("Gemdale") for approximately $32.9 million and recognized a gain of $32.4 million in other income (expense), net. We also sold our investment in Infinera Corporation ("Infinera") for approximately $9.2 million and recognized a gain of $7.3 million in other income (expense), net.

Decline in PAS Business and Anticipated Refocus of PAS Operations

The PAS handset units sold in China declined to 3.6 million units for 2008 compared to 4.8 million units for 2007. The 25% volume decline was primarily attributed to lower demand for our PAS handsets resulting from a decline in PAS subscribers as service providers reduced marketing efforts for PAS handsets in anticipation for next generation technology networks and the restructuring of China telecommunication industry. The average selling price per unit in the PAS products declined 9.4% in 2008 compared to 2007 due to competitive pricing pressures and increased sales through distributor channels. The China government has recently announced that PAS will be phased out by 2011. In 2009 and beyond, we expect declines in PAS subscribers, and more price erosion and gross margin deterioration in PAS handset sales as the China telecommunication industry transitions to 3G mobile service offerings.

In recognition of these anticipated changes in service to mobile customers in China, we expect to transition our handset capabilities in China to the manufacture of CDMA and TD-SCDMA handsets for sale in the China market, which we believe will positively contribute to our revenue as well as partially offset the decline of PAS business in China. To capitalize on the growing data business in China, in mid-2009 we also plan to introduce HSDPA ("High Speed Downlink Packet Access") data cards supported by TD-SCDMA network and EVDO ("Evolution Data Only") data cards supported by CDMA 3G network, which we expect to have relatively higher gross margin and average selling prices.

Potential Effects of Current Global Economic Conditions on Sales, Operations, and Liquidity

Disruptions in orderly financial markets in recent months, resulting from, among other factors, severely diminished liquidity and credit availability plus volatile and declining valuations of securities and other investments, have caused business and consumer confidence to ebb, business activities to slowdown, and unemployment to increase. These factors along with the interconnectivity and interdependency of international economies have created a global downturn in economic activity which is sufficiently without precedent that the governments of many leading nations have taken actions designed to counter the worst effects and severity of current economic conditions.

Our business is sensitive to changes in general economic conditions, and we believe our 2008 results do not reflect all of the potential impacts the global economic downturn could have on our sales, operations and liquidity. In part this is because substantially all of the revenues and related cost of net sales recognized in 2008 in the broadband infrastructure, multimedia communication, and service segments result from long-term contracts, entered into before the global economic downturn, in which performance occurs over several years. Additionally, some of the revenues recognized in 2008 in these segments results from equipment delivered and/or services performed in earlier years because generally accepted accounting principles often require deferral of revenue recognition related to these complex contracts from the period in which equipment is delivered and installed until later periods when all obligations pursuant to the related contract are satisfied and all criteria for revenue recognition are met including receipt of the customer's final acceptance of equipment and installation services.

We are unable to predict how long the economic downturn will last. A continuing economic downturn may adversely impact our business in a number of ways, such as:

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º Reduced demand for our products and services. In a period of economic uncertainty customers may adopt a strategy of deferring purchases to upgrade existing or deploy new systems until later periods when the recoverability of their investment becomes more assured. In addition, customers who must finance their capital expenditures by issuance of debt or equity securities may find the securities markets unavailable to them.

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º Increased pricing pressure and lower margins. Our competitors include a number of global enterprises with relatively greater size in terms of revenues, working capital, financial resources and number of employees, and our customers are telecommunication service providers who typically are owned, controlled, or sponsored by governments. If the size of our potential markets contract due to the global economic downturn, competition for available contracts may become more intense which could require us to offer or accept pricing, payment, or local content terms which are less favorable to remain competitive. In some cases we might be unwilling or unable to compete for business where competitive pressures make a potential opportunity unprofitable to us.

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º Greater difficulty in collecting accounts receivable. Many of our telecommunication carrier customers are either owned or controlled by governments; any changes in such governments' policies concerning the authorization or funding of payments for capital expenditures could lengthen our cash collection cycle and thereby cause our liquidity to deteriorate. Additionally, while the vast majority of our net sales are to such large, well capitalized telecommunication

carriers, some sales are made to distributors or other customers whose financial resources may be more subject to rapid decline, which could expose us to losing sales, delaying revenue recognition or accepting greater collection risks due to credit quality issues.

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º Additional restructuring and asset impairment charges. If we are unable to generate the level of new contract bookings, revenues, and cash flow contemplated by our financial plan, management will be forced to take further action to focus our business activities and align our cost structure with anticipated revenues. These actions, if necessary, could result in additional restructuring charges and/or asset impairment charges being recognized in 2009 and beyond.

Fourth Quarter 2008 Operating Results

Net Sales

                                                              Three Months Ended
                            December 31,     % of net     December 31,     % of net     September 30,     % of net
                                2008          sales           2007          sales           2008           sales
                                                                (in thousands)
Net Sales by Segment
Multimedia Communication    $      81,140          34%    $     121,232          15%    $       57,787          32%
Broadband Infrastructure           18,271           8%           51,445           6%            31,112          17%
Handsets                          122,216          50%           43,318           6%            71,906          40%
Service                            16,740           7%           14,894           2%            14,197           8%
PCD                                     -            -          559,719          69%                 -            -
Other                               2,730           1%           15,722           2%             5,605           3%

                            $     241,097         100%    $     806,330         100%    $      180,607         100%

                                                            Three Months Ended
                          December 31,     % of net     December 31,     % of net     September 30,     % of net
                              2008          sales           2007          sales           2008           sales
                                                              (in thousands)
Net Sales by region
United States             $      95,302          40%    $     552,573          69%    $       43,127          24%
China                           110,367          46%          170,364          21%            97,605          54%
Japan                             7,949           3%           15,454           2%            10,302           6%
Other                            27,479          11%           67,939           8%            29,573          16%

                          $     241,097         100%    $     806,330         100%    $      180,607         100%

Three months ended December 31, 2008 and 2007

Net sales decreased by $565.2 million, or 70%, to $241.1 million during the three months ended December 31, 2008 compared to the same period in 2007. The decrease was primarily due to PCD being sold in July 2008. For the three months ended December 31, 2007, PCD represented $559.7 million of net sales. The disposal of MSBU had an immaterial impact on net sales.

Net sales excluding PCD and MSBU decreased by $6.0 million during the three months ended December 31, 2008 compared to the same period in 2007. Net sales of our Handsets segment increased by $78.9 million, or 182%, mainly due to $91.7 million sales to PCD LLC during the fourth quarter of 2008. The increased sales to PCD LLC more than offset the decline in sales of PAS handsets in China. The sales of PAS handsets in China was $26.9 million and $40.4 million, respectively for the fourth quarter of 2008 and 2007. Multimedia Communication segment net sales decreased by $40.1 million, or 33%, for the three months ended December 31, 2008 compared to the same period in 2007, mainly due

to decline in PAS infrastructure sales which continue to experience weakening demand, partially offset by higher RollingStream and Set Top Box ("STB") sales. Broadband Infrastructure segment net sales decreased by $33.2 million, or 64% primarily due to lower CPE and MSAN sales. Service segment net sales increased by $1.8 million or 12% primarily due to higher international sales. Other segment net sales decreased by $13.0 million or 83% due to lower IP Messaging revenue and overall decline of CSBU revenue.

Three months ended December 31, 2008 and September 30, 2008

Net sales increased by 33%, or $60.5 million, for the three months ended December 31, 2008 compared to the third quarter of 2008. The increase was primarily due to a $57.4 million increase in sales to PCD LLC in the Handsets segment as compared to the third quarter of 2008.

Multimedia Communication segment net sales increased by $23.4 million, or 40%, during the three months ended December 31, 2008 compared to the third quarter of 2008, as we recognized additional PAS infrastructure revenue upon completion of projects previously included in backlog. This was partially offset by a decrease of our NGN sales due to recognition of a major contract in the third quarter of 2008 and a decrease in NGN sales in China in the fourth quarter of 2008. Broadband Infrastructure segment net sales decreased by $12.8 million or 41% during the three months ended December 31, 2008 compared to the third quarter of 2008. This decrease was mainly due to lower MSAN and Optical product sales as we recognized some larger contracts in the third quarter of 2008. Due to customer concentration in this segment, revenues fluctuate based upon the magnitude and timing of revenue recognition on certain contracts. Handset sales increased by $50.3 million, or 70%, during the three months ended December 31, 2008, primarily due to increased sales to PCD LLC, offset by both price and volume declines of our PAS handsets sold when compared to the third quarter of 2008. Consistent with our experience in recent quarters, increased competition and a decline in PAS subscribers have resulted in lower demand and decrease in average selling price for our handsets.

Gross Profit

                                                              Three Months Ended
                            December 31,      Gross       December 31,      Gross        September 30,      Gross
                                2008        Profit %          2007         Profit %          2008         Profit %
                                                                (in thousands)
Gross profit by Segment
Multimedia Communication    $      34,294          42 %   $      42,655           35 %   $       30,846         53%
Broadband Infrastructure          (10,439 )       (57 )%         (3,032 )         (6 )%           3,032         10%
Handsets                            1,054           1 %          11,810           27 %           14,965         21%
Service                             5,575          33 %           4,675           31 %            4,720         33%
PCD                                     -           -            34,465            6 %                -           -
Other                                (596 )       (22 )%         11,431           73 %            3,764         67%

Total                       $      29,888          12 %   $     102,004           13 %   $       57,327         32%

Three months ended December 31, 2008 and 2007

Gross profit was $29.9 million, or 12% of net sales for the three months ended December 31, 2008, compared to $102.0 million, or 13% of net sales for the corresponding quarter of 2007. The overall gross profit decrease in absolute dollars was primarily due to the disposition of PCD during July 2008 which accounted for a $34.5 million decrease in gross profit resulting from the related decrease in net sales. Gross profit as a percentage of net sales decreased mainly due to higher inventory cost and an increase in provision for loss contract partially offset by the impact of the disposition of PCD which had relatively lower gross profit percentages compared to our other

segments. Gross profit for the three months ended December 31, 2008 includes $1.6 million of contract loss charges relating to costs that should have been included in the calculation of the Broadband Infrastructure segment gross profit in prior periods. The impact of recording this prior-period charge on the prior and current periods is not material.

Excluding PCD and MSBU, gross profit decreased by $37.9 million or 56% for the three months ended December 31, 2008 compared to the corresponding quarter of 2007. Gross profit as a percentage of net sales in the Broadband Infrastructure segment was negative primarily due to a higher inventory reserve of $7.1 million related to our optical product sales in China in 2008 and loss contract provisions of $9.9 million and $7.3 million, recorded in the three months ended December 31, 2008 and 2007, respectively. Gross profit as a percentage of net sales in the Multimedia Communications segment improved to 42% during the three months ended December 31, 2008 as compared to 35% for the same period in 2007, mainly due to a one time inventory write-off related to STB sales in China in 2007. Gross profit as a percentage of net sales in the Handsets segment decreased to 1% during the three months ended December 31, 2008 from 27% for the same period in 2007 mainly due to increased sales of lower margin handsets to PCD LLC beginning in July 2008 as well as continued increase in pricing pressure of PAS handsets. In addition, in the fourth quarter of 2008, we incurred an additional $15.5 million inventory charge related to cancelation of an order for a CDMA handset model as well as an additional inventory write off related to our GSM handset unit in China. Gross profit of the Service segment improved both as a percentage of net sales and in absolute dollars due to an increase in international sales which were secured at a higher profit margin. Gross profit of the Other segment decreased as a percentage of net sales and in absolute dollars primarily due to overall decline of CSBU revenue.

Three months ended December 31, 2008 and September 30, 2008

Gross profit was $29.9 million, or 12% of net sales for the three months ended December 31, 2008, compared to $57.3 million, or 32% of net sales for the third quarter of 2008.

The overall gross profit as a percentage of sales decreased by 20 percentage points due primarily to the $9.9 million of additional loss contract provision in the Broadband Infrastructure segment recorded in the three months ended December 31, 2008 as compared to $2.0 million in the third quarter of 2008; as well as a $15.5 million additional inventory charge related to cancelation of an order for a CDMA handset model and inventory write off related to our GSM handset unit in China during the three months ended December 31, 2008. In addition, we recognized some higher margin NGN sales in the Multimedia infrastructure segment during the three months ended September 30, 2008.

RESULTS OF OPERATIONS

During the fourth quarter of 2007, we announced a new organization structure to align the business units with its corporate strategy. This new organization structure changed the reporting segments on which we measure performance and allocates resources. Effective October 1, 2007, the new reporting segments were . . .