FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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. 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 forward-looking statements. In addition, any statements that refer to trends in our businesses, future financial results, and our liquidity and business plans are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks and uncertainties, including those discussed in "Part II, Item 1A-Risk Factors" of this Form 10-Q. 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 those 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-Q.

EXECUTIVE SUMMARY

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.

Restructuring Programs

On December 16, 2008, our Board of Directors approved a restructuring plan (the "2008 Restructuring 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 Restructuring 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. During the first quarter of 2009, we recorded an additional $4.8 million in restructuring charges of which $4.6 million relates to the 2008 Restructuring Plan. These charges were primarily general and corporate charges not directly related to our core business units and included $3.4 million for severance and benefits primarily related to the transition of certain key functions, including finance, to China and $1.1 million for lease termination costs. Approximately 60 employees are affected by the transition of these key functions to China. We expect to incur additional restructuring charges during the remainder of 2009 as we continue to execute the 2008 Restructuring Plan. Payment of accrued amounts related to severance and benefits aggregating $5.8 million at March 31, 2009 are expected to be substantially completed by the end of 2009, payments of $1.1 million related to lease obligations will be settled over the remaining lease term, which expires in fiscal year 2010.

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

The sale of UTStarcom Personal Communications LLC, a wholly-owned subsidiary of the Company ("PCD"), in July 2008 resulted in a substantial reduction in sales during the three months ended March 31, 2009 compared with the same period in 2008. Net sales decreased by $466.6 million to $119.3 million during the three months ended March 31, 2009 compared to the same period in 2008. The decrease was primarily due to the disposal of PCD in 2008. The PCD segment accounted for $430.7 of the net sales for the three months ended March 31, 2008.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Condensed Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience, knowledge of economic and market factors and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from those estimates.

On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. We believe that the estimates, assumptions and judgments involved in revenue recognition, receivables and allowances for doubtful accounts, accruals including third party commissions payable, restructuring liabilities, litigation and other contingencies, stock-based compensation, product warranty, variable interest entities, inventories, deferred costs, research and development and capitalized software development costs, income taxes, impairment of intangible assets and long-lived assets, and valuation and impairment of investments have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Management believes that there have been no significant changes during the three months ended March 31, 2009 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2008.

RECENT ACCOUNTING PRONOUNCEMENTS

For a description of the new accounting standards that affect us, see Note 2 of Notes to our Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

To align the business units with our corporate strategy to focus on core businesses, on July 1, 2008 we sold PCD to PCD LLC (see Note 3 of Notes to our Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q). Prior to July 1, 2008, PCD sold and supported handsets other than PAS handsets, mainly in the United States, Included in the Other segment are Mobile Solutions Business Unit ("MSBU") and Custom Solutions business unit ("CSBU"). On July 31, 2008, we sold MSBU which was responsible for the development, sales and service of our wireless IPCDMA/IPGSM product line. In the first quarter of 2009, we completed the wind-down of CSBU and the consolidation of voice messaging technology into our Multimedia Communications segment. CSBU historically had been responsible for the development, sales and service of other non-core products. As a result of these changes we revised our internal reporting structure, operating segments and reporting segments.

Effective January 1, 2009, the new reporting segments are as follows:

† Multimedia Communications-Focused on development and market opportunities in IPTV solutions and Wireless infrastructure technologies.

† Broadband Infrastructure-Focused on our world class portfolio of broadband products.

† Handsets-Focused on mobile phone business with continued focus on the PAS and CDMA handset market, as well as data cards markets. Handset sales to PCD LLC, which commenced after the July 1, 2008 sale of PCD, are included in this segment.

† Services-Focused on providing services and support of our Broadband Infrastructure and Multimedia Communications product lines.

NET SALES



                                    Three months ended March 31,
                                         % of net               % of net
                               2009       sales       2008       sales
                                           (in thousands)
Net Sales by Segment
Multimedia Communications   $   34,033         28 % $  67,446         12 %
Broadband Infrastructure        15,419         13 %    25,590          4 %
Handsets                        56,060         47 %    44,023          8 %
Services                        13,828         12 %    11,091          2 %
PCD                                  -          -     430,724         73 %
Other                                -          -       7,115          1 %
                            $  119,340        100 % $ 585,989        100 %




                             Three months ended March 31,
                                  % of net               % of net
                        2009       sales       2008       sales
                                    (in thousands)
Net Sales by region
United States         $  41,259         35 % $ 421,863         72 %
China                    51,219         43 %   117,122         20 %
Other                    26,862         22 %    47,004          8 %
Net sales             $ 119,340        100 % $ 585,989        100 %

Three months ended March 31, 2009 and 2008

Net sales decreased by 80% to $119.3 million during the three months ended March 31, 2009 compared to the same period in 2008. The decrease was primarily due to disposal of PCD and MSBU in 2008 and disbandment of the operations formerly included in the Other segment in the first quarter of 2009. The PCD and Other segments accounted for $437.8 million of the decrease. Net sales for the segments other than the PCD and Other decreased by $28.8 million or 19%. Multimedia Communications net sales decreased by $33.4 million, or 50%, for the three months ended March 31, 2009 compared to the same period in 2008, mainly due to continued weakening demand for our PAS Infrastructure products partially offset by increased sales in our IPTV and STB products. Broadband Infrastructure segment net sales decreased by $10.2 million or 40% for the three months ended March 31, 2009 compared to the same period in 2008 mainly due to decrease in CPE and MSAN sales. Handsets segment net sales increased by $12.0 million, or 27%, in the first quarter of 2009 primarily due to increase of CDMA handset sales to PCD LLC during the three months ended March 31, 2009 partially offset by declines of our PAS handsets sales.

For additional discussion, see the "Segment Reporting" section of this Item 2.

The economic uncertainty that we are operating in today could adversely impact our business. However, the majority of our business is based in China and India-two countries that are still projected to have economic growth in 2009. In 2009 and beyond, we expect that new orders for PAS handsets and infrastructure equipment will continue to decline due to the China telecommunications industry restructuring as well as increased pricing pressures. We expect our CDMA and TD-SCDMA handsets will positively contribute to our revenue and partially offset the decline of our PAS business. In order 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 networks which we expect to have relatively higher gross margins and average selling prices. However, we do not anticipate that these sales will fully offset the expected decline in PAS handsets and infrastructure sales. We currently offer and have initial market acceptance of our IPTV products in China, India, Taiwan and other geographic regions. We believe that the IPTV market presents a meaningful growth opportunity in these regions as well as other regions where we have targeted to expand our IPTV offerings.

GROSS PROFIT



                                  Three months ended March 31,
                                        Gross                 Gross
                              2009     profit %     2008     profit %
                                         (in thousands)
Gross profit by Segment
Multimedia Communications   $ 10,554         31 % $ 33,156         49 %
Broadband Infrastructure       1,620         11 %    2,221          9 %
Handsets                       6,302         11 %   16,215         37 %
Services                       3,176         23 %    2,319         21 %
PCD                                -          -     32,836          8 %
Other                              -          -      5,332         75 %
                            $ 21,652         18 % $ 92,079         16 %

Cost of sales consists primarily of material and labor costs, including stock-based compensation, associated with manufacturing, assembly and testing of products, costs associated with installation and customer training, warranty costs, fees to agents, inventory write-downs and overhead. Cost of sales also includes import taxes and tariffs on components and assemblies. Some components and materials used in our products are purchased from a single supplier or a limited group of suppliers and, in some cases, are subject to obtaining Chinese import permits and approvals. We also rely on third party manufacturers to manufacture and assemble most of our CDMA handsets.

Our gross profit has been affected by average selling prices, material costs, product mix, the impact of warranty charges and contract loss provisions as well as inventory reserves and release of deferred revenues and related cost pertaining to prior years. Our gross profit, as a percentage of net sales, varies among our product families. We expect that our overall gross profit, as a percentage of net sales, will fluctuate in the future as a result of shifts in product mix, stage of product life cycle, anticipated decreases in average selling prices and our ability to reduce cost of sales.

Three months ended March 31, 2009 and 2008

Gross profit was $21.7 million, or 18% of net sales, in the three months ended March 31, 2009, compared to $92.1 million, or 16% of net sales, in the corresponding period of 2008. The overall gross profit decrease in absolute dollars was primarily due to the disposal of PCD and MSBU in 2008 and disbandment of the operations formerly included in the Other segment in the first quarter of 2009 as well as the decrease in sales of the higher margin Multimedia Communications products. PCD and Other segments in aggregate accounted for $38.2 million decrease in gross profit for the first quarter of 2009. Gross profit for the segments other than PCD and Other decreased by $32.3 million for the three months ended March 31, 2009 as compared to the corresponding period of 2008. This decrease was due to increased lower margin CDMA handset sales to PCD LLC, decrease in sales and additional inventory reserves for both the Multimedia Communications and Broadband Infrastructure segment during the first quarter of 2009, partially offset by an $8.5 million decrease to cost of sales in the Handsets segment resulting from the amortization of the Marvell supply agreement (See Note 3 of Notes to our Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.) For additional discussion, see "Segment Reporting" section of this Item 2.

OPERATING EXPENSES



The following table summarizes our operating expenses:



                                             Three months ended March 31,
                                                 % of net               % of net
                                        2009      sales       2008       sales
                                                    (in thousands)
Selling, general and administrative   $ 54,180         45 % $  79,744         14 %
Research and development                21,508         18 %    41,400          7 %
Amortization of intangible assets            -          -       1,824          0 %
Restructuring                            4,819          4 %         -          -
Total net operating expenses          $ 80,507         67 % $ 122,968         21 %

Selling, general and administrative expenses ("SG&A") include compensation and benefits, professional fees, sales commissions, provision for doubtful accounts receivable and travel and entertainment costs. Research and development ("R&D") expenses consist primarily of compensation and benefits of employees engaged in research, design and development activities, costs of parts for prototypes, equipment depreciation and third party development expenses. We believe that continued and prudent investment in research and development is critical to our long-term success, and we will aggressively evaluate appropriate investment levels. A portion of our costs are fixed and are difficult to quickly reduce in periods of lower sales.

SELLING, GENERAL AND ADMINISTRATIVE

Three months ended March 31, 2009 and 2008

SG&A expenses were $54.2 million for the three months ended March 31, 2009, a decrease of $25.6 million as compared to $79.7 million for the same period in 2008. The decrease in SG&A expense was primarily due to an $10.7 million reduction in legal and accounting fees as a result of reduced activity in investigations and litigation, an $8.0 million decrease in personnel related expenses due to continuous streamlining of operations and recent cost reduction measures, a $7.6 million decrease in SG&A expenses related to divested operations, primarily PCD and MSBU, a $2.8 million savings from reduction in the use of outside services, a $2.3 million decrease in depreciation expense due to assets impairment write off in 2008, a $1.7 million decrease in travel related expenses due to reduced travel activity and cost containment efforts, and a $1.2 million reduction in advertising and marketing, sales promotions, as well as shows and exhibits expenses due to reduced sales activities. This was partially offset by an $8.3 million increase in the provision for doubtful accounts in the first quarter of 2009 compared to a recovery of doubtful accounts of $0.8 million in the same period of 2008 and a $2.0 million increase in provisions for contingencies.

RESEARCH AND DEVELOPMENT

Three months ended March 31, 2009 and 2008

R&D expenses decreased by $19.9 million during the three months ended March 31, 2009 compared to the same period in 2008. During the second half of 2008, we sold PCD and MSBU which resulted in aggregated R&D savings of $4.7 million for the first quarter of 2009. In addition, the decrease was also due to a $10.0 million decrease in personnel related expenses as we continued to transfer R&D functions from the United States to China and reduced spending in non-core business units, a $0.7 million decrease in depreciation and a $1.6 million decrease in software license and parts expenses as we continued to streamline our operations as well as a $1.1 million savings from reduction in use of outside services.

AMORTIZATION OF INTANGIBLE ASSETS

Three months ended March 31, 2009 and 2008

There was no amortization of intangible assets in the three months ended March, 31, 2009 compared to $1.8 million in the three months ended March 31, 2008. An impairment charge of $4.9 million was recorded in the fourth quarter of 2008 to fully write-off the remaining carrying value of intangible assets at December 31, 2008.

RESTRUCTURING

Three months ended March 31, 2009

On December 16, 2008, our Board of Directors approved a restructuring plan (the "2008 Restructuring 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. On October 2, 2007, our Board of Directors approved a restructuring plan (the "2007 Restructuring Plan") to reduce operating costs, which included a worldwide reduction in force of approximately 12% of our headcount. The 2007 Restructuring Plan was substantially completed during 2008; the remaining liability of the 2007 Restructuring Plan is related to a lease obligation to be settled over the remaining lease term, which expires in fiscal year 2010.

In connection with the 2008 Restructuring 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. During the first quarter of 2009, we recorded an additional $4.8 million in restructuring charges of which $4.6 million relates to the 2008 Restructuring Plan and $0.2 million relates to the 2007 Restructuring Plan. The $4.6 million of charges related to the 2008 Restructuring Plan were primarily general and corporate charges not directly related to our core business units and included $3.4 million for severance and benefits primarily related to the transition of certain key functions, including finance, to China and $1.1 million for lease termination costs. Approximately 60 employees are affected by the transition of these key functions to China. We expect to incur additional restructuring charges during the remainder of 2009 as we continue to execute the 2008 Restructuring Plan. Payment of accrued amounts related to severance and benefits aggregating $5.8 million at March 31, 2009 are expected to be substantially completed by the end of 2009, payments of $1.1 million related to lease obligations will be settled over the remaining lease term, which expires in fiscal year 2010.

OTHER INCOME (EXPENSE)

INTEREST INCOME

Three months ended March 31, 2009 and 2008

Interest income was $0.7 million and $2.8 million for the three months ended March 31, 2009 and 2008, respectively. Interest income decreased primarily due to a decline in the average interest rate applicable to the three months ended March 31, 2009 as compared to the three months ended March 31, 2008.

INTEREST EXPENSE

Three months ended March 31, 2009 and 2008

Interest expense was $0.3 million and $6.1 million for the three months ended March 31, 2009 and 2008, respectively. The decrease in interest expense for the three months ended March 31, 2009 compared to the same period in 2008 was attributable to the repayment of $274.6 million of convertible subordinated notes due March 1, 2008 and $48.0 million of other bank loan repayments during 2008.

OTHER (EXPENSE) INCOME, NET

Three months ended March 31, 2009 and 2008

Other expense, net was $7.2 million for the three months ended March 31, 2009 as compared to other income, net of $54.0 million for the three months ended March 31, 2008. Other expense, net for the three months ended March 31, 2009 was primarily due to $7.3 million of foreign currency losses. Other income, net for the three months ended March 31, 2008 was primarily due to a $32.4 million gain on the sale of the Gemdale investment, a $7.3 million gain on the sale of the Infinera investment, an $8.2 gain on the liquidation of investment in a variable interest entity and $5.7 million of foreign currency gains.

INCOME TAX EXPENSE

Income tax expense is based upon a blended effective tax rate based upon our expectation of the amount of income to be earned in each tax jurisdiction and is accounted under the liability method. Deferred income taxes are recognized for the differences between the tax bases of assets and liabilities and their financial statement amounts based on enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We expect to maintain a full valuation allowance on our remaining net deferred tax assets until an appropriate level of profitability that generates taxable income is sustained or until we are able to develop tax strategies that would enable us to conclude that it is more likely than not that a portion of our deferred tax assets will be realizable. Any reversal of valuation allowances will favorably impact our results of operations in the period of the reversal.

We adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109" (FIN 48) on January 1, 2007. FIN 48 established criteria for recognizing or continuing to recognize only more-likely-than tax positions, which may result in income tax expense volatility in future periods. While we believe that we have adequately provided for all tax positions, amounts asserted by taxing . . .