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 invest in products with technological differentiation likely to drive revenue growth and improved margins. We also intend to maintain a strategic presence in the most attractive markets.

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.

Overview of Our Second Quarter 2009

† Net sales decreased by $552.6 million to $80.2 million during the three months ended June 30, 2009 compared to the same period in 2008. The decrease was primarily due to the sale of UTStarcom Personal Communications LLC, a wholly-owned subsidiary of the Company ("PCD") to Personal Communications Devices, LLC ("PCD LLC"), in July 2008. The PCD segment accounted for $448.9 million of net sales for the second quarter of 2008. Also significantly impacting the decrease in net sales in the second quarter of 2009 was the continued weakening demand for our PAS Infrastructure and Handsets products.

† Gross profit was negative 20% of net sales in the second quarter of 2009 compared to 13% of net sales in the same period of 2008. This decrease was mainly due to the decrease in net sales, additional inventory reserves and warranty claim settlement charges for the Handsets segment and a decrease in sales of higher margin Multimedia Communications products during the second quarter of 2009.

† In the second quarter of 2009, gross profit of the Handsets segment was reduced approximately $28.7 million as a result of transactions with PCD
LLC. As a result of the Settlement Agreement and Release entered into with PCD LLC in June 2009, we recorded charges of approximately $11.1 million for product-related liability disputes. An additional $17.6 million of costs were recorded for inventory write-downs to net realizable value, write-downs of

excess inventory and warranty reserves. We recorded these transactions in the second quarter of 2009 resulting in a decrease in revenue of approximately $2.7 million and an increase in cost of net sales of $26.0 million.

† Selling, general and administrative and research and development operating expenses decreased 61% in the second quarter of 2009 compared with the second quarter of 2008 primarily as a result of the sale of PCD and other non-core assets and other management restructuring initiatives. Selling, general and administrative for the second quarter of 2009 includes a $10.5 million recovery of doubtful accounts compared to $3.4 million provision of doubtful accounts in the same period of 2008.

† On June 9, 2009, our Board of Directors approved a restructuring plan (the "2009 Restructuring Plan") designed to reduce operating expenses. The 2009 Restructuring Plan includes a worldwide reduction in force of approximately 50% of the Company's headcount. The initiatives also include plans to outsource manufacturing operations and optimize research and development spending with a focus on selected products. We recognized $27.8 million in restructuring charges during the three months ended June 30, 2009 related to our 2009 Restructuring Plan and prior plans.

Other Initiatives

In June 2009, we announced our intention to consider a potential sale of our manufacturing, research and development, and administrative offices facility in Hangzhou, China. Accordingly, management performed a recoverability assessment for this asset at June 30, 2009. We initially considered whether using comparable market transaction activity (market comparison approach) to estimate the current fair value of the Hangzhou facility would be both feasible and sufficiently objective in the circumstances but concluded the secondary market for similar industrial properties from which to derive sales data was not sufficiently robust to place primary reliance on this valuation approach. Therefore, management primarily used the income capitalization approach to estimate fair value. This valuation approach involves estimating a current market rental for the facility through an analysis of rents of similar facilities, either in the locality or in comparable districts, and then using an applicable capitalization rate to estimate fair value. This resulted in determining the estimated fair value for the Hangzhou facility to be approximately $170 million at June 30, 2009, or approximately $8 million greater than the carrying value. No impairment charge was recorded as the estimated fair value of the Hangzhou facility exceeded carrying value. The income capitalization approach is subjective in nature and involves various assumptions about the capitalization rate and relevant market rents.

While the valuation may be supported by the income capitalization approach discussed above, management believes the net realizable value of the Hangzhou facility in a sale transaction could differ significantly from the estimated fair value as well as the carrying value. Due to the unique characteristics of this structure, including its size of approximately 2.7 million square feet and design, we are unable to predict whether the estimated fair value under the income capitalization approach will approximate the ultimate realization upon any potential sale. If the actual market value is determined to be less than the carrying value, we may need to record an impairment charge against future earnings.

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 GAAP. 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 six months ended June 30, 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. The consolidation of voice messaging technology into the Multimedia Communications segment did not have a significant impact on segment net sales or gross profit. 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 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 June 30,                     Six months ended June 30,
                              % of net               % of net               % of net                 % of net
                     2009      sales       2008       sales       2009       sales        2008        sales
                                                         (in thousands)
Net Sales by
Segment
Multimedia
Communications     $ 38,968         49 % $  74,018         12 % $  73,000         37 % $   141,464         12 %
Broadband
Infrastructure       13,583         17 %    35,888          6 %    29,002         14 %      61,479          5 %
Handsets             13,184         16 %    49,461          8 %    69,245         35 %      93,484          8 %
Services             14,428         18 %    15,884          2 %    28,256         14 %      26,975          2 %
PCD                       -          -     448,864         71 %         -          -       879,588         72 %
Other                     -          -       8,641          1 %         -          -        15,755          1 %
                   $ 80,163        100 % $ 632,756        100 % $ 199,503        100 % $ 1,218,745        100 %

                       Three months ended June 30,                     Six months ended June 30,
                           % of net               % of net               % of net                 % of net
                  2009      sales       2008       sales       2009       sales        2008        sales
                                                      (in thousands)
Net Sales by
region
United States   $  1,731          2 % $ 442,780         70 % $  42,990         21 % $   864,643         71 %
China             52,531         66 %   110,752         18 %   103,749         52 %     227,874         19 %
India              9,536         12 %     5,399          1 %    19,120         10 %      12,836          1 %
Other             16,365         20 %    73,825         11 %    33,644         17 %     113,392          9 %
Total net
sales           $ 80,163        100 % $ 632,756        100 % $ 199,503        100 % $ 1,218,745        100 %

Three months ended June 30, 2009 and 2008

Net sales decreased by 87% to $80.2 million during the three months ended June 30, 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 $457.5 million of the decrease. Net sales for the segments other than the PCD and Other decreased by $95.1 million or 54%. Multimedia Communications net sales decreased by $35.1 million, or 47%, for the three months ended June 30, 2009 compared to the same period in 2008, mainly due to continued weakening demand for our PAS Infrastructure products. Broadband Infrastructure segment net sales decreased by $22.3 million or 62% for the three months ended June 30, 2009 compared to the same period in 2008 mainly due to decrease in Multi-Service Access Node ("MSAN"), Multi-Service Transport Platform ("MSTP") and CPE sales. Handsets segment net sales decreased by $36.3 million, or 73%, in the second quarter of 2009 primarily due the declines of our PAS handsets sales during the three months ended June 30, 2009 partially offset by the increase of CDMA handsets sales in China.

Six months ended June 30, 2009 and 2008

Net sales decreased by 84% to $199.5 million during the six months ended June 30, 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 $895.3 million of the decrease. Net sales for the segments other than the PCD and Other decreased by $123.9 million or 38%. Multimedia Communications net sales decreased by $68.5 million, or 48%, for the six months ended June 30, 2009 compared to the same period in 2008, mainly due to continued weakening demand for our PAS Infrastructure products. Broadband Infrastructure segment net sales decreased by $32.5 million or 53% for the six months ended June 30, 2009 compared to the same period in 2008 mainly due to decrease in MSAN, MSTP and CPE sales. Handsets segment net sales decreased by $24.2 million, or 26%, in the first half of 2009 primarily due to the declines of our PAS handsets sales partially offset by the increase of CDMA handsets sales in China as well as CDMA handsets sales to PCD LLC.

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 a continued decline in demand for our PAS handsets and infrastructure equipment due to the China telecommunications industry restructuring and launch of 3G services. 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 (LOSS) PROFIT



                         Three Months Ended June 30,                    Six Months Ended June 30,
                              Gross                  Gross                 Gross                   Gross
                   2009      profit %      2008     profit %     2009     profit %      2008      profit %
                                                      (in thousands)
Gross (loss)
profit by
Segment
Multimedia
Communications   $  12,077         31 %  $ 28,818         39 % $ 22,630         31 %  $  61,974         44 %
Broadband
Infrastructure         614          5 %     1,669          5 %    2,234          8 %      3,890          6 %
Handsets           (34,221 )     (260 )%    6,781         14 %  (27,919 )      (40 )%    22,996         25 %
Services             5,692         39 %     4,794         30 %    8,869         31 %      7,113         26 %
PCD                      -          -      36,169          8 %        -                  69,005          8 %
Other                    -          -       3,717         43 %        -                   9,049         57 %
Total            $ (15,838 )      (20 )% $ 81,948         13 % $  5,814          3 %  $ 174,027         14 %

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 June 30, 2009 and 2008

Gross profit was negative $15.8 million, or negative 20% of net sales, in the three months ended June 30, 2009, compared to $81.9 million, or 13% 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 operations formerly included in the Other segment in the first quarter of 2009. PCD and Other segments in aggregate accounted for $39.9 million decrease in gross profit for the second quarter of 2009. Gross profit for the segments other than PCD and Other segment decreased by $57.9 million for the three months ended June 30, 2009 as compared to the corresponding period of 2008. This decrease was mainly due to decrease in sales, additional inventory reserves and claim settlement related to certain handsets sold to PCD LLC for the Handsets segment and decrease in sales of higher margin Multimedia Communications products during the second quarter of 2009. For additional discussion, see "Segment Reporting" section of this Item 2.

Six months ended June 30, 2009 and 2008

Gross profit was $5.8 million, or 3% of net sales, for the six months ended June 30, 2009, compared to $174.0 million, or 14% 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. PCD and Other segments in aggregate accounted for $78.1 million decrease in gross profit for the first half of 2009. Gross profit for the segments other than PCD and Other decreased by $90.2 million for the six months ended June 30, 2009 as compared to the corresponding period of 2008. This decrease was due to increase in lower margin CDMA handset sales to PCD LLC, decrease in sales, additional inventory reserves and claim settlement related to certain handsets sold to PCD LLC for the Handsets segments, and decrease in sales of higher margin Multimedia Communications products during the first half 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 during the first quarter of 2009 (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 June 30,               Six months ended June 30,
                             % of                 % of                 % of                 % of
                              net                  net                  net                  net
                    2009     sales      2008      sales      2009      sales      2008      sales
                                                  (in thousands)
Selling,
general and
administrative    $ 26,971      34 %  $  72,010      11 %  $  81,151      41 %  $ 151,754      12 %
Research and
development         16,229      20 %     39,286       6 %     37,737      19 %     80,686       7 %
Amortization of
intangible
assets                   -       -        1,730       0 %          -       -        3,554       0 %
Restructuring       27,757      35 %          -       -       32,576      16 %          -       -
Gain on
divestiture         (1,357 )    (2 )%         -       -       (1,357 )    (1 )%         -       -
Total net
operating
expenses          $ 69,600      87 %  $ 113,026      17 %  $ 150,107      75 %  $ 235,994      19 %

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 June 30, 2009 and 2008

SG&A expenses were $27.0 million for the three months ended June 30, 2009, a decrease of $45.0 million as compared to $72.0 million for the same period in 2008. The decrease in SG&A expense was primarily due to a $9.1 million decrease in SG&A expenses related to divested operations, primarily PCD and MSBU, a $10.6 million decrease in personnel related expenses due to continuous streamlining of operations and recent cost reduction measures, a $2.6 million decrease in depreciation expense due to assets impairment write off in 2008, a $2.0 million decrease in travel related expenses due to reduced travel activity and cost containment efforts, a $2.7 million savings from reduction in the use of outside services, a $2.2 million reduction in advertising and marketing, sales promotions, as well as shows and exhibits expenses due to reduced sales activities; and a $10.5 million recovery of doubtful account as a result of increased effort in collection compared to $3.4 million provision of doubtful accounts in the same period of 2008.

Six months ended June 30, 2009 and 2008

SG&A expenses were $81.2 million for the six months ended June 30, 2009, a decrease of $70.6 million as compared to $151.8 million for the same period in 2008. The decrease in SG&A expense was primarily due to a $16.7 million decrease in SG&A expenses related to divested operations, primarily PCD and MSBU, an $18.6 million decrease in personnel related expenses due to continuous streamlining of operations and recent cost reduction measures, a $9.4 million reduction in legal and accounting fees as a result of reduced activity in investigations and litigation, a $5.0 million decrease in depreciation expense due to assets impairment write off in 2008, a $5.5 million savings from reduction in the use of outside services, a $3.7 million decrease in travel . . .