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<SEC-DOCUMENT>0001047469-06-008875.txt : 20060626
<SEC-HEADER>0001047469-06-008875.hdr.sgml : 20060626
<ACCEPTANCE-DATETIME>20060626172924
ACCESSION NUMBER:		0001047469-06-008875
CONFORMED SUBMISSION TYPE:	10-Q/A
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20060331
FILED AS OF DATE:		20060626
DATE AS OF CHANGE:		20060626

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			UTSTARCOM INC
		CENTRAL INDEX KEY:			0001030471
		STANDARD INDUSTRIAL CLASSIFICATION:	COMMUNICATIONS EQUIPMENT, NEC [3669]
		IRS NUMBER:				521782500
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q/A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-29661
		FILM NUMBER:		06925318

	BUSINESS ADDRESS:	
		STREET 1:		1275 HARBOR BAY PARKWAY
		STREET 2:		STE 100
		CITY:			ALAMEDA
		STATE:			CA
		ZIP:			94502
		BUSINESS PHONE:		5108648800

	MAIL ADDRESS:	
		STREET 1:		1275 HARBOR BAY PARKWAY
		STREET 2:		STE 100
		CITY:			ALAMEDA
		STATE:			CA
		ZIP:			94502
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q/A
<SEQUENCE>1
<FILENAME>a2171483z10-qa.htm
<DESCRIPTION>10-Q/A
<TEXT>
<HTML>
<HEAD>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#06PAL1172_1">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>

<P><FONT SIZE=2>
<hr noshade width=100% align=left size=4>
<hr noshade width=100% align=left size=1> </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=5><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=2><B>WASHINGTON, D.C. 20549  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=5><B>FORM 10-Q/A<BR>
(Amendment No.&nbsp;1)  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TD WIDTH="14%" ALIGN="CENTER" VALIGN="TOP"><FONT SIZE=2><B>(Mark One)</B></FONT></TD>
<TD WIDTH="86%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%" ALIGN="CENTER"><BR><FONT SIZE=3><FONT FACE="WINGDINGS">&#253;</FONT></FONT></TD>
<TD WIDTH="86%"><BR><FONT SIZE=3><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 ALIGN="CENTER" VALIGN="TOP"><FONT SIZE=3><B><BR>
<BR>
<BR> </B></FONT><FONT SIZE=2><B>For the quarterly period ended March&nbsp;31, 2006</B></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 ALIGN="CENTER" VALIGN="TOP"><FONT SIZE=2><B><BR>
<BR>
<BR>
OR</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2><B><BR>
<BR>
<BR> </B></FONT><FONT SIZE=3><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="86%"><FONT SIZE=3><BR>
<BR></FONT> <FONT SIZE=3><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 ALIGN="CENTER" VALIGN="TOP"><FONT SIZE=3><B><BR>
<BR>
<BR> </B></FONT><FONT SIZE=2><B>For the transition period
from&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2><B> COMMISSION FILE NUMBER 000-29661  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=5><B>UTSTARCOM,&nbsp;INC.<BR>  </B></FONT><FONT SIZE=2>(Exact name of registrant as specified in its charter) </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>DELAWARE</B></FONT><FONT SIZE=2><BR>
(State of Incorporation)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>52-1782500</B></FONT><FONT SIZE=2><BR>
(I.R.S. Employer Identification No.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" ALIGN="CENTER"><BR><FONT SIZE=2><B>1275 HARBOR BAY PARKWAY<BR>
ALAMEDA, CALIFORNIA</B></FONT><FONT SIZE=2><BR>
(Address of principal executive offices)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER"><BR><FONT SIZE=2><B>94502</B></FONT><FONT SIZE=2><BR>
(zip code)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 ALIGN="CENTER"><FONT SIZE=2><BR>
Registrant's telephone number, including area code: </FONT><FONT SIZE=2><B>(510)&nbsp;864-8800</B></FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate
by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12&nbsp;months (or for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filing requirements for the past
90&nbsp;days.&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT>&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer (as defined in
Rule&nbsp;12b-2 of the Exchange Act).<BR>
Large Accelerated Filer&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;Accelerated
Filer&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;Non-Accelerated Filer&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the Exchange
Act).&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT>&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of May&nbsp;23, 2006 there were 121,089,996 shares of the registrant's common stock outstanding, par value $0.00125. </FONT></P>

<P><FONT SIZE=2><hr
noshade width=100% align=left size=1>
<hr noshade width=100% align=left size=4> </FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=1,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=121149,FOLIO='blank',FILE='DISK132:[06PAL2.06PAL1172]BA1172A.;7',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="bc1172_explanatory_note"> </A>
<A NAME="toc_bc1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXPLANATORY NOTE    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;UTStarcom,&nbsp;Inc. (the "Company") is filing this Amendment No.&nbsp;1 on Form&nbsp;10-Q/A to correct the typographical error contained in
Exhibit&nbsp;32.1 to the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended March&nbsp;31, 2006 filed with the Securities and Exchange Commission on June&nbsp;22, 2006 (the
"Original Filing"). Exhibit&nbsp;32.1 to the Original Filing contained an incorrect date. Accordingly, the Company is re-filing the Original Filing in its entirety with an updated Exhibit Index and
Exhibit&nbsp;32.1 pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, as amended. The Company has not made any other changes to the Original Filing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Amendment No.&nbsp;1 on Form&nbsp;10Q/A continues to speak as of the date of the Original Filing, and the Company has not updated the disclosures contained therein to reflect
any events that occurred at a later&nbsp;date. </FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=2,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=684522,FOLIO='blank',FILE='DISK132:[06PAL2.06PAL1172]BC1172A.;4',USER='IMORTON',CD='26-JUN-2006;14:41' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_bg1172_1_2"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="bg1172_table_of_contents"> </A>
<A NAME="toc_bg1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>TABLE OF CONTENTS    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP"><FONT SIZE=2>PART I&#151;FINANCIAL INFORMATION</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 1&#151;CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 2&#151;MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
41</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 3&#151;QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
61</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 4&#151;CONTROLS AND PROCEDURES</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
62</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP"><FONT SIZE=2><BR>
PART II&#151;OTHER INFORMATION</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
72</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 1&#151;LEGAL PROCEEDINGS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
72</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 1A&#151;RISK FACTORS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
76</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 2&#151;UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
95</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 3&#151;DEFAULTS UPON SENIOR SECURITIES</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
95</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 4&#151;SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
96</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 5&#151;OTHER INFORMATION</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
96</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> ITEM 6&#151;EXHIBITS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
99</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="90%" VALIGN="TOP"><BR><FONT SIZE=2> SIGNATURES</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
100</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=3,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=369060,FOLIO='2',FILE='DISK132:[06PAL2.06PAL1172]BG1172A.;8',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_de1172_1_3"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1172_part_i_#151;financial_information"> </A>
<A NAME="toc_de1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART I&#151;FINANCIAL INFORMATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2><A
NAME="de1172_item_1_#151;condensed_c__de101918"> </A>
<A NAME="toc_de1172_2"> </A></FONT> <FONT SIZE=2><B>ITEM 1&#151;CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1172_utstarcom,_inc._condensed_cons__uts04089"> </A>
<A NAME="toc_de1172_3"> </A></FONT> <FONT SIZE=2><B>UTSTARCOM,&nbsp;INC.    <BR>    <BR>    CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)    <BR>    <BR>    (In thousands, except share and per share data)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March&nbsp;31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December&nbsp;31,<BR>
2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER"><FONT SIZE=2><B>ASSETS</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Current assets:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>673,625</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>645,571</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10,852</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>13,266</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts receivable, net of allowances for doubtful accounts of $68,837 and $67,789 at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>405,938</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>453,671</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts receivable, related parties, net of allowances for doubtful accounts of $28 and $5 at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>89,050</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>69,293</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Notes receivable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>7,659</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,065</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>424,028</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>425,955</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Deferred costs/Inventories at customer sites under contracts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>246,678</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>239,876</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Prepaids</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>66,598</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>61,795</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Short-term restricted cash and investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>69,078</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>53,680</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Other current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>36,677</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>37,267</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Total current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,030,183</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,002,439</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Property, plant and equipment, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>221,003</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>233,403</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Long-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>25,643</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>26,023</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,063</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,063</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Intangible assets, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>70,389</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>75,313</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Other long-term assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>25,235</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>25,811</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,375,516</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,366,052</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER"><BR><FONT SIZE=2><B> LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Current liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>339,865</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>320,677</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Short-term debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>172,141</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>198,826</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Income taxes payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>31,708</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>33,608</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Customer advances</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>265,359</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>221,301</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>86,681</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>69,030</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Other current liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>243,888</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>289,867</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,139,642</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,133,309</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><BR>
Long-term debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><BR>
274,900</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
274,900</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Other long-term liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>30,943</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>20,958</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%"><FONT SIZE=2>Total liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,445,485</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,429,167</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><BR>
Commitments and contingencies (Note 16)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Minority interest in consolidated subsidiaries</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>7,852</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,338</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Stockholders' equity:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Common stock: $0.00125 par value; authorized: 750,000,000 shares; issued and outstanding: 120,607,118 and 120,585,158 at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>152</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>152</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,166,519</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,168,166</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Deferred stock compensation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(3,493</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(263,809</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(253,174</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accumulated other comprehensive income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>19,317</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>16,896</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Total stockholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>922,179</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>928,547</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%"><FONT SIZE=2>Total liabilities, minority interest and stockholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,375,516</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,366,052</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See accompanying notes to the condensed consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=4,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=297566,FOLIO='3',FILE='DISK132:[06PAL2.06PAL1172]DE1172A.;7',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<A NAME="page_de1172_1_4"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1172_utstarcom,_inc._condensed_cons__uts04195"> </A>
<A NAME="toc_de1172_4"> </A>
<BR></FONT><FONT SIZE=2><B>UTSTARCOM,&nbsp;INC.    <BR>    <BR>    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)    <BR>    <BR>    (In thousands, except per share data)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="85%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net sales</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>Unrelated party</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>560,361</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>603,931</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>Related party</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>36,210</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>297,953</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>596,571</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>901,884</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Cost of net sales</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>Unrelated party</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>459,381</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>536,952</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>Related party</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14,736</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>127,508</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>122,454</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>237,424</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Operating expenses:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>Selling, general and administrative</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>83,172</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>109,011</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>46,309</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>66,260</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>Amortization of intangible assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,925</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,972</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>134,406</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>182,243</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Operating (loss) income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(11,952</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>55,181</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Interest income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,532</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,349</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(3,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(4,278</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Other income (expense), net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,568</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(6,847</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>(Loss) income before income taxes, minority interest and equity in loss of affiliated companies</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(8,352</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>45,405</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Income tax expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,839</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7,680</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Minority interest in consolidated subsidiaries</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>556</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(222</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Equity in loss of affiliated companies</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(459</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net (loss) income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(10,635</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>37,044</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>(Loss) earnings per share&#151;Basic</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.09</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0.32</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>(Loss) earnings per share&#151;Diluted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.09</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0.29</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Weighted average shares used in per-share calculation:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>&#151;Basic</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>120,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>114,523</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%"><FONT SIZE=2>&#151;Diluted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>120,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>132,949</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes to the condensed consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=5,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=138496,FOLIO='4',FILE='DISK132:[06PAL2.06PAL1172]DE1172B.;4',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_dg1172_1_5"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dg1172_utstarcom,_inc._condensed_cons__uts03322"> </A>
<A NAME="toc_dg1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>UTSTARCOM,&nbsp;INC.    <BR>    <BR>    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)    <BR>    <BR>    (In thousands)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>CASH FLOWS FROM OPERATING ACTIVITIES:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%"><FONT SIZE=2>Net (loss) income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(10,635</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>37,044</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>17,476</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>25,897</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Loss on sale and disposal of assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,708</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,278</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Stock compensation expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,159</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>575</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Reversal of stock compensation due to terminations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2,390</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Provision for doubtful accounts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>892</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>17,548</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Provision for inventory reserve</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>795</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>15,160</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(578</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,769</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Changes in operating assets and liabilities, net of of acquisitions:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>28,787</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(120,621</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(4,337</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(15,724</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Deferred costs/Inventories at customer sites under contracts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(810</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,533</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Other current and non-current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(6,771</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>49,621</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>18,077</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>33,429</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Income taxes payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2,020</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(32,015</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Customer advances</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>43,097</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(223,720</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14,207</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>28,016</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Other current liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(50,985</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(4,667</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%"><FONT SIZE=2>Net cash provided by (used in) operating activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>53,672</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(182,877</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>CASH FLOWS FROM INVESTING ACTIVITIES:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Additions to property, plant and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(3,162</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(28,313</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Purchase of business, net of cash acquired</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(18,449</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Sale of business</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>19,965</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Change in restricted cash and investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(17,037</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,796</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Purchase of short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(10,819</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(101,194</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Proceeds from sale of short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>13,309</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>221,253</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>499</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(18</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%"><FONT SIZE=2>Net cash provided by investing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,755</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>79,075</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>CASH FLOWS FROM FINANCING ACTIVITIES:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Proceeds from borrowings</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>62,370</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>146,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Payments on borrowings</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(89,948</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(230,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(3,184</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>667</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%"><FONT SIZE=2>Net cash used in financing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(30,762</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(83,333</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Effect of exchange rate changes on cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,389</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2,683</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%"><FONT SIZE=2>Net increase (decrease) in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>28,054</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(189,818</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Cash and cash equivalents at beginning of period</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>645,571</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>562,532</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Cash and cash equivalents at end of period</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>673,625</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>372,714</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Supplemental disclosure of cash flow information:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Cash paid:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Interest</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,511</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,104</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,801</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,489</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Non-cash operating activity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts receivable transferred to notes receivable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8,977</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,394</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>
See accompanying notes to the condensed consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=6,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=599182,FOLIO='5',FILE='DISK132:[06PAL2.06PAL1172]DG1172A.;6',USER='TCHAN',CD='23-JUN-2006;23:55' -->
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_di1172_1_6"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di1172_utstarcom,_inc._notes_to_conde__uts03031"> </A>
<A NAME="toc_di1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>UTSTARCOM,&nbsp;INC.    <BR>    <BR>    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BASIS OF PRESENTATION:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying unaudited condensed consolidated financial statements include the accounts of UTStarcom,&nbsp;Inc. (the "Company") and its wholly and majority
owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the preparation of the condensed consolidated financial statements. The minority interests in
consolidated subsidiaries and equity in affiliated companies are shown separately in the condensed consolidated financial statements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying financial statements as of March&nbsp;31, 2006 and for the three months ended March&nbsp;31, 2006 and 2005 have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The December&nbsp;31, 2005 balance sheet was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the Company's audited
December&nbsp;31, 2005 financial statements, including the notes thereto, and the other information set forth in the Company's Annual Report on Form&nbsp;10-K for the year ended
December&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair statement of the Company's financial condition, the results of its operations and its cash flows for the periods indicated. The results of operations for the three months ended
March&nbsp;31, 2006 are not necessarily indicative of the operating results for the full year. </FONT></P>


<P><FONT SIZE=2><B>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RESTATEMENT OF FINANCIAL STATEMENTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has restated its previously issued consolidated financial statements for the years ended December&nbsp;31, 2004 and 2003. Accordingly, the
consolidated balance sheets at December&nbsp;31, 2004 and 2003, and consolidated statements of operations, stockholders' equity and cash flows for the years then ended were restated from amounts
previously reported, and are included in the Form&nbsp;10-K for the year ended December&nbsp;31, 2005. In addition, the unaudited quarterly condensed consolidated financial statements
for the interim reporting periods during the years ended December&nbsp;31, 2005, 2004 and 2003 are also restated and, are included in the "Quarterly Financial Data (unaudited)" in the
Form&nbsp;10-K for the year ended December&nbsp;31, 2005, following the Notes to the Consolidated Financial Statements therein. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
restatement follows completion of an investigation by independent legal counsel with the assistance of forensic accountants that was ordered by and under the direction of the Audit
Committee of the Company's Board of Directors. The genesis for this independent investigation was the discovery, in December&nbsp;2005, of two previously unknown side letter agreements provided to a
customer in India in 2004 and 2005. The side letter agreements obligated the Company to deliver a variety of software bug fixes, features, updates and upgrades for no additional consideration, and,
contrary to Company policy, these side letter agreements were withheld from the Company's financial management and the Company's independent registered public accounting firm. Therefore, neither
management nor the Company's independent registered public accounting firm was able to properly evaluate their effect on the recognition of revenue under contracts with this customer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
independent investigation's initial focus was on the potential existence of other unknown side letter agreements with customers, but the investigation was broadened to encompass
other areas </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=7,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=892248,FOLIO='6',FILE='DISK132:[06PAL2.06PAL1172]DI1172A.;8',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<A NAME="page_di1172_1_7"> </A>
<BR>

<P><FONT SIZE=2>involving
revenue recognition and some non-revenue related areas to ensure completeness of the investigation. The Audit Committee did not restrict the scope of the independent
investigation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
completion of the independent investigation, the investigation team shared its final findings with the Audit Committee and with the Company's independent registered public
accounting firm. Financial management conducted follow-up procedures to ensure the information provided by the investigation team was complete, attempted to locate any additional relevant
information, and then evaluated the initial accounting for these transactions given the newly available additional information to determine whether the initial accounting was appropriate. Based on the
evaluation of available information, management concluded that the original amount of the revenue recognized under contracts with certain customers and other matters discovered as part of the
investigation constituted accounting errors. In making a decision regarding whether a restatement of the previously issued
financial statements was required, consideration was given to the individual and aggregate effect of all potential restatement adjustments as well as qualitative issues that enter into materiality
decisions. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
restatement consists primarily of adjustments for errors in the timing of when revenues, cost and expenses should have been recognized in accordance with generally accepted
accounting principles. It resulted in no change to the reported cash balances at the end of the restatement period or as of December&nbsp;31, 2005. Revenues, contract costs and profits deferred at
the end of the restatement period will be recognized in the Company's consolidated statements of operations of future periods when conditions that permit revenue recognition in accordance with
generally accepted accounting principles are met. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes the impact of the restatement adjustments on the consolidated statement of operations for the three months ended March&nbsp;31, 2005: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="86%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31, 2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>As previously<BR>
reported</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total<BR>
adjustments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>As restated</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands, except per share amounts)<BR> </B></FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net sales</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Unrelated party</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>606,160</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(2,229</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>603,931</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Related party</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>295,635</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,318</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>297,953</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>901,795</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>89</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>901,884</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Cost of net sales</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Unrelated party</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>537,638</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(686</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>536,952</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Related party</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>125,968</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,540</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>127,508</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>238,189</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(765</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>237,424</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Operating expenses:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Selling, general and administrative</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>108,210</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>801</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>109,011</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>66,660</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>66,260</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Amortization of intangible assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>6,972</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>6,972</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>181,842</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>401</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>182,243</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Operating income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>56,347</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(1,166</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>55,181</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Interest income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2><BR>
1,349</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><BR>
1,349</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(4,278</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(4,278</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Other expense, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(6,847</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(6,847</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Income before income taxes, minority interest and equity in loss of affiliated companies</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2><BR>
46,571</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1,166</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><BR>
45,405</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Income tax expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>7,884</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(204</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>7,680</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Minority interest in earnings of consolidated subsidiaries</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(222</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(222</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Equity in loss of affiliated companies</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(459</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(459</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>38,006</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(962</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>37,044</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Earnings per share&#151;Basic</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>0.33</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0.32</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Earnings per share&#151;Diluted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>0.29</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0.29</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=8,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=1043621,FOLIO='7',FILE='DISK132:[06PAL2.06PAL1172]DI1172A.;8',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<A NAME="page_di1172_1_8"> </A>

<P><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  </B></FONT></P>

<P><FONT SIZE=2><I>Use of Estimates:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for revenue recognition, allowance for doubtful accounts and sales returns, reserves for
inventory, deferred costs and accrued product warranty costs, tax valuation allowances, goodwill impairments and loss contingencies, among others. Actual results could differ from those estimates. </FONT></P>

<P><FONT SIZE=2><I>Revenue Recognition:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from sales of telecommunications equipment and handsets are recognized when persuasive evidence of an arrangement exists, delivery of the product has
occurred, customer acceptance has been obtained, the fee is fixed or determinable and collectibility is reasonably assured. If the payment due from the customer is not fixed or determinable due to
extended payment terms, revenue is recognized as payments become due from the customer, assuming all other criteria for revenue recognition are met. Any payments received prior to revenue recognition
are recorded as customer advances. Normal
payment terms differ for various reasons amongst different customer regions, depending upon common business practices for customers within a region. Shipping and handling costs are recorded as
revenues and costs of revenues. Any expected losses on contracts are recognized when identified. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales
may be generated from complex contractual arrangements that require significant revenue recognition judgments, particularly in the area of contracts with multiple deliverable
elements (multiple element arrangements). Where multiple elements exist in an arrangement, contract revenue is allocated to the different elements based upon and in proportion to verifiable objective
evidence of the fair value of the various elements, as governed under Emerging Issues Task Force Issue ("EITF") No.&nbsp;00-21, ("Accounting for Revenue Arrangements with Multiple
Deliverables) and SEC Staff Accounting Bulletin No.&nbsp;104 ("Revenue Recognition"). Multiple element arrangements primarily involve the sale of equipment, installation, training and the provision
of such equipment to different locations for the same customer. Revenue is recognized as each element is earned, namely upon installation and acceptance of equipment or delivery of handsets, provided
that the fair value of the undelivered element(s) has been determined, the delivered element(s) has stand-alone value, there is no right of return on delivered element(s), and the Company is in
control of the undelivered element(s). For arrangements that include service elements, including promotional support and installation, for which verifiable objective evidence of fair value does not
exist, revenue is deferred until such services are deemed complete, or until the time the Company can establish verifiable objective evidence. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Final
acceptance is required for revenue recognition when installation services are not considered perfunctory. Final acceptance indicates that the customer has fully accepted delivery
of equipment and the Company is entitled to the full payment. The Company will not recognize revenue before final acceptance is granted by the customer if acceptance is considered substantive to the
transaction. Additionally, the Company does not recognize revenue when cash payments are received from customers for transactions that do not have the customer's final acceptance. The Company records
these cash receipts as customer advances, and defers revenue recognition until final acceptance is received. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Where
multiple elements exist in an arrangement that includes software, and the software is considered more than incidental to the equipment or services in the arrangement, software and
software related elements are recognized under the provisions of Statement of Position 97-2 ("Software </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>

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<BR>

<P><FONT SIZE=2>Revenue
Recognition,") as amended, and EITF No.&nbsp;03-05 ("Applicability of SOP 97-2 to non-software deliverables containing more than incidental software.")
The Company allocates revenues to each element of software arrangements based on vendor specific objective evidence ("VSOE"). VSOE of each element is based on the price charged when the same element
is sold separately. The Company uses the residual method to recognize revenue when an arrangement includes one or more elements to be delivered at a future date and VSOE of the fair value of all the
undelivered elements exists. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the contract revenue is recognized as revenue. If evidence
of fair value of one or more undelivered elements does not exist, all revenue for delivered and undelivered elements is deferred and recognized when delivery of all elements occurs or when VSOE can be
established. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company recognizes revenue for system integration, installation and training upon completion of performance and if all other revenue recognition criteria are met. Other service
revenue, principally related to maintenance and support contracts, is recognized ratably over the contract term. Revenues from services were less than 10% of revenues for all periods present. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company also sells products through resellers. Revenue is generally recognized when the standard price protection period, which ranges from 30 to 90&nbsp;days, has lapsed. If
collectibility cannot be reasonably assured in a reseller arrangement, revenue is recognized upon sell-through to the end customer and receipt of cash. There may be additional obligations
in reseller arrangements such as inventory rotation, or stock exchange rights on the product. As such, revenue is recognized in accordance with Statement of Financial Accounting Standards ("SFAS")
No.&nbsp;48, "Revenue Recognition When Right of Return Exists." In most cases, the Company has developed reasonable estimates for stock exchanges based on historical experience with similar types of
sales of similar products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has sales agreements with certain wireless customers that provide for a rebate of the selling price to such customers if the particular product is subsequently sold at a
lower price to such customers or to a different customer. The rebate period extends for a relatively short period of time. Historically, the amounts of such rebates paid to customers have not been
material. The Company estimates the amount of the rebate based upon the terms of each individual arrangement, historical experience and future expectations of price reductions and the records its
estimate of the rebate amount at the time of the sale. The Company also enters into sales incentive programs, such as co-marketing arrangements, with certain wireless and handset
customers. The Company records the incurred incentive as a reduction of revenue when the sales revenue is recognized. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
assessment of collectibility is also a factor in determining whether revenue should be recognized. The Company assesses collectibility based on a number of factors, including payment
history and the credit-worthiness of the customer. The Company does not request collateral from its customers. In international sales, the Company often requires letters of credit from its customers
that can be drawn on demand if the customer defaults on its payment. If the Company determines that collection of a payment is not reasonably assured, the Company defers revenue recognition until
collection becomes reasonably assured, which is generally upon receipt of cash. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Occasionally,
the Company enters into revenue sharing arrangements. Under these arrangements, the Company collects revenues only after its customer, the telecommunications service
provider, collects service revenues. When the Company enters a revenue sharing arrangement, the Company does not recognize revenue until collection is reasonably assured. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
of the nature of doing business in China and other emerging markets, the Company's billings and/or customer payments may not correlate with the contractual payment terms and the
Company generally does not enforce contractual payment terms prior to final acceptance. Accordingly, accounts receivable are not booked until the Company recognizes the related customer revenue.
Advances from customers are recognized when the Company has collected cash from the customer, </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>prior
to recognizing revenue. Deferred revenue is recorded if there are undelivered elements after final acceptance has been obtained. </FONT></P>

<P><FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STOCK-BASED COMPENSATION:  </B></FONT></P>

<P><FONT SIZE=2><B><I>Stock Option Plans  </I></B></FONT></P>

<P><FONT SIZE=2><I>The 1997 Stock Plan:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;31, 1997, the Board of Directors adopted, and the Company's stockholders approved, the Company's 1997 Stock Plan. Under the 1997 plan, officers,
employees and consultants are eligible to receive options to purchase shares of common stock and stock purchase rights. In December&nbsp;1999, the Board of Directors amended the 1997 plan, which the
Company's stockholders approved in February&nbsp;2000. As of March&nbsp;31, 2006, the Company was authorized to issue up to 34,636,391 shares subject to options under the plan. During the term of
the 1997 plan, the number of shares issuable under the plan will be increased annually on the first day of each fiscal year beginning in 2001 by an amount equal to 6,000,000 shares, or 4% of the
outstanding shares of common stock on that date, or a lesser amount determined by the Board. The plan terminates in January&nbsp;2007, but may be terminated earlier by the Board of Directors. As of
March&nbsp;31, 2006, there were options to purchase 21,500,115 shares of common stock outstanding under the 1997 plan. The Compensation Committee administers the 1997 plan. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options
granted under the 1997 plan may be incentive stock options ("ISOs") which are intended to qualify for favorable federal income tax treatment under the provisions of
Section&nbsp;422 of the Internal Revenue Code of 1986, as amended, or non-qualified stock options ("NSOs"), which do not so qualify. The Compensation Committee selects the eligible
persons to whom options will be granted and determines the grant date, amounts, exercise prices, vesting periods and other relevant terms of the options, including whether the options will be ISOs or
NSOs. The exercise price of ISOs granted under the 1997 plan may not be less than 100% of the fair market value of common stock on the grant date, while the exercise price of NSOs can be determined by
the Compensation Committee in its discretion. Options are generally not transferable during the life of the optionee. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options
vest and become exercisable as determined by the Compensation Committee, generally over four years. Options may generally be exercised at any time after they vest and before
their expiration date as determined by the Compensation Committee. However, no option may be exercised more than ten years after the grant date. Options will generally terminate
(i)&nbsp;12&nbsp;months after the death or permanent disability of an optionee and (ii)&nbsp;90&nbsp;days after termination of employment for any other reason. The aggregate fair market value
of the shares of common stock represented by ISOs that become exercisable in any calendar year by any one option holder may not exceed $100,000. Options in excess of this limit are treated as NSOs. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event the Company is merged with or into another corporation, or all or substantially all of the Company's assets are sold, each outstanding option will be assumed or an
equivalent option or right will be substituted by the successor corporation or its parent or subsidiary. If the successor corporation refuses to assume or substitute for the option or right, the
option or right will automatically vest and become exercisable in full for a period of at least fifteen days, after which time the option or right will terminate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the 1997 plan, the Company may grant stock purchase rights to eligible participants. Any shares purchased pursuant to stock purchase rights will be subject to a restricted stock
purchase agreement. Unless the Compensation Committee determines otherwise, this agreement will grant the Company a right to repurchase the stock upon the voluntary or involuntary termination of the
employee for any reason, including death or disability. The purchase price for repurchased shares will be the original price paid and may be paid by cancellation of any indebtedness owed to the
Company. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

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<P><FONT SIZE=2>The
shares of stock subject to the right of repurchase lapse over time. There were 50,000 stock purchase rights granted during the three months ended March&nbsp;31, 2006 with a fair value of
$0.4&nbsp;million and a four year vesting term to employees. </FONT></P>

<P><FONT SIZE=2><I>2001 Director Option Plan:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;2, 2001, the Board of Directors adopted, and in May&nbsp;2001, the Company's stockholders approved, the Company's 2001 Director Option Plan.
Under the 2001 Director Option Plan, those directors who are not employees of the Company ("Outside Directors") are eligible to receive options to purchase shares of common stock. As of
March&nbsp;31, 2006, Directors Horner, Lenzmeier, Clarke and Toy were Outside Directors. All grants of options to Outside Directors are automatic and nondiscretionary. In July&nbsp;2001, the Board
of Directors amended the 2001 Director Option Plan. As of March&nbsp;31, 2006, the Company was authorized to issue up to 1,200,000 shares pursuant to options under the 2001 Director Option Plan. The
plan terminates in May&nbsp;2011, but may be terminated earlier by the Board of Directors. As of March&nbsp;31, 2006, there were options to purchase 360,000 shares of common stock outstanding
under the 2001 Director Option Plan. The Compensation Committee administers the 2001 Director Plan. On April&nbsp;27, 2006, the Board of Directors suspended until further action all future grants of
stock options to our Outside Directors under the 2001 Director Option Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the terms of the 2001 Director Option Plan, each Outside Director is automatically granted an option to purchase eighty thousand shares of common stock (the "First Option")
on the date on which such person first becomes an Outside Director (the "Anniversary Date"). A director who is an employee of the Company and ceases employment with the Company to become an Outside
Director receives an option to purchase twenty thousand shares of common stock (a "Subsequent Option") at the Company's first annual meeting of stockholders following such conversion to an Outside
Director and at each subsequent annual stockholder meeting thereafter, provided he or she is serving as an Outside Director on each such date. As such time as each Outside Director's First Option is
fully vested, each Outside Director is automatically granted a Subsequent Option on the Anniversary Date of each year provided he or she is then an Outside Director. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms of the 2001 Director Option Plan, the exercise price of each option granted is equal to the market value of the common stock on the date of grant. Such options have terms
of ten years, but terminate earlier if the individual ceases to serve as a director. The First Option grants vest as to 25% of shares subject to the First Option on each of the first four
anniversaries of its date of grant.
The Subsequent Option grants vest as to 100% of the shares subject to the Subsequent Option on the first anniversary of its date of grant. </FONT></P>

<P><FONT SIZE=2><I>Issanni Communications,&nbsp;Inc. Incentive Program:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Issanni plan was established for the issuance of up to a total of 39,876 shares of UTStarcom's common stock to specified former employees of Issanni
Communications,&nbsp;Inc. ("Issanni") who became UTStarcom's employees in connection with UTStarcom's acquisition of Issanni. The Issanni plan is administered by the Board of Directors or a
committee appointed by the Board. A participant in the Issanni plan is eligible to earn and vest in a designated number of shares that are subject to the award of shares made to a participant under
the plan, based upon the attainment of one of six milestones related to the amount of revenue generated from Issanni products in 2002 and 2003 and subject to the participant's continued employment
with Issanni, the Company or one of their subsidiaries through the day of the determination that the applicable milestone has been satisfied. In addition, each participant is entitled to receive the
unearned shares, if any, on the fifth anniversary of the acquisition of Issanni if the employee continues to be employed with Issanni, the Company or any of their subsidiaries on such date regardless
of whether any milestone is attained. The shares subject to an award will in any event become issuable, whether or not the milestones were achieved and whether or not the five-year vesting
schedule has elapsed, upon (i)&nbsp;the sale or the discontinuation of the Company or UTStarcom </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2>International
Products&nbsp;Inc., (ii)&nbsp;the sale of substantially all or any of the technology acquired by UTStarcom International Products&nbsp;Inc. in connection with the acquisition of
Issanni, or (iii)&nbsp;the employment termination of certain Issanni principals. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If,
prior to the date on which all of a participant's shares are earned, the participant's service with Issanni, the Company or one of their subsidiaries is terminated
(i)&nbsp;voluntarily or for cause, the Company may exercise its repurchase option with respect to any of the participant's unearned shares, (ii)&nbsp;other than voluntarily or for cause, death or
disability, the participant will be entitled to receive the shares that the participant would have otherwise earned with respect to milestones achieved within 24&nbsp;months of the participant's
termination, or (iii)&nbsp;as a result of death or disability, the participant (or his estate) will be entitled to receive the unearned portion of his shares with respect to all milestones. </FONT></P>

<P><FONT SIZE=2><I>The 2003 Non-Statutory Stock Option Plan:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;15, 2003, the Board of Directors adopted the Company's 2003 Non-Statutory Stock Option Plan. Under the 2003 plan, directors, officers,
employees and consultants of the Company are eligible to be granted options to purchase shares of the Company's common stock. Only
non-statutory stock options, which do not qualify for favorable federal income tax treatment under the provisions of Section&nbsp;422 of the Internal Revenue Code of 1986, as amended,
may be granted under the 2003 plan. As of March&nbsp;31, 2006, the Company was authorized to issue up to 1,500,000 shares pursuant to options granted under the 2003 plan, subject to adjustment in
certain instances (including stock splits, stock dividends, business combinations or other changes in capitalization). As of March&nbsp;31, 2006, options to purchase 970,535 shares of common stock
were outstanding under the 2003 plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
2003 plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee is charged with selecting the eligible persons to whom options will be
granted and determines the number of shares subject to the option, exercise prices, vesting periods and other terms applicable to each option. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options
granted under the 2003 plan generally vest and become exercisable over four years, and may be exercised at any time after they vest but before their expiration date. Options will
generally terminate (i)&nbsp;12&nbsp;months after the death or employment termination due to disability of an option holder and (ii)&nbsp;90&nbsp;days after termination of an option holder's
service for any other reason other than for disability or due to the option holder's death. However, no option may be exercised more than ten years after the grant date. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event the Company is merged with or into another corporation, or all or substantially all of the Company's assets are sold, the 2003 plan provides for each outstanding option to
be assumed or an equivalent option or right to be substituted by the successor corporation or its parent or subsidiary. If the successor corporation refuses to assume or substitute for the option, the
option will automatically vest and become exercisable in full for a period determined by the compensation committee, after which time the option will terminate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
summary of activity under the Plans follows: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="84%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="43%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted average<BR>
exercise price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER"><FONT SIZE=1><B>Shares available<BR>
for grant</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="43%"><FONT SIZE=2>Options outstanding, December 31, 2005</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>19,908,010</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>18.34</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>6,495,767</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="43%"><FONT SIZE=2>Options authorized in 2006</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>400,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="43%"><FONT SIZE=2>Options granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4,689,373</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>6.27</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(4,689,373</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="43%"><FONT SIZE=2>Options exercised</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(21,960</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>3.66</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="43%"><FONT SIZE=2>Options forfeited or expired</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,726,939</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>20.55</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>1,726,939</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="43%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="43%"><FONT SIZE=2>Options outstanding, March 31, 2006</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>22,848,484</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>15.71</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,933,333</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="43%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

<HR NOSHADE>
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<UL>

<P><FONT SIZE=2><B><I> Stock Award Activity  </I></B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the three months ended March&nbsp;31, 2006, the Company granted restricted stock awards to its employees under the 1997 Stock Option Plan. Such awards
generally vest over a period of four years from the date of grant. The restricted stock awards have the voting rights of common stock and the shares underlying the restricted are considered issued and
outstanding. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the
restrictions lapse. The grant of restricted stock awards is deducted from the shares available for grant under the Company's stock option plan. Restricted stock activity under the Company's stock
option plans for the three months ended March&nbsp;31, 2006 is summarized below (in thousands, except per share amounts): </FONT></P>

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<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" ALIGN="CENTER"><FONT SIZE=1><B>Resticted stock<BR>
outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
average grant<BR>
date fair value</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Balance at December 31, 2005</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>137,709</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>8.12</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Restricted stock granted</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>50,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>8.33</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Restricted stock forfeited</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Restricted stock vested</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>(11,980</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>8.19</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Balance at March 31, 2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>175,729</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>8.17</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information
regarding the stock options outstanding at March&nbsp;31, 2006 is summarized below: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="17%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>Options Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=7 ALIGN="CENTER"><FONT SIZE=1><B>Options Exercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="17%" ALIGN="LEFT"><FONT SIZE=1><B>Range of exercise price<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Outstanding<BR>
at<BR>
March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
average<BR>
exercise<BR>
price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Intrinsic<BR>
value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
average<BR>
remaining<BR>
contractual<BR>
life</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Exercisable<BR>
at<BR>
March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
average<BR>
exercise<BR>
price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Intrinsic<BR>
value</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="17%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>(in years)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>$&nbsp;&nbsp;0.06 - $&nbsp;&nbsp;0.07</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>28,321</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>0.06</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>176</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>2.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>28,321</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>0.06</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>176</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;0.25 -&nbsp;&nbsp;&nbsp;&nbsp;0.25</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>16,781</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>0.25</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>101</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>2.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>16,781</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>0.25</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>101</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;1.57 -&nbsp;&nbsp;&nbsp;&nbsp;2.28</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>169,474</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2.23</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>688</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>1.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>169,474</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2.23</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>688</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;2.50 -&nbsp;&nbsp;&nbsp;&nbsp;3.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>121,585</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>3.47</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>343</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>3.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>121,585</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>3.47</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>343</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;4.00 -&nbsp;&nbsp;&nbsp;&nbsp;5.99</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>651,574</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>4.66</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>1,062</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>4.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>575,774</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>4.49</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>1,036</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;6.06 -&nbsp;&nbsp;&nbsp;&nbsp;8.87</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>7,451,945</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>6.63</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>9.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>58,332</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>7.98</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;9.38 -&nbsp;&nbsp;13.61</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>2,923,326</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>11.45</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>7.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>1,199,988</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>11.86</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;14.23 -&nbsp;&nbsp;21.32</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>5,609,059</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>18.17</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>6.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>4,720,409</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>18.26</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;21.53 -&nbsp;&nbsp;32.05</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>4,617,869</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>26.58</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>6.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>4,557,385</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>26.64</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;&nbsp;32.65 -&nbsp;&nbsp;45.21</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>1,258,550</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>37.72</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>6.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>1,258,550</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>37.72</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>$&nbsp;&nbsp;0.06 - $45.21</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>22,848,484</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>15.71</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>2,371</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>7.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>12,706,599</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>21.50</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>2,345</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="17%"><FONT SIZE=1>Options exercisable and expected to vest March&nbsp;31, 2006</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>20,700,727</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>15.71</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>2,148</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="17%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>The intrinsic value is calculated as the difference between the market value as reported by NASDAQ on March&nbsp;31, 2006 and the exercise price of the
in-the-money shares. The total intrinsic value of options exercised during the three months ended March&nbsp;31, 2006 was $0.1&nbsp;million and the amount of cash received
for the exercise of options was $0.1&nbsp;million. </FONT></P>

<P><FONT SIZE=2><I>2000 Employee Stock Purchase Plan:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2000, the Company's stockholders approved the 2000 Employee Stock Purchase Plan. The purchase plan is intended to qualify as an "employee stock
purchase plan" under Section&nbsp;423 of the Internal Revenue Code. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2><A
NAME="page_dk1172_1_14"> </A> </FONT> <FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has reserved 1,914,934 shares of common stock for sale under the stock purchase plan at March&nbsp;31, 2006. The number of shares reserved for sale under the plan will be
increased annually on the first day of each fiscal year beginning in 2001 by an amount equal to 2.0&nbsp;million shares, or 2% of the outstanding shares of the Company's common stock on that date,
or a lesser amount determined by the Board of Directors. The stock purchase plan will be administered by the Board or a committee appointed by the Board. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
stock purchase plan is implemented by offering periods, the duration of which may not exceed 24&nbsp;months. Offering periods may contain interim purchase periods. Shares purchased
under the stock purchase plan will be held in separate accounts for each participant. The first offering period began in March&nbsp;2000 and ended on the last trading day before April&nbsp;30,
2002. Subsequent consecutive overlapping offering periods begin on May&nbsp;1 and November&nbsp;1 annually. These offering periods end twenty-four months thereafter. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees
will be eligible to participate in the stock purchase plan if they are employed by the Company for more than 20&nbsp;hours per week and more than five months in a calendar
year. The stock purchase plan permits eligible employees to purchase the Company's common stock through payroll deductions, which may not exceed 15% of the employee's total compensation. Stock may be
purchased under the plan at a price equal to 85% of the fair market value of the Company's stock on either the date of purchase or the first day of the offering period, whichever is lower. However,
the Board of Directors may in its discretion provide that the price at which shares of common stock are purchased under the plan shall be 85% of the fair market value of the Company's shares on the
date of purchase. Participants may not purchase shares of common stock having a value greater than $25,000 during any calendar year. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Participants
may increase or decrease their payroll deductions at any time during an offering period, subject to limits imposed by the Board of Directors. If a participant withdraws from
the stock purchase plan, any contributions that have not been used to purchase shares shall be refunded. A participant who has withdrawn may not participate in the stock purchase plan again until the
next offering period. In the event of retirement or cessation of employment for any reason, any contributions that have not yet been used to purchase shares will be refunded to the participant, or to
the participant's designated beneficiary in the case of death, and a certificate will be issued for the full shares in the participant's account. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board of Directors may terminate or amend the stock purchase plan, subject to stockholder approval in some circumstances. Unless terminated earlier by the Board, the stock purchase
plan will have a term of ten years. </FONT></P>

<P><FONT SIZE=2><B><I>Stock-Based Compensation  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2006, the Company adopted Statement of Financial Accounting Standards No.&nbsp;123 (revised 2004), "Share-Based Payment,"
("SFAS&nbsp;123(R)") which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and
employee stock purchases related to the Employee Stock Purchase Plan ("employee stock purchases") based on estimated fair values. SFAS&nbsp;123(R) supersedes the Company's previous accounting under
Accounting Principles Board Opinion No.&nbsp;25, "Accounting for Stock Issued to Employees" ("APB&nbsp;25") for periods beginning in fiscal 2006. In March&nbsp;2005, the Securities and Exchange
Commission issued Staff Accounting Bulletin No.&nbsp;107 ("SAB&nbsp;107") relating to SFAS&nbsp;123(R). The Company has applied the provisions of SAB&nbsp;107 in its adoption of
SFAS&nbsp;123(R). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based
compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.
Stock-based compensation expense recognized in the Company's Consolidated Statement of Operations for </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_dk1172_1_15"> </A>
<BR>

<P><FONT SIZE=2>the
three months ended March&nbsp;31, 2006 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December&nbsp;31, 2005 based on the grant date
fair value estimated in accordance with the pro forma provisions of SFAS&nbsp;123 and compensation expense for the share-based payment awards granted subsequent to December&nbsp;31, 2005 based on
the grant date fair value estimated in accordance with the provisions of SFAS&nbsp;123(R). Compensation expense for all share-based payment awards granted on or prior to December&nbsp;31, 2005 was
recognized using the straight-line single-option method, and the Company will continue to use the straight-line single-option method for all share-based payment awards granted
subsequent to December&nbsp;31, 2005. The stock-based compensation expense recognized in the Consolidated Statement of Operations for the first quarter of fiscal 2006 is based on awards ultimately
expected to vest and has been reduced for estimated forfeitures. SFAS&nbsp;123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. In the Company's pro forma information required under SFAS&nbsp;123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they
occurred. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has used the Black-Scholes option-pricing model ("Black-Scholes model") method of valuation for share-based awards granted on or prior to December&nbsp;31, 2005, and has
continued to use the Black-Scholes model for subsequent share-based payment awards. The Company's determination of fair value of share-based payment awards on the date of grant using the Black-Scholes
model is affected by the Company's stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include our expected stock price volatility over
the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. The Company uses historical volatility as management
believes it is more representative of future stock price trends than implied volatility due to the relatively small number of actively traded options on our common stock available to determine implied
volatility. The Company
estimates an expected term of options granted based upon the Company's historical exercise and cancellation data for vested options. In addition, separate groups of employees that have similar
exercise behavior are considered separately. The expected term of employee stock purchase plan shares is the average of the remaining purchase periods under each offering period. The Company bases the
risk-free interest rate used in the option valuation model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. The Company
does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company is required to estimate
forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate
pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a
straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
the Company's employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can
materially affect the estimated value, in management's opinion, the existing valuation models may not provide an accurate measure of the fair value of the Company's employee stock options. Although
the fair value of employee stock options is determined in accordance with SFAS&nbsp;123(R) and SAB&nbsp;107 using an option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;10, 2005, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position No. FAS&nbsp;123(R)-3 "Transition Election Related to Accounting
for Tax Effects of Share-Based Payment Awards." The Company has not yet chosen a transition method to establish the beginning balance of the additional paid-in capital pool ("APIC pool")
related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_dk1172_1_16"> </A>
<BR>

<P><FONT SIZE=2>Consolidated
Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS&nbsp;123(R). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
assumptions used to value option grants for the quarters ended March&nbsp;31, 2006 and 2005 are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="73%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="73%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="73%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="73%"><FONT SIZE=2>Expected remaining term in years</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4.00</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4.00</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="73%"><FONT SIZE=2>Weighted average risk-free interest rate</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4.64</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3.52</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="73%"><FONT SIZE=2>Volatility</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>56.98</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>55.90</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
assumptions used to value employee stock purchase plan shares for the quarters ended March&nbsp;31, 2006 and 2005 are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="73%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="73%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="73%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="73%"><FONT SIZE=2>Expected remaining term in years</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.50</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3.00</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="73%"><FONT SIZE=2>Weighted average risk-free interest rate</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4.64</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3.52</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="73%"><FONT SIZE=2>Volatility</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>61.00</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>55.90</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
March&nbsp;31, 2006, there was $27.7&nbsp;million of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over
a weighted-average period of 3.0&nbsp;years. The weighted average fair value (computed using the Black-Scholes option pricing model) of options granted under the stock option plans during the
3&nbsp;months ended March&nbsp;31, 2006 was $3.04 per share. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company adopted SFAS&nbsp;123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January&nbsp;1, 2006, the first
day of the Company's fiscal year 2006. The Company's Consolidated Financial Statements as of and for the three months ended March&nbsp;31, 2006 reflect the impact of SFAS&nbsp;123(R). In
accordance with the modified prospective transition method, the Company's Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of
SFAS&nbsp;123(R). The total stock-based compensation cost recognized in income for the three month period ended March&nbsp;31, 2006 was as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Three months<BR>
ended March&nbsp;31,<BR>
2006</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands, except per share data)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Stock-based compensation expense by type of award:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%"><FONT SIZE=2>Employee stock options</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>3,175</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%"><FONT SIZE=2>Employee stock purchase plan</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>367</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%"><FONT SIZE=2>Restricted stock</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>617</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%"><FONT SIZE=2>Tax effect</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>4,159</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>EPS effect:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>0.03</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>0.03</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adopting
SFAS&nbsp;123(R) increased pre-tax loss by $3.5&nbsp;million. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=17,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=696599,FOLIO='16',FILE='DISK132:[06PAL2.06PAL1172]DK1172A.;10',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<A NAME="page_dk1172_1_17"> </A>

<P><FONT SIZE=2><I>Prior to the adoption of SFAS&nbsp;123(R)  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the adoption of SFAS&nbsp;123(R), the Company applied APB&nbsp;25 and related interpretations to account for employee stock-based compensation. As
such, compensation expense was recorded only if on the date of the grant, the current fair value of the underlying stock exceeded the exercise price of the stock option. The Company recorded deferred
compensation in connection with stock options granted, as well as stock options issued in acquisitions, with exercise prices less than the fair market value of common stock on the date of the grant.
The amount of such deferred compensation per share was equal to the excess of the fair market value over the exercise price on the grant date. The Company also recorded deferred compensation in
connection with the restricted stock units granted, the amount of which equaled the fair market value of common stock on the date of the grant. Recorded deferred compensation was recognized as
stock-based compensation expense ratably over the vesting periods. In accordance with SFAS&nbsp;123(R), all deferred compensation, totaling $3.5&nbsp;million that had previously been recorded, has
been eliminated with a corresponding reduction in additional paid-in capital. In accordance with SFAS&nbsp;123, Company provided pro forma information to illustrate the effect on net
income and earnings per share if the Company had applied the fair value recognition provision of SFAS&nbsp;123 to stock-based employee compensation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
pro forma information required under SFAS&nbsp;123 for the three months ended March&nbsp;31, 2005 was as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Three months<BR>
ended March&nbsp;31,<BR>
2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated (in thousands, except per share data)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net income (loss):</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>37,044</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>409</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>Deduct: Total compensation expense determined under fair value based method for all awards, net of related tax effects</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>(6,278</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Pro forma net income (loss)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>31,175</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Basic income (loss) per share:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>0.32</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>Pro forma</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>0.28</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net income (loss):</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>37,044</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>Effect of dilutive securities 7/8% Convertible subordinated notes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>951</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>409</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>Deduct: Total compensation expense determined under fair value method for all awards, net of related tax effects</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>(6,278</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Pro forma net income (loss)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>32,126</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Diluted income (loss) per share:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>0.29</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%"><FONT SIZE=2>Pro forma</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT"><FONT SIZE=2>0.25</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=18,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=113844,FOLIO='17',FILE='DISK132:[06PAL2.06PAL1172]DK1172A.;10',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<A NAME="page_dk1172_1_18"> </A>

<P><FONT SIZE=2><B>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(LOSS) EARNINGS PER SHARE:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic (loss) earnings per share is computed by dividing net income available to holders of common stock by the weighted average number of shares of the Company's
common stock outstanding during the period. Diluted (loss) earnings per share is determined by adjusting net (loss) income as reported by the effect of dilutive securities and increasing the number of
shares by potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares of common stock consist of employee stock options, a written call option, warrants,
convertible subordinated notes and unvested acquisition-related stock options. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of the calculation of basic and diluted (loss) earnings per share: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands except per share data)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Numerator:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2><BR>
Net (loss) income for basic EPS computation</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(10,635</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
37,044</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2><BR>
Effect of dilutive securities&#151;7/8% convertible subordinated notes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
951</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Net (loss) income adjusted for dilutive securities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(10,635</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>37,995</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Denominator:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2><BR>
Shares used to compute basic EPS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
120,600</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
114,523</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Dilutive common stock equivalent shares:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Stock options</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,157</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Written call option</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Conversion of convertible subordinated notes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>16,919</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Warrants</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Unvested acquisition-related stock</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>350</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>Shares used to compute diluted EPS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>120,600</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>132,949</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>(Loss) Earnings per share&#151;basic</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.09</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.32</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="66%"><FONT SIZE=2>(Loss) Earnings per share&#151;diluted</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.09</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.29</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Potentially
dilutive shares are excluded from the computations of diluted net loss per share for the three months ended March&nbsp;31, 2006 as the effect would be
anti-dilutive. These shares totaled 22.8&nbsp;million with a weighted average exercise price of $15.71 per share. Certain potential shares related to employee stock options outstanding
during the three months ended March&nbsp;31, 2005 were excluded in the diluted per share computations, since their exercise prices were greater than the average market price of the Company's common
stock during the period and, accordingly, their effect is anti-dilutive under the treasury stock method. For the three months ended March&nbsp;31, 2005, these shares totaled
15.4&nbsp;million shares with a weighted average exercise price of $24.09 per share. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
March&nbsp;31, 2006, the Company's 7/8% convertible subordinated notes outstanding were ineligible for conversion into shares of common stock. For each $1,000 of aggregate principal
amount of notes converted, the Company will deliver 42.0345 shares of common stock, if the Company's closing stock price exceeds $26.17 as of the last trading day of the immediately preceding fiscal
quarter. At December&nbsp;31, 2005, the closing price of the Company's common stock was below $26.17. In September&nbsp;2004, the EITF reached a consensus related to EITF
No.&nbsp;04-8 "The Effect of Contingently </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=19,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=149912,FOLIO='18',FILE='DISK132:[06PAL2.06PAL1172]DK1172A.;10',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<A NAME="page_dk1172_1_19"> </A>
<BR>

<P><FONT SIZE=2>Convertible
Debt on Diluted Earnings per Share." The consensus requires contingently convertible debt instruments with a market price trigger to be treated the same as traditional convertible debt
instruments for purposes of computed earnings per share using the "if converted" method for all periods presented for which the effect would be anti-dilutive. The EITF pronouncement is
effective and conversion is assumed in this diluted EPS computation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company entered into convertible bond hedge and call option transactions to reduce the potential dilution from conversion of the notes. Both the bond hedge and call option
transactions may be settled at the Company's option either in cash or net shares and expire on March&nbsp;1, 2008. Using the treasury stock method, under Statement of Financial Accounting Standards
No.&nbsp;128, "Earnings Per Share" ("SFAS&nbsp;128"), during periods when the average price of the Company's stock is above the specified strike prices of the bond hedge and call option
transactions, the effect to the diluted earnings per share calculation would be a decrease to the denominator for the bond hedge transaction, and an increase to the denominator for the call option
transaction. However, only the potential dilutive effect with respect
to the call option transaction is included in the Company's diluted earnings per share calculations. The convertible bond hedge, under SFAS&nbsp;128, is always anti-dilutive. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the three months ended March&nbsp;31, 2006 and March&nbsp;31, 2005, the average price of the Company's stock was below the specified strike prices of both the convertible bond
hedge and call option transactions and, therefore, there was no dilutive effect. </FONT></P>

<P><FONT SIZE=2><B>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;COMPREHENSIVE (LOSS) INCOME:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reconciliation of net (loss) income to comprehensive (loss) income for the three months ended March&nbsp;31, 2006 and 2005 is as follows: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Net (loss)income</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(10,635</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>37,044</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Unrealized gain on investments</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>521</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Foreign currency translation</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,900</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(475</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Total comprehensive (loss) income</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(8,214</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>36,569</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><B>7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents consist of instruments with maturities of three months or less at the date of purchase. There were no
available-for-sale securities included in cash and cash equivalents at March&nbsp;31, 2006 or December&nbsp;31, 2005. Short-term investments, consisting
entirely of available-for-sale securities, were $10.9&nbsp;million and $13.3&nbsp;million at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively. These
available-for-sale securities consist of government-backed notes, commercial paper, floating rate corporate bonds and fixed income corporate bonds. These investments are
recorded at fair value. Any unrealized holding gains or losses are reported as a component of comprehensive other income. Realized gains and losses are reported in earnings. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company accepts bank notes receivable with maturity dates of between three and six months from its customers in China in the normal course of business. The Company may discount these
notes with banking institutions in China. A sale of these notes is reflected as a reduction of cash and cash equivalents or short-term investments and the proceeds of the settlement of
these notes are included in cash flows from operating activities in the consolidated statement of cash flows. There were no bank notes sold during the three months ended March&nbsp;31, 2006. Bank
notes totaling $56.9&nbsp;million were sold </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=20,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=646072,FOLIO='19',FILE='DISK132:[06PAL2.06PAL1172]DK1172A.;10',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<A NAME="page_dk1172_1_20"> </A>
<BR>

<P><FONT SIZE=2>during
the three months ended March&nbsp;31, 2005. The cost of settling these notes receivable was $0.5&nbsp;million for the three months ended March&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
notes that have been sold are not included in the Company's consolidated balance sheets as the criteria for sale treatment established by Statement of Financial Accounting Standards
No.&nbsp;140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS&nbsp;140"), have been met. Under SFAS&nbsp;140, upon a transfer, the
transferor or entity must derecognize financial assets when control has been surrendered and the transferee obtains control over the assets. In addition, the transferred assets have been isolated from
the transferor, beyond the reach of its creditors, and the transferee has the right, without conditions or constraints, to pledge or exchange the assets it has received. </FONT></P>

<P><FONT SIZE=2><B>8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RESTRICTED CASH AND INVESTMENTS:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March&nbsp;31, 2006 the Company had short-term restricted cash and investments of $69.1&nbsp;million and long-term restricted cash
of $2.0&nbsp;million. At December&nbsp;31, 2005 the Company had short-term restricted cash and investments of $53.7&nbsp;million, and
long-term restricted cash of $0.3&nbsp;million. These amounts are primarily comprised of restricted cash held to collateralize commercial and standby letters of credit. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company issues standby letters of credit primarily to support international sales activities outside of China. When the Company submits a bid for a sale, often the potential customer
will require that the Company issue a bid bond or a standby letter of credit to demonstrate its commitment through the bid process. In addition, the Company may be required to issue standby letters of
credit as guarantees for advance customer payments upon contract signing or performance guarantees. The standby letters of credit usually expire six to nine months from date of issuance without being
drawn by the beneficiary thereof. Finally, the Company may issue commercial letters of credit in support of purchase commitments. </FONT></P>

<P><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACCOUNTS AND NOTES RECEIVABLE:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accepts bank notes and commercial notes receivable from its customers in China in the normal course of business. The notes are typically
non-interest bearing, with maturity dates between three and six months. Bank notes are included in short-term investments. Commercial notes receivable available for sale were
$7.7&nbsp;million and $2.1&nbsp;million at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively. The Company may discount these notes with banking institutions in China. A sale of
these notes is reflected as a reduction of notes receivable and the proceeds of the settlement of these notes are included in cash flows from operating activities in the consolidated statement of cash
flows. Any notes that have been sold are not included in the Company's consolidated balance sheets as the criteria for sale treatment established by SFAS No.&nbsp;140, "Accounting for Transfers and
Services of Financial Assets and Extinguishment of Liabilities," has been met. There were no notes receivable sold during the three months ended March&nbsp;31, 2006 and 2005. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August&nbsp;2005, the Company entered into a Committed Receivables Purchase Agreement ("Agreement") with a commercial bank, whereby the Company may sell up to $100.0&nbsp;million
of its eligible accounts receivable, as defined in the Agreement. The Agreement contains provisions customary in transactions of this nature including certain commitment fees. During the three months
ended March&nbsp;31, 2006, no receivables had been sold pursuant to provisions of the Agreement, and the Company recorded commitment fees of $0.1&nbsp;million. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=21,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=672118,FOLIO='20',FILE='DISK132:[06PAL2.06PAL1172]DK1172A.;10',USER='TCHAN',CD='23-JUN-2006;23:55' -->
<A NAME="page_dk1172_1_21"> </A>
<BR>

<P><FONT SIZE=2><B>10.&nbsp;&nbsp;&nbsp;INVENTORIES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2006 and December&nbsp;31, 2005, total inventories consisted of the following: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Inventories:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2><BR>
Raw materials</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><BR>
69,828</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><BR>
70,608</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Work-in-process</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>45,471</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>27,582</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Finished goods</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>252,287</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>270,374</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Inventories at customer sites without contracts</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>56,442</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>57,391</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Total Inventories</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>424,028</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>425,955</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><B>11.&nbsp;&nbsp;&nbsp;SALE OF BUSINESS  </B></FONT></P>

<P><FONT SIZE=2><I>Marvell Technology Group&nbsp;Ltd.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2006, the Company sold substantially all of the assets and selected liabilities of its semiconductor design business division to Marvell
Technology Group&nbsp;Ltd. ("Marvell"). The Company received $20.0&nbsp;million in cash and an additional $4.0&nbsp;million in cash was paid by Marvell to an escrow account and will be received
by the Company in August&nbsp;2007 in the absence of a material breach of the original contractual terms. The Company may also receive an additional $16.0&nbsp;million from Marvell if certain
defined milestones are achieved before September&nbsp;30, 2006. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
assets sold include the assets related to the prior acquisition of Advanced Communications Devices Corporation in 2001, and other system-on-chip
semiconductors. The net book value of assets sold was $2.9&nbsp;million, and the Company incurred transaction costs of approximately $0.6&nbsp;million. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the sale of assets, the Company has entered into a supply agreement with Marvell. Pursuant to the supply agreement, the Company has agreed to purchase chipsets
supplied by Marvell for a period of five years. These chipsets will be included in certain handset products designed and manufactured by the Company. The purchase quantities will be proportionate to
the total number of handsets produced by the company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March&nbsp;31, 2006, the $4.0&nbsp;million in cash held in escrow has been recorded in other assets. The net proceeds received of $23.4&nbsp;million was allocated between the
assets sold and the supply agreement, in the amounts of $2.9&nbsp;million and $20.5&nbsp;million, respectively. The value allocated to the supply agreement is included in other current and
long-term liabilities, and will be amortized in proportion to the quantities of chipsets purchased under the supply agreement over the next five years. As of March&nbsp;31, 2006,
approximately $0.3&nbsp;million has been amortized against Cost of Sales. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company considered whether or not the sale of the semiconductor design business constituted a discontinued operation, as defined by Statement of Financial Accounting Standard
No.&nbsp;144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS&nbsp;144"). Due to the Company's continuing involvement with the disposed business, as it has
committed to purchase product from Marvell and assist in the development of future products, the requirements for presentation as a discontinued operation have not been met. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2><A
NAME="page_dm1172_1_22"> </A> </FONT> <FONT SIZE=2><B>12.&nbsp;&nbsp;&nbsp;GOODWILL AND INTANGIBLE ASSETS:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2006 and December&nbsp;31, 2005, goodwill was $3.1&nbsp;million, of which the entire amount was allocated to the service operating
segment. As of March&nbsp;31, 2006 and December&nbsp;31, 2005, intangible assets consisted of the following: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Intangible assets:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Existing technology</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>39,530</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>39,530</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="58%"><FONT SIZE=2>Less accumulated amortization</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(23,311</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(21,702</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>16,219</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>17,828</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>57,220</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>57,220</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="58%"><FONT SIZE=2>Less accumulated amortization</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(13,682</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(12,037</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>43,538</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>45,183</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Supplier relationships</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,300</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5,300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="58%"><FONT SIZE=2>Less accumulated amortization</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,754</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(3,092</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,546</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>2,208</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Trade names</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,940</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4,940</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="58%"><FONT SIZE=2>Less accumulated amortization</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(2,829</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(2,496</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,111</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>2,444</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Non-compete agreement</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10,800</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>10,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="58%"><FONT SIZE=2>Less accumulated amortization</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,825</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(3,150</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,975</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>7,650</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Total intangible assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>70,389</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>75,313</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
expense was $4.9&nbsp;million and $7.0&nbsp;million for the three months ended March&nbsp;31, 2006 and 2005, respectively. The estimated aggregate amortization expense
for intangibles for each of the five years from the year ended December&nbsp;31, 2007 through the year ended December&nbsp;31, 2011 is $16.0&nbsp;million, $12.7&nbsp;million,
$6.9&nbsp;million, $5.1&nbsp;million, $5.1&nbsp;million and $10.6&nbsp;million thereafter. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
weighted average amortization period for each class of unamortized identifiable intangible assets include the following: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="63%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="77%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>Weighted average life</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="77%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>(in years)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>3.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>6.1</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>Supplier relationships</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>0.8</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>Trade names</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>1.8</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>Non-compete</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>2.8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>3.6</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=23,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=590778,FOLIO='22',FILE='DISK132:[06PAL2.06PAL1172]DM1172A.;5',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_dm1172_1_23"> </A>

<P><FONT SIZE=2><B>13.&nbsp;&nbsp;&nbsp;LONG-TERM INVESTMENT:  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Cellon International</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>8,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Restructuring Fund No. 1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>829</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,538</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Global Asia Partners L.P.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,700</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,700</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Fiberxon Inc.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>3,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Immenstar</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>2,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Matsushita Joint Venture</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>468</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>465</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>GCT SemiConductor</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>3,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Xalted Networks</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,302</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>3,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Infinera</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,902</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,902</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Others</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,442</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,418</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>25,643</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>26,023</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><I>Cellon International  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2001, the Company invested $2.0&nbsp;million in Cellon International Holdings Corporation ("Cellon"). Cellon designs wireless terminals and
related technology for handset manufacturers and private distributors. The Company invested an additional $3.0&nbsp;million each in April and December&nbsp;2002. In November&nbsp;2005 the
Company and Cellon entered into an agreement whereby the Company will receive additional shares of Cellon preferred stock in exchange for a contribution of fixed assets and the transfer of a workforce
in place from the Company to Cellon. As of March&nbsp;31, 2006, the Company had a 6.5% ownership interest in Cellon and upon completion of the transaction, assuming the conversion of all outstanding
preferred stock into common, the percentage of the Company's ownership is approximately 11%. This investment is accounted for under the cost method, and its carrying value has been evaluated for
possible impairment based on the achievement of business objectives and milestones, the financial condition and prospects of the company and other relevant factors. On May&nbsp;31, 2006, the Company
completed this transaction with Cellon. </FONT></P>

<P><FONT SIZE=2><I>Restructuring Fund No.&nbsp;1  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first quarter of fiscal 2002, the Company invested $2.0&nbsp;million in Restructuring Fund No.&nbsp;1, a venture capital investment limited
partnership established by SOFTBANK INVESTMENT CORP., an affiliate of SOFTBANK CORP. SOFTBANK America&nbsp;Inc., an entity affiliated with SOFTBANK CORP., is a significant stockholder of the
Company. The fund focuses on leveraged buyout investments in companies in Asia undergoing restructuring or bankruptcy procedures. The total fund offering is expected to be between approximately
$150&nbsp;million and $225&nbsp;million, with each investor contributing a minimum of $0.8&nbsp;million. The fund has a separate management team, and none of the Company's employees are employed
by the fund. The Company accounts for this investment under the equity method of accounting. The Company received a cash distribution of approximately $0.7&nbsp;million during the three months ended
March&nbsp;31, 2006, and reduced the carrying value of the investment accordingly. </FONT></P>


<P><FONT SIZE=2><I>Xalted Networks  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2005 and August&nbsp;2005, the Company invested $2.0&nbsp;million and $1.0&nbsp;million, respectively, in Xalted Networks ("Xalted"). In
March&nbsp;2006 the Company invested an additional $0.3&nbsp;million in Xalted. Xalted is a development stage company providing telecommunication operator customers with a comprehensive set of
network systems, software solutions and service offerings. The Company has a 9% </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>23</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=24,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=1041000,FOLIO='23',FILE='DISK132:[06PAL2.06PAL1172]DM1172A.;5',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_dm1172_1_24"> </A>
<BR>

<P><FONT SIZE=2>ownership
interest in Xalted and accounts for the investment under the cost method. As of March&nbsp;31, 2006, the Company has not recorded any impairment of this investment. </FONT></P>

<P><FONT SIZE=2><B>14.&nbsp;&nbsp;&nbsp;DEBT:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following represents the outstanding borrowings at March&nbsp;31, 2006 and December&nbsp;31, 2005: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Bank loans</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>172,141</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>198,826</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>300</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>300</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Convertible subordinated notes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>274,600</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>274,600</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Total debt</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>447,041</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>473,726</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Long-term debt</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>274,900</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>274,900</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Short-term debt</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>172,141</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>198,826</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Occasionally,
the Company issues short-term notes, payable to its vendors, in lieu of trade accounts payable. The payment terms are normally three to nine months and are
typically non-interest bearing. At March&nbsp;31, 2006, the Company had loans with various banks totaling $172.1&nbsp;million with interest rates ranging from 4.70% to 5.22% per annum.
These bank loans mature during 2006 and 2007, and are included in short-term debt. There are no significant covenants associated with these loans. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March&nbsp;12, 2003, the Company completed an offering of convertible subordinated notes due March&nbsp;1, 2008 to qualified buyers pursuant to Rule&nbsp;144A under the
Securities Act of 1933. During 2005, a portion of the notes was extinguished. As of March&nbsp;31, 2006 and December&nbsp;31, 2005, $274.6&nbsp;million of these notes were outstanding. The notes
bear interest at a rate of <SUP>7</SUP>/<SMALL>8</SMALL>% per annum and are convertible into the Company's common stock at a conversion price of $23.79 per share and are subordinated to all present and future
senior debt of the Company. Holders of the notes may convert their notes only if: (i)&nbsp;the price of the Company's common stock issuable upon conversion of a note reaches a specified threshold,
(ii)&nbsp;specified corporate transactions occur, or (iii)&nbsp;the trading price for the notes falls below certain thresholds. At the initial conversion price, each $1,000 principal amount of
notes will be convertible into 42.0345 shares of common stock. Expenses associated with the convertible subordinated
notes issuance have been recorded in other long-term assets and are being amortized over the life of the notes. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has entered into a convertible bond hedge and call option transaction. The convertible bond hedge allows the Company to purchase 11.5&nbsp;million shares of its common
stock at $23.79 per share from the other party to the agreement. The written call option allows the holder to purchase 11.5&nbsp;million shares of the Company's common stock from the Company at
$32.025 per share. Both the bond hedge and call option transactions may be settled at the Company's option either in cash or net shares and expire on March&nbsp;1, 2008. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company recorded these instruments at cost, and their carrying value at March&nbsp;31, 2006 equaled their original cost as adjusted for amendments related to the early
extinguishment of debt. The convertible bond hedge and call option transactions are expected to reduce the potential dilution from conversion of the notes. The options have been included in
stockholders' equity in accordance with the guidance in EITF No.&nbsp;00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock." </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
March&nbsp;15, 2006 until June&nbsp;1, 2006, the Company was in technical non-compliance with loan covenants of the convertible subordinated notes due to the
non-filing of the annual report on </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>24</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=25,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=1004921,FOLIO='24',FILE='DISK132:[06PAL2.06PAL1172]DM1172A.;5',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_dm1172_1_25"> </A>
<BR>

<P><FONT SIZE=2>Form&nbsp;10-K
for the year ended December&nbsp;31, 2005. The Company is currently in compliance with all covenants. </FONT></P>

<P><FONT SIZE=2><B>15.&nbsp;&nbsp;&nbsp;WARRANTY OBLIGATIONS AND OTHER GUARANTEES:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company provides a warranty on its equipment and handset sales for a period generally ranging from one to three years from the time of final acceptance. Very
rarely, the Company has entered into arrangements to provide limited warranty services for periods longer than three years. The longest of such warranty periods is ten years. The Company provides for
the expected cost of product warranties at the time that revenue is recognized based on an assessment of past warranty experience. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warranty
obligations are as follows: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Beginning of period</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>76,719</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>46,596</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Accruals for warranties issued during the period</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>8,949</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>23,089</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Settlements made during the period</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(16,966</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(11,823</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Balance at end of period</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>68,702</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>57,862</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the three months ended March&nbsp;31, 2005, the Company incurred special warranty coverage for certain asynchronous digital subscriber line ("ADSL") equipment
sold to Softbank during 2003 and 2004. Since the agreement to repair these parts exceed the Company's normal warranty terms, the Company has recorded an additional special warranty charge in the first
quarter of 2005 of $9.5&nbsp;million. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
of the Company's sales contracts include provisions under which customers would be indemnified by the Company in the event of, among other things, a third-party claim against the
customer for intellectual property rights infringement related to the Company's products. There are no limitations on the maximum potential future payments under these guarantees. The Company has not
accrued any amount in relation to these provisions as no such claims have been made and the Company believes it has valid, enforceable rights to the intellectual property embedded in its products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company issues standby letters of credit primarily to support international sales activities outside of China. When the Company submits a bid for a sale, often the potential customer
will require that the Company issue a bid bond or a standby letter of credit to demonstrate its commitment through the bid process. In addition, the Company may be required to issue standby letters of
credit as guarantees for advance customer payments upon contract signing or performance guarantees. The standby letters of credit usually expire six to twelve months from the date of issuance without
being drawn by the beneficiary thereof. The Company may issue commercial letters of credit in support of purchase commitments. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>25</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=26,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=433437,FOLIO='25',FILE='DISK132:[06PAL2.06PAL1172]DM1172A.;5',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_dm1172_1_26"> </A>
<BR>

<P><FONT SIZE=2><B>16.&nbsp;&nbsp;&nbsp;COMMITMENTS AND CONTINGENCIES:  </B></FONT></P>


<P><FONT SIZE=2><I>Leases:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company leases certain facilities under non-cancelable operating leases that expire at various dates through 2011. The minimum future lease
payments under the leases at March&nbsp;31, 2006 were as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="65%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="80%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>1 year</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>15,527</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>2 year</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>10,865</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>3 year</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>7,177</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>4 year</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,303</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>5 year and after</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,448</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>Total minimum lease payments</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>40,320</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rent
expense for the quarters ending March&nbsp;31, 2006 and 2005 was $5.6&nbsp;million and $5.6&nbsp;million, respectively. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the sale of assets to Marvell, the Company has entered into a supply agreement with Marvell. Pursuant to the supply agreement, the Company has agreed to purchase
chipsets supplied by Marvell for a period of five years. These chipsets will be included in certain handset products designed and manufactured by the Company. The purchase quantities will be
proportionate to the total number of handsets produced by the company. </FONT></P>


<P><FONT SIZE=2><I>Investment commitments:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2006, the Company had invested a total of $2.6&nbsp;million in Global Asia Partners L.P.; a fund anticipated to grow to
$10&nbsp;million. The fund was formed to make private equity investments in private or pre-IPO technology and telecommunications companies in Asia. The Company has a commitment to invest
up to a maximum of $5.0&nbsp;million. The remaining amount is due at such times and in such amounts as shall be specified in one or more future capital calls to be issued by the general partner. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has also entered into various earnout agreements related to certain acquisitions, which are subject to the completion of performance milestones. </FONT></P>

<P><FONT SIZE=2><I>Contractual obligations and commercial commitments:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2006 the Company's obligations under contractual obligations and commercial commitments are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="83%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>March 31, 2006<BR>
Payments due by period</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Less than<BR>
1 year</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1-3 years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>3-5 years</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Bank loans</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>172,441</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>172,141</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Convertible subordinated notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>274,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>274,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Interest payable on subordinated notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,806</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,403</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,403</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Standby letters of credit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>98,287</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>96,316</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,971</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>Purchase commitments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>676,083</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>667,253</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8,830</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>26</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_dm1172_1_27"> </A>

<P><FONT SIZE=2><I>Bank loans  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March&nbsp;31, 2006, the Company had loans with various banks totaling $172.1&nbsp;million with interest rates ranging from 4.70% to 5.22% per annum. These
bank loans mature during 2006 and first quarter of 2007 and are included in short-term debt. </FONT></P>


<P><FONT SIZE=2><I>Convertible subordinated notes  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's convertible subordinated notes, due March&nbsp;1, 2008, bear interest at a rate of <SUP>7</SUP>/<SMALL>8</SMALL>% per annum, payable semiannually on
May&nbsp;1 and September&nbsp;1, are convertible into the Company's common stock at a conversion price of $23.79 per share and are subordinated to all the Company's present and future senior debt.
The principal is due only at maturity of the notes. </FONT></P>

<P><FONT SIZE=2><I>Standby letters of credit:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company issues standby letters of credit primarily to support international sales activities outside of China. When the Company submits a bid for a sale,
often the potential customer will require that the Company issue a bid bond or a standby letter of credit to demonstrate its commitment through the bid process. In addition, the Company may be
required to issue standby letters of credit as guarantees for advance customer payments upon contract signing or performance guarantees. The standby letters of credit usually expire six to twelve
months from the date of issuance without being drawn by the beneficiary thereof. The Company may issue commercial letters of credit in support of purchase commitments. </FONT></P>

<P><FONT SIZE=2><I>Purchase commitments  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is obligated to purchase raw materials and work-in-process inventory under various orders from various suppliers, all of which
should be fulfilled without adverse consequences material to its operations or financial condition. As of March&nbsp;31, 2006 total open commitments under these purchase orders extending beyond one
year were approximately $8.8&nbsp;million. Additionally, the Company has agreed to purchase from Marvell certain chip-sets that will be included in the Company's PAS handsets, through
2011. </FONT></P>

<P><FONT SIZE=2><I>Intellectual property:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain sales contracts include provisions under which customers would be indemnified by us in the event of, among other things, a third-party claim against the
customer for intellectual property rights infringement related to our products. There are no limitations on the maximum potential future payments under these guarantees. The Company has not accrued
any amounts in relation to these provisions as no such claims have been made and the Company believes it has valid enforceable rights to the intellectual property embedded in its products. </FONT></P>

<P><FONT SIZE=2><I>Litigation:  </I></FONT></P>

<P><FONT SIZE=2><I>Securities Class Action Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in October&nbsp;2004, several shareholder class actions alleging federal securities violations were filed against the Company and various officers and
directors. The actions have been consolidated in United States District Court for the Northern District of California. The lead plaintiffs in the case filed a First Amended Consolidated Complaint on
July&nbsp;26, 2005. The First Amended Complaint alleged violations of the Securities Exchange Act of 1934, and was brought on behalf of a putative class of shareholders who purchased the Company's
stock after April&nbsp;16, 2003 and before September&nbsp;20, 2004. On April&nbsp;13, 2006, the lead plaintiffs filed a Second Amended Complaint adding new allegations and extending the end of
the class period to October&nbsp;6, 2005. In addition to the Company defendants, the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>27</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_dm1172_1_28"> </A>
<BR>

<P><FONT SIZE=2>plaintiffs
are also suing Banc of America Securities LLC and Softbank. Plaintiffs' complaint seeks recovery of damages in an unspecified amount. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
litigation is in its preliminary stage, and its outcome cannot be predicted. Management of the Company believes that the claims are not meritorious. Nevertheless, an adverse outcome
in the litigation, if it occurred, could have a material adverse effect on the Company's results of operations, financial position and cash flows. </FONT></P>

<P><FONT SIZE=2><I>Governmental Investigations  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has received notice of a formal inquiry by the staff of the Securities&nbsp;&amp; Exchange Commission ("SEC") into certain aspects of the Company's
financial disclosures during prior reporting periods and certain other issues. In addition, in December&nbsp;2005 the U.S. Embassy in Mongolia informed the Company that it had forwarded to the
Department of Justice ("DOJ") allegations that an agent of the Company's Mongolia joint venture had offered payments to a Mongolian government official in possible violation of the Foreign Corrupt
Practices Act (the "FCPA"). In April&nbsp;2006, the Company became aware that an agent of the Company may have made an offer to pay an Indian government official in possible violation of the FCPA.
The Company, through its Audit Committee, authorized an independent investigation into these matters, and the Company has been in contact with the DOJ and SEC regarding the investigation. At this
time, the Company cannot predict when any governmental inquiry will be completed or what the outcome of any governmental inquiry will be. </FONT></P>


<P><FONT SIZE=2><I>IPO Allocation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;31, 2001, a complaint was filed in United States District Court for the Southern District of New York against the Company, some of the Company's
directors and officers and various underwriters for our initial public offering. Substantially similar actions were filed concerning the initial public offerings for more than 300 different issuers,
and the cases were coordinated as </FONT><FONT SIZE=2><I>In re Initial Public Offering Securities Litigation</I></FONT><FONT SIZE=2>, 21 MC 92 for pretrial purposes. In April&nbsp;2002, a
consolidated amended complaint was filed in the matter against the Company, captioned </FONT><FONT SIZE=2><I>In re UTStarcom, Initial Public Offering Securities Litigation</I></FONT><FONT SIZE=2>,
Civil Action No.&nbsp;01-CV-9604. Plaintiffs allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 through undisclosed improper underwriting
practices concerning the allocation of IPO shares in exchange for excessive brokerage commissions, agreements to purchase shares at higher prices in the aftermarket and misleading analyst reports.
Plaintiffs seek unspecified damages on behalf of a purported class of purchasers of the Company's common stock between March&nbsp;2, 2000 and December&nbsp;6, 2000. The Company's directors and
officers have been dismissed without prejudice pursuant to a stipulation. On February&nbsp;19, 2003, the Court granted in part and denied in part&nbsp;a motion to dismiss brought by defendants
including the Company. The order dismisses all claims against the Company except for a claim brought under Section&nbsp;11 of the Securities Act of 1933, which alleges that the registration
statement filed in accordance with the IPO was misleading. In June&nbsp;2004, a stipulation of settlement and release of claims against the issuer defendants, including the Company, was submitted to
the court for approval. The terms of the settlement, if approved, would dismiss and release all claims against the participating defendants (including the Company). In exchange for this dismissal, D&amp;O
insurance carriers would agree to guarantee a recovery by the plaintiffs from the underwriter defendants of at least $1&nbsp;billion, and the issuer defendants would agree to an assignment or
surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. On February&nbsp;15, 2005, the Court issued an order granting conditional preliminary approval
of the settlement. On August&nbsp;31, 2005, the Court entered an order confirming its preliminary approval of the settlement. The settlement remains subject to a number of conditions, including
final court approval. The total amount of the loss associated with the above litigation is not determinable at this time. Therefore, the Company is unable to currently estimate the loss, if any,
associated with the litigation. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>28</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_dm1172_1_29"> </A>
<BR>

<P><FONT SIZE=2><I>Starent Patent Infringement Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has sued Starent Networks Corporation ("Starent") for patent infringement in the U.S. District Court for the Northern District of California. On
March&nbsp;22, 2004, the Company filed its Complaint. On June&nbsp;3, 2004, the Company served its Complaint on Starent. On July&nbsp;30, 2004, Starent filed and served its answer and
counterclaims. On August&nbsp;30, 2004, the Company served and filed its Amended Complaint. In the Company's Amended Complaint, the Company asserts that Starent infringes a UTStarcom patent through
the manufacture, use, offer for sale, and sale of Starent's ST-16 Intelligent Mobile Gateway. We seek, inter alia, compensatory damages and injunctive relief. Starent filed its answer to
the Amended Complaint and counterclaims on
September&nbsp;17, 2004. In its answer and counterclaims, Starent denies the Company's allegations and seeks a declaration that the patent-in-suit is not infringed, is
invalid, and is unenforceable. The Court held an initial case management conference on November&nbsp;2, 2004. On February&nbsp;17, 2005, the Company filed a motion for a preliminary injunction
against Starent's use, sale, and offer for sale of products having the infringing feature. The Court held a hearing on the Company's motion on May&nbsp;11, 2005 and denied the Company's motion on
June&nbsp;17, 2005. On June&nbsp;30, 2005, the Court held a hearing on the proper meaning or construction of the claims of the patent-in-suit and entered an order
construing these claims on August&nbsp;11, 2005. On September&nbsp;20, 2005, Starent filed a motion for summary judgment of non-infringement and UTStarcom filed a motion for summary
judgment that Starent is estopped from asserting invalidity and unenforceability. On October&nbsp;4, 2005, Starent filed a motion to strike UTStarcom's final infringement contentions. On
November&nbsp;7, 2005, Starent's motion to strike was denied. Oral argument on UTStarcom's estoppel motion and Starent's non-infringement motion was held on November&nbsp;8, 2005. On
December&nbsp;6, 2005, the Court granted Starent's motion for summary judgment of non-infringement. On December&nbsp;12, 2005, the Court dismissed as moot Starent's counterclaims for
declaratory relief based on invalidity or unenforceability of the asserted patent. On February&nbsp;2, 2006, the Court entered judgment in favor of Starent. On March&nbsp;2, 2006, UTStarcom filed
a notice of appeal. The case is currently pending at the Federal Circuit. The parties have agreed to participate in the Feral Circuit's mediation program. Management believes that the mediation and/or
the appeal will be successful. Nevertheless, the Company has indicated that it believes that an adverse judgment will not have a material adverse effect on the business, financial condition, or
results of the Company's operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;16, 2005, the Company filed a second suit against Starent for patent infringement in the U.S. District Court for the Northern District of California. On May&nbsp;6,
2005, the Company served the Complaint on Starent. In the Complaint, the Company asserts that Starent infringes a UTStarcom patent through Starent's development and testing of a software upgrade for
its customer's installed ST-16 Intelligent Mobile Gateways. The Company seeks, inter alia, declaratory and injunctive relief. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Starent
filed its answer and counterclaims on May&nbsp;31, 2005, denying the Company's allegations and seeking a declaration that the patent-in-suit is not
infringed, is invalid, and is unenforceable. On June&nbsp;16, 2005, the Company filed a motion to strike Starent's affirmative defense and dismiss Starent's counterclaim alleging inequitable
conduct. Pursuant to the parties' stipulation, the Company withdrew its motion to strike and, on July&nbsp;27, 2005, Starent filed an amended answer and counterclaims, which pleaded its inequitable
conduct allegations with more specificity. UTStarcom filed its answer to the amended counterclaims on August&nbsp;10, 2005. The litigation is in the preliminary stage and its outcome cannot be
predicted. However, management believes that its claims are meritorious. Nevertheless, the Company has indicated that it believes that any adverse judgment on Starent's counterclaims will not have a
material adverse effect on the business, financial condition, or results of the Company's operations. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>29</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2><A
NAME="page_do1172_1_30"> </A> </FONT> <FONT SIZE=2><I>Fenner Investments Patent Infringement Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;6, 2005, Fenner Investments,&nbsp;Ltd. ("Fenner") filed suit against the Company and co-defendants Juniper Networks,&nbsp;Inc.,
Nokia,&nbsp;Inc., Nortel Networks Corp., Lucent Technologies,&nbsp;Inc., and Cisco Systems,&nbsp;Inc. in the U.S. District Court for the Eastern District of Texas. On May&nbsp;17, 2005, Fenner
amended its complaint to add as defendants Ericsson&nbsp;Inc., Ericsson AB, Telefonaktiebolaget LM Ericsson, and Alcatel USA&nbsp;Inc. The suit alleged that certain products infringe two Fenner
patents, U.S. Patent Nos. 5,561,706 and 6,819,670, for which Fenner sought compensatory and injunctive relief. On March&nbsp;20, 2006, the Company agreed to settle Fenner's claims against it. As
part of this settlement, Fenner agreed to dismiss with prejudice its claims against the Company. On April&nbsp;27, 2006, the court ordered the dismissal with prejudice of Fenner's claims against the
Company as a result of the settlement. </FONT></P>

<P><FONT SIZE=2><I>Telos Technology,&nbsp;Inc. Arbitration  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;22, 2005, Telos Technology,&nbsp;Inc. ("Telos") filed a formal Demand for Arbitration against the Company with JAMS/Endispute in San Jose,
California. The Demand for Arbitration seeks the release of $2.4&nbsp;million from an escrow fund. Pursuant to the terms of an Asset Purchase Agreement dated April&nbsp;21, 2004 and an Escrow
Agreement dated May&nbsp;19, 2004 between the parties, the escrow fund was created to indemnify the Company from certain losses associated with the Company's purchase of assets from Telos. Telos
asserts that the Company's refusal to release the escrowed funds constitutes a breach of its contractual obligations under the agreements. Telos also seeks attorneys' fees, costs and prejudgment
interest in the amount of $500,000. In its response to the Demand for Arbitration, the Company denied that it had breached its contractual obligations. In January&nbsp;2006, Telos moved for summary
judgment on its claim and the Company opposed the motion. On March&nbsp;6, 2006, the Arbitrator issued a ruling denying Telos' motion. In light of the ruling on summary judgment, Telos dismissed its
claim for arbitration without prejudice, subject to its contractual right to dispute any future disbursement from escrow. </FONT></P>

<P><FONT SIZE=2><I>Telos Technology,&nbsp;Inc. Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;22, 2005, plaintiffs Telos Technology,&nbsp;Inc., Telos Technology (Canada),&nbsp;Inc., Telos Technology (Bermuda)&nbsp;Ltd., and Telos
Engineering Limited (collectively, the "Telos Plaintiffs") filed a
Complaint against the Company in the Superior Court of California, County of Santa Clara. The Complaint alleges five causes of action, including breach of contract, breach of the implied covenant of
good faith and fair dealing, fraudulent inducement, intentional misrepresentation and negligent misrepresentation, all of which arise from the Asset Purchase Agreement between the parties dated
April&nbsp;21, 2004. The Telos Plaintiffs assert that the Company breached the express and implied terms of the Asset Purchase Agreement and made representations to the Telos Plaintiffs during
negotiations that it never intended to fulfill. The Telos Plaintiffs seek at least $19&nbsp;million in damages, unspecified punitive damages and attorneys' fees. On December&nbsp;28, 2005, the
Telos Plaintiffs filed a First Amended Complaint, alleging substantially the same facts and seeking the same relief. On January&nbsp;26, 2006, the Company filed a demurrer with respect Telos' three
tort causes of action. On March&nbsp;23, 2006, the Court sustained the Company's demurrer to all three tort causes of action and allowed Telos thirty days to amend its complaint. On April&nbsp;12,
2006, Telos filed a Second Amended Complaint, alleging substantially the same facts and seeking the same relief as in the First Amended Complaint. The Company has answered the Second Amended
Complaint, denying all of the material allegations therein. Discovery is underway, and no trial date has been set. </FONT></P>

<P><FONT SIZE=2><I>Cell Communication&nbsp;Ltd. Arbitration  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;27, 2005, the Company received notice of a demand for arbitration filed against it by Cell Communication&nbsp;Ltd. of Nigeria. The demand was
filed in the London Court of International </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>30</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>

<!-- ZEQ.=1,SEQ=31,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=1009978,FOLIO='30',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_31"> </A>
<BR>

<P><FONT SIZE=2>Arbitration
("LCIA"). In its Amended Claim, Cell Communication claims </FONT><FONT SIZE=2><B>'</B></FONT><FONT SIZE=2>general' damages of $26.6&nbsp;million and </FONT> <FONT SIZE=2><B>'</B></FONT><FONT SIZE=2>special' damages of $15&nbsp;million (alternatively
$41&nbsp;million general damages) in connection with alleged failures of products purchased
from Telos Technology, whose assets have been acquired by the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
arbitrator has been selected by the LCIA. The arbitrator has ordered the determination of certain preliminary issues as to whether the claims made by Cell Communication are
irrecoverable as a matter of English law. There was a hearing on May&nbsp;26, 2006 in respect of these preliminary issues. On June&nbsp;13, 2006, the arbitrator issued a partial award in which he
addressed several issues. Among them, the arbitrator adopted the Company's position that liability in this matter is limited to the amount of the purchase price paid by Cell Communications. No date
for the substantive hearing has been scheduled. The Company intends to deny all liability, and believes it has meritorious defenses. </FONT></P>

<P><FONT SIZE=2><I>Other  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is a party to other litigation matters and claims that are normal in the course of operations, and while the results of such litigation matters and
claims cannot be predicted with
certainty, the Company believes that the final outcome of such matters will not have a material adverse impact on its financial position or results of operations. </FONT></P>

<P><FONT SIZE=2><B>17.&nbsp;&nbsp;&nbsp;SEGMENT REPORTING:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has organized its business into five operating units, (i)&nbsp;Broadband Infrastructure, (ii)&nbsp;Wireless Infrastructure, (iii)&nbsp;Handsets,
(iv)&nbsp;Personal Communications Division ("PCD"), and (v)&nbsp;Service. Each operating unit represents its own reporting segment and each operating unit is responsible for its own worldwide
production and sales management. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
July&nbsp;1, 2006, the Company intends to combine the Broadband Infrastructure and the Wireless Infrastructure segments into a newly created Network Solutions segment, as
that is the basis on which management will manage the business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company currently evaluates operating performance of and allocates resources to the reporting segments based on segment gross profit. Cost of sales and direct expenses in relation to
productions are assigned to the reporting segments. Corporate headquarters expenses and non-operating items are not allocated to the segments. The accounting policies used in measuring
segment assets and operating performance are the same as those used by corporate and are consistently applied across all segments. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>31</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=32,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=730752,FOLIO='31',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_32"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized
below are the Company's segment sales revenue and gross profit for the three months ended March&nbsp;31, 2006 and 2005, respectively. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="88%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B><I>Sales by Segment</I></B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Broadband Infrastructure</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>57,156</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>326,307</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>36</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Wireless Infrastructure</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>100,433</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>17</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>109,437</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>PCD</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>322,995</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>315,552</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>35</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Handsets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>99,019</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>128,083</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>14</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Service</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>16,968</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>22,505</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>596,571</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>901,884</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="91%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Gross<BR>
Profit %</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Gross<BR>
Profit %</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B><I>Gross profit by Segment</I></B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="48%"><FONT SIZE=2>Broadband Infrastructure</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>22,957</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>164,057</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="48%"><FONT SIZE=2>Wireless Infrastructure</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>49,517</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>49</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>29,670</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>27</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="48%"><FONT SIZE=2>PCD</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>14,434</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>13,692</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="48%"><FONT SIZE=2>Handsets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>31,599</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>32</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>14,539</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="48%"><FONT SIZE=2>Service</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>3,947</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>23</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>15,466</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>69</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>122,454</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>21</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>237,424</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>26</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assets
by segment are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B><I>Long-lived assets</I></B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%"><FONT SIZE=2>Broadband Infrastructure</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>44,967</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>47,480</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%"><FONT SIZE=2>Wireless Infrastructure</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>83,032</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>87,673</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%"><FONT SIZE=2>PCD</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,387</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,512</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%"><FONT SIZE=2>Handsets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>45,424</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>47,963</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%"><FONT SIZE=2>Service</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>46,193</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>48,775</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>221,003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>233,403</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B><I>Total assets</I></B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%"><FONT SIZE=2>Broadband Infrastructure</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>487,624</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>471,783</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%"><FONT SIZE=2>Wireless Infrastructure</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>840,036</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>831,944</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%"><FONT SIZE=2>PCD</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>405,404</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>420,191</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%"><FONT SIZE=2>Handsets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>552,097</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>546,788</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%"><FONT SIZE=2>Service</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>90,355</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>95,346</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,375,516</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>2,366,052</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>32</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=33,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=232106,FOLIO='32',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_33"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales
are attributed to a geographical area based upon the location of the customer. Sales data by geographical areas are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="91%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>% of net<BR>
sales</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>% of net<BR>
sales</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%"><FONT SIZE=2>United States</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>329,730</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>301,776</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>33</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%"><FONT SIZE=2>China</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>194,434</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>33</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>227,209</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>25</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%"><FONT SIZE=2>Japan</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>47,660</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>332,026</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>24,747</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>40,873</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="51%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%"><FONT SIZE=2>Total net sales</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>596,571</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>901,884</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="51%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived
assets, consisting of property, plant and equipment by geographical area are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March 31,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>U.S.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,527</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>16,676</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>China</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>198,751</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>204,630</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,725</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>12,097</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>Total long-lived assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>221,003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>233,403</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>18.&nbsp;&nbsp;&nbsp;RELATED PARTY TRANSACTIONS:  </B></FONT></P>

<P><FONT SIZE=2><I>Softbank  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company recognized revenue of $36.1&nbsp;million and $26.0&nbsp;million during the quarters ended March&nbsp;31, 2006 and 2005, respectively, with
respect to sales of telecommunications equipment to affiliates of SOFTBANK CORP. ("Softbank"), a significant stockholder of the Company. Softbank offers asynchronous digital subscriber line
("ADSL") coverage throughout Japan, which is marketed under the name "YAHOO! BB." The Company supports Softbank's fiber-to-the-home service through
sales of its carrier class Gigabit Ethernet Passive Optical Network ("GEPON") product as well as its multi-service optical transport product ("NetRing&#153;"). In addition, the Company supports
Softbank's new internet protocol television ("IPTV"), through sales of its RollingStream&#153; product. Included in revenue for the three months ended March&nbsp;31, 2006 is a fee of
$17.0&nbsp;million charged for the cancellation of orders for broadband products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included
in accounts receivable at March&nbsp;31, 2006 and December&nbsp;31, 2005 were $86.8&nbsp;million and $69.3&nbsp;million, respectively, related to these agreements. Sales
to Softbank include a three year service period and a penalty clause if product failure rates exceed a certain level over a seven year period. There were $13.1&nbsp;million and $16.3&nbsp;million
included in long term deferred revenue with respect to these agreements at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively. Additionally, there were $8.7&nbsp;million and
$6.3&nbsp;million included in current deferred revenue at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively. As of March&nbsp;31, 2006 and December&nbsp;31, 2005, there were
$5.4&nbsp;million and $5.4&nbsp;million, respectively, included in customer advance related to Softbank agreements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
August&nbsp;2004, the Company entered into several agreements with Japan Telecom Co.,&nbsp;Ltd ("JT"), a wholly owned subsidiary of Softbank. These agreements relate to the
sale of </FONT><FONT SIZE=2><I>i</I></FONT><FONT SIZE=2>AN-8000 equipment with specified value and delivery dates, as well as an oral agreement which subsequently converted into specific
service contracts to manage a sales promotional program for JT. The Company </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>33</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=34,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=91315,FOLIO='33',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_34"> </A>
<BR>

<P><FONT SIZE=2>has
determined that the service activities revenue should be recorded net of expected promotional spending. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
the Company had not provided these activities in the past and could not estimate the fair value of these services, the Company determined under the guidance of SAB 104 that all
revenue related to these agreements could not be recognized until all goods and services were delivered. The Company had delivered and received final acceptance for all equipment contemplated under
these agreements in the quarter ended March&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
promotional services discussed above involved contracting with third party promotional vendors, who in turn, facilitated the marketing and subscriber recruitment for the JT
fiber-to-the-home program. During the fourth quarter of 2004, the Company determined that it would end its involvement with the JT promotional program after
completion of the contract discussed above. Accordingly, late in the fourth quarter of 2004 and during the first quarter of 2005, the Company either cancelled or assigned to another party all third
party contracts with promotional vendors related to the JT contract. Such termination or assignment of all third party promotional agreements, as well as effective satisfaction of the Company's
obligations with JT under such agreements, satisfied the revenue recognition criteria for these agreements and as such, the net value of the promotional services and the value of equipment delivered,
which totaled $205.4&nbsp;million, was reported in the quarter ended March&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company also entered into an agreement with JT during the third quarter of 2004 to supply chassis equipment. The equipment shipped under this agreement is considered linked to the </FONT> <FONT SIZE=2><I>i</I></FONT><FONT SIZE=2>AN-8000 sale noted
above and as such, was also deferred until the completion of the above-mentioned promotional activities. The revenue
recognition criteria related to the sale of the </FONT><FONT SIZE=2><I>i</I></FONT><FONT SIZE=2>AN-8000 equipment was satisfied in the first quarter of 2005 and as such, the revenue
related to the chassis sale of $66.5&nbsp;million was reported in the quarter ended March&nbsp;31, 2005. During the three months ended March&nbsp;31, 2006 and 2005, sales to Softbank included
$0.5 and $271.9&nbsp;million, respectively, with regards to telecommunications equipment and services sold to JT. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;17, 2003, the Company entered into a Mezzanine Loan Agreement with BB Modem Rental PLC ("BB Modem"), an affiliate of SOFTBANK CORP. Under the terms of the agreement, the
Company loaned BB Modem $10.1&nbsp;million at an effective interest rate of 12.01% per annum, for the purpose of investing in a portfolio of ADSL modems and associated modem rental agreements, from
Softbank. Softbank will continue to service such modems and modem rental agreements. The Company's loan is subordinated to certain senior lenders of BB Modem, and repayments are payable to the Company
over a 42-month period through January&nbsp;31, 2007, with a substantial portion of the principal amount of the loan schedule to be repaid during the last 16&nbsp;months of this
period. The Company's recourse for nonpayment of the loan is limited to the assets of BB Modem, the account into which subscriber payments are made and its rights under the securitization transaction
documents. The value of BB Modem's modems that serve as collateral for the loan may decrease over time and may not be sufficient upon sale to pay the outstanding amounts on the loans. The Company
assesses the loan for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company periodically reviews the underlying quality of the
asset pool securing the loan to assess whether impairment has incurred and needs to be recorded. During the three months ended March&nbsp;31, 2006 and 2005, the Company recorded $0.2&nbsp;million
and $0.3&nbsp;million, respectively, in interest income in respect to this loan. The loan receivable at March&nbsp;31, 2006 and December&nbsp;31, 2005 was approximately $7.1&nbsp;million and
$9.0&nbsp;million, respectively and is included in other current assets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March&nbsp;31, 2006, Softbank beneficially owned approximately 12.1% of the Company's outstanding stock. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>34</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=35,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=2402,FOLIO='34',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_35"> </A>

<P><FONT SIZE=2><I>Acoustek Int'l Corp.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company obtains consulting services from Acoustek Int'l Corp. ("Acoustek"), which employs an individual related to one of the Company's officers. The Company
paid to Acoustek $0.1&nbsp;million during each of the three months ended March&nbsp;31, 2006 and 2005 for consulting services. </FONT></P>

<P><FONT SIZE=2><I>Cellon  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2002, the Company entered into a license and a royalty agreement with Cellon International Holding Corporation ("Cellon") in which the Company
has an ownership interest. The Company paid $0.8&nbsp;million to license certain technology for the development of certain handset products in China. Per the terms of the royalty agreement, the
Company is required to pay Cellon $3 per unit shipped for a minimum of 0.1&nbsp;million units. This agreement is not material to the overall financial results of Cellon. The Company has evaluated
its relationship with Cellon under FIN 46, and determined that consolidation is not necessary. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November&nbsp;2005, the Company entered into an agreement with Cellon, which was completed on May&nbsp;31, 2006. In exchange for preferred stock and warrants of Cellon, the
Company transferred fixed assets with a net book value of $3.0&nbsp;million, a lease and a workforce in place consisting of 156 engineers. Additionally, the Company prepaid $5.0&nbsp;million in
exchange for future product development. Cellon will pay the Company a royalty if certain technology shared by it to Cellon is used in products developed and sold through November&nbsp;2007. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March&nbsp;31, 2006 the Company had an accounts payable balance of $0.5&nbsp;million. </FONT></P>

<P><FONT SIZE=2><I>Fiberxon  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has an outstanding purchase commitment with Fiberxon, in which the Company has a 7% ownership interest, to purchase component parts for optical
networking products. Purchases from Fiberxon totaled $1.5&nbsp;million and $5.0&nbsp;million during the three months ended March&nbsp;31, 2006 and 2005, respectively. The Company had
$0.2&nbsp;million and $0.3&nbsp;million in accounts payable to Fiberxon at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively, along with payments for the period ended
March&nbsp;31, 2006 of $0.1&nbsp;million. </FONT></P>

<P><FONT SIZE=2><I>Immenstar  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has an outstanding purchase commitment with Immenstar, in which the Company owns Series&nbsp;A preferred stock, to purchase component parts.
Purchases from Immenstar totaled $2.0&nbsp;million during the three months ended March&nbsp;31, 2006, and payments to Immenstar totaled $0.9 during the three months ended March&nbsp;31, 2006. </FONT></P>


<P><FONT SIZE=2><I>Matsushita Joint Venture  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2002, the Company entered into a joint venture agreement with Matsushita Communication Industrial Co.,&nbsp;Ltd. to jointly design and develop,
manufacture and sell telecommunication products. The Company has a 49% ownership interest in the joint venture company. As of March&nbsp;31, 2006 and December&nbsp;31, 2005, the Company had a
receivable of $0.4&nbsp;million and $0.1&nbsp;million, respectively, and an account payable of $0.6&nbsp;million at March&nbsp;31, 2006. In December&nbsp;2005, the partners agreed to
dissolve the joint venture. </FONT></P>

<P><FONT SIZE=2><I>Global Asia Partners L.P.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Global Asia Partners L.P. is a venture capital fund formed to make private equity investments in private or pre-IPO technology and telecommunications
companies in Asia. The general partner of this fund is also a sales agent of the Company. Between June&nbsp;2002 and April&nbsp;2005, the Company has </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>35</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=36,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=233558,FOLIO='35',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_36"> </A>
<BR>

<P><FONT SIZE=2>invested
a total of $2.6&nbsp;million in the fund. As of March&nbsp;31, 2006 and December&nbsp;31, 2005, we have 49% of the outstanding partnership units. </FONT></P>


<P><FONT SIZE=2><I>Org,&nbsp;Inc.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a 49% ownership in Global Asia Partners L.P. which in turn is a significant shareholder in Org,&nbsp;Inc. During the three months ended
March&nbsp;31, 2006, the Company had sales of $0.1&nbsp;million to Org,&nbsp;Inc. As of March&nbsp;31, 2006 and December&nbsp;31, 2005, the Company had a receivable of $0.1&nbsp;million
and $0.2&nbsp;million, respectively and deferred revenue of $0.1&nbsp;million as of December&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2><I>Spacetime  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January, 2005 the Company formed a joint venture with two other parties to provide mobile communication, broadband and IP related value added services in
Mongolia. The operations of the joint venture are consolidated into the financial statements of the Company. In the first quarter of 2006, the Company decided to terminate the joint venture
arrangement and wrote off the remaining net assets, of approximately $4.7&nbsp;million. (See Note&nbsp;24) As of March&nbsp;31, 2006 and December&nbsp;31, 2005, the Company has
$0.3&nbsp;million included in related party receivables and $0.3&nbsp;million in long term debt related to one of the joint venture partners, Spacetime Golden Communication Technology
USA,&nbsp;Inc. </FONT></P>

<P><FONT SIZE=2>Xalted Networks </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has received purchase orders from Xalted Networks totaling approximately $1.3&nbsp;million in 2005 for telecommunications equipment that is for product not typically sold
by the Company to other customers. The Company is charging a ten percent procurement fee to Xalted for obtaining and
reselling these products. The equipment was delivered during 2005 but revenue has not been recognized as the revenue recognition process had not been completed. The equipment cost is included in
inventory as of March&nbsp;31, 2006 and December&nbsp;31, 2005. In March&nbsp;2006, the Company invested an additional $0.3&nbsp;million in Xalted Networks. </FONT></P>

<P><FONT SIZE=2><B>19.&nbsp;&nbsp;&nbsp;RESTRUCTURING COSTS:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005 the Company incurred $35.4&nbsp;million in expenses in relation to the restructuring plan actions, primarily consisting of
(i)&nbsp;$15.3&nbsp;million related to severance payments (ii)&nbsp;$14.5&nbsp;million in asset impairments primarily related to the write-off of equipment and licenses associated
with discontinued products, which are included in operating expenses and (iii)&nbsp;$5.6&nbsp;million in inventory write-down associated with discontinued products. Included in
severance is a $1.8&nbsp;million non-cash reversal of a housing allowance accrual in China. As of March&nbsp;31, 2006, approximately 1,595 employees had been terminated or placed in
the workforce reduction programs. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>36</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=37,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=527305,FOLIO='36',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_37"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
summary of the restructuring accrual related to the 2005 charge during the three months ended March&nbsp;31, 2006, is as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="96%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2005<BR>
Balance</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Cash<BR>
payment</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Non-cash<BR>
settlement</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>March 31,<BR>
2006<BR>
Balance</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>Broadband</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Severance payments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(50</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Handsets</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Severance payments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>29</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(29</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Asset impairment/exit cost</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>350</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>350</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Corporate</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Severance payments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>207</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(207</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Asset impairment/exit cost</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>579</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(92</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>487</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Summary Totals</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Severance payments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>286</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(286</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Asset impairment/exit cost</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>929</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(92</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>837</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,215</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(286</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(92</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>837</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>20.&nbsp;&nbsp;&nbsp;OTHER INCOME AND EXPENSES:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net other income or expense was an income of $3.6&nbsp;million and an expense of $6.8&nbsp;million for the three months ended March&nbsp;31, 2006 and 2005,
respectively. The balances were comprised of the following: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months<BR>
ended<BR>
March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in millions)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Foreign exchange gains (losses)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2.8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(7.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Japan consumption tax refund</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Chinese government financial subsidy</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(6.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>37</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=8,SEQ=38,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=86879,FOLIO='37',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_38"> </A>

<P><FONT SIZE=2><B>21.&nbsp;&nbsp;&nbsp;CREDIT RISK AND CONCENTRATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below outlines the Company's sales to, and the accounts receivable balances from its largest customers: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>For the three<BR>
months ended<BR>
March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>% of Net<BR>
sales</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>% of<BR>
Accounts<BR>
receivable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%"><FONT SIZE=2><B>2006</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%"><FONT SIZE=2>Customer A</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%"><FONT SIZE=2>Customer B</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%"><BR><FONT SIZE=2><B>2005</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%"><FONT SIZE=2>Customer C</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>33</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>18</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately
33% and 25% of the Company's net sales during the three months ended March&nbsp;31, 2006 and 2005, respectively, were to entities affiliated with the government of China.
Accounts receivable balances from these China government affiliated entities or state owned enterprises were $252.1&nbsp;million and $268.8&nbsp;million, respectively, as of March&nbsp;31, 2006
and December&nbsp;31, 2005. The Company extends credit to its customers in China generally without requiring collateral. In global sales outside of China, the Company often requires letters of
credit from its customers. The Company monitors its exposure for credit losses and maintains allowances for doubtful accounts. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately
33% and 25% of the Company's sales for the three months ended March&nbsp;31, 2006 and 2005, respectively, were made in China. Accordingly, the political, economic and
legal environment, as well as the general state of China's economy may influence the Company's business, financial condition and results of operations. The Company's operations in China are subject to
special considerations and significant risks not typically associated with companies in the United States. These include risks associated with, among others, the political, economic and legal
environments and foreign currency exchange. The Company's results may be adversely affected by, among other things, changes in the political, economic and social conditions in China, and by changes in
governmental policies with respect to laws and regulations, changes in China's telecommunications industry and regulatory rules and policies, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately
8% and 37% of the Company's sales for the three months ended March&nbsp;31, 2006 and 2005, respectively, were made in Japan. Accordingly, the political, economic and
legal environment and the general state of Japan's economy may influence the Company's business, financial condition and results of operations. </FONT></P>


<P><FONT SIZE=2><B>22.&nbsp;&nbsp;&nbsp;INCOME TAX ASSETS AND LIABILITIES:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In establishing its deferred income tax assets and liabilities, the Company makes judgments and interpretations based on the enacted tax laws and published tax
guidance applicable to its operations as well as the amount and jurisdiction of future taxable income. The Company records deferred tax assets and liabilities and evaluates the need for valuation
allowances to reduce the deferred tax assets to realizable amounts. We expect to maintain a full valuation allowance on our net deferred tax assets in China, the United States, and other countries
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. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>38</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=9,SEQ=39,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=16223,FOLIO='38',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_39"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax expense for the three months ended March&nbsp;31, 2006 was $2.8&nbsp;million and $7.7&nbsp;million for the three months ended March&nbsp;31, 2005. The Company's 2006
annual effective tax rate is estimated to be negative 14%. There are two primary reasons for the negative 14% effective tax rate. First, the Company has not provided any tax benefit on the forecasted
current year losses incurred and tax credits generated in the United States and other countries, because management believes that it is more likely than not that the tax benefit associated with these
losses will not be realized. Also, the Company continues to accrue tax expense in jurisdictions where the Company has been historically profitable. Estimates of the annual effective tax rate at the
end of the interim periods are based on evaluations of possible future events and transactions and may be subject to subsequent refinement or revision. </FONT></P>

<P><FONT SIZE=2><B>23.&nbsp;&nbsp;&nbsp;RECENT ACCOUNTING PRONOUNCEMENTS:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB issued FASB Statement No.&nbsp;154, "Accounting Changes&nbsp;&amp; Error Corrections," ("SFAS&nbsp;154"). The statement applies to
all voluntary changes in accounting principle and changes the requirements for the accounting for and reporting of, a change in accounting principle. SFAS&nbsp;154 requires retrospective application
to prior period's financial statements unless this would impracticable. Also, if an entity changes it method of depreciation, amortization, or depletion for
long-lived, non-financial assets, the change must be accounted for as a change in accounting estimate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company adopted this standard in the quarter ended March&nbsp;31, 2006. The adoption will only impact the financial statements in periods in which a change in accounting principle
is made. </FONT></P>

<P><FONT SIZE=2><B>24.&nbsp;&nbsp;&nbsp;VARIABLE INTEREST ENTITY:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Financial Accounting Standards Board ("FASB") issued FASB Interpretation No.&nbsp;46, ("FIN 46"). FIN 46 requires that if an entity is the primary
beneficiary of a variable interest entity, ("VIE"), the assets, liabilities, and results of operations of the VIE should be included in the consolidated financial statements of the entity. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the fourth quarter of 2005, the Company provided an interest free, $12.4&nbsp;million loan to a party in China as seed capital for a venture organized to participate in
providing technical service, networking technology, and equipment to the emerging market for IPTV products in China. The loan is partially secured by an indirect ownership interest in the venture, is
payable in 10&nbsp;years and may be called early without penalty. As a result of the foregoing, and the fact that the venture's continuing viability is heavily dependent on the further provision of
network and terminal equipment by the Company, the Company has determined that the venture is a VIE and that the Company is the primary beneficiary of the venture. Therefore, this venture is
consolidated into the Company's results as of March&nbsp;31, 2006. This VIE had no revenue during the three months ended March&nbsp;31, 2006, and had net losses of $0.7&nbsp;million during the
three months ended March&nbsp;31, 2006. The consolidation of this VIE represented $18.3&nbsp;million and $18.9&nbsp;million of the total assets of the Company as of March&nbsp;31, 2006 and
December&nbsp;31, 2005. The creditors of this VIE have no recourse to the Company. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the first quarter of 2005, the Company invested in an additional entity, which is considered a VIE where the Company is the primary beneficiary and does not hold a majority voting
interest. The company was established to install, develop and operate a PAS network in Mongolia. The creditors of this VIE have no recourse to the Company. In December&nbsp;2005, the U.S. Embassy in
Mongolia informed the Company that it had forwarded to the Department of Justice allegations that an agent of the joint venture had offered payments to a Mongolian government official, in possible
violation of the Foreign Corrupt Practices Act. The Audit Committee authorized an independent investigation into the matter. As a result of the investigation, the Company wrote off $1.2&nbsp;million
of intangibles and established a $2.6&nbsp;million VAT liability at December&nbsp;31, 2005. The investigation is still ongoing. The consolidation of this entity resulted in a $6.0&nbsp;million
increase in both total assets and total liabilities </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>39</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=10,SEQ=40,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=757518,FOLIO='39',FILE='DISK132:[06PAL2.06PAL1172]DO1172A.;14',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_do1172_1_40"> </A>
<BR>

<P><FONT SIZE=2>and
equity as of December&nbsp;31, 2005. In the first quarter of 2006, the Company decided to terminate the joint venture arrangement and wrote off the remaining net assets, of approximately
$4.7&nbsp;million. </FONT></P>

<P><FONT SIZE=2><B>25.&nbsp;&nbsp;&nbsp;SUBSEQUENT EVENTS:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;16, 2006, the Company filed a current report on Form&nbsp;8-K with the Securities and Exchange Commission disclosing that the
Company would delay the filing of its Annual Report on Form&nbsp;10-K for the year ended December&nbsp;31, 2005(the "2005 Form&nbsp;10-K"). The delay resulted in a
technical default of the Company's 7 / 8% Convertible Subordinated Notes due 2008 (the "Notes"). The Company received notice from the trustee for the Notes asserting that if the Company failed to file
the 2005 Form&nbsp;10-K on or before June&nbsp;2, 2006, such failure would constitute an event of default pursuant to the indenture for the Notes. If an event of default were to occur
and be continuing, the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding could declare all unpaid principal and accrued interest on the Notes then
outstanding to be immediately due and payable. This technical default was cured prior to June&nbsp;2, 2006 upon filing of the 2005 Form&nbsp;10-K. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May&nbsp;5, 2006, Hong Liang Lu notified the Company of his resignation as the Company's President, Chief Executive Officer and Chairman of the Board, effective December&nbsp;31,
2006. Ying Wu, Chief Executive Officer of the Company's China operations and Vice Chairman of the Board, will assume the position of Chief Executive Officer effective January&nbsp;1, 2007. Thomas
Toy, currently an independent director of the Company, will assume the position of Chairman of the Board effective January&nbsp;1, 2007. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>40</FONT></P>

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<BR></FONT><FONT SIZE=2><B>ITEM 2&#151;MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>FORWARD-LOOKING STATEMENTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Report on Form&nbsp;10-Q contains forward-looking statements within the meaning of the federal securities laws. These statements are based on
information that is currently available to management. We intend such forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995,
and we are including this statement for purposes of complying with those provisions. The forward-looking statements include, without limitation, those concerning the following: our expectations as to
the nature of possible trends; our expectations regarding continued growth in our business and operations; our expectations regarding fluctuations in our overall sales, gross profit, product mix,
quarterly and annual operating results, customer base and selling prices; our plans regarding payment of cash dividends; our expectations regarding recognition of certain compensation costs; our
expectations regarding receipt of funds associated with the Marvell transaction; our plans regarding legal proceedings; our expectations regarding the effect of legal proceedings; our plans regarding
the combination of the Broadband Infrastructure and Wireless Infrastructure segments; our expectations regarding the functionality, performance and features of our products; our expectation regarding
Softbank's continued service of certain modems and modem rental agreements; our expectations regarding the vacancy of the offices of Chief Executive Officer and Chairman of the Board and planned
replacements thereto; our expectations regarding the importance of investment in research and development; our expectation regarding our ability to maintain a full valuation allowance of our net
deferred tax assets; our plans and expectations regarding relationships with vendors and suppliers, including Marvell and Cellon; our expectations regarding the future source and costs of integrated
circuits; our plans regarding the use of financial instruments to hedge against certain foreign currency exchange rate risks; our plans regarding the use of derivative financial instruments for
speculative trading purposes; our plans regarding the discounting of certain bank notes and commercial notes; our expectations regarding our ability to raise funds; our plan regarding the sale of
accounts receivable to Citibank, N.A.; our expectations regarding our right to intellectual property embedded in our products; our expectations regarding the effect of market risks on our operating
results; our plans to implement measures to remediate material weaknesses; our expectations regarding the effectiveness of remediation measures; our plans to continue to review internal controls; our
expectations regarding competition and the competitive advantages of our competitors; our expectations regarding consolidation of the telecommunications industry; our expectations regarding the
development and introduction of new products; our plans and expectations regarding growth management; our plans to reinvest cost savings derived from employee terminations; our expectations regarding
the importance of hiring and retaining of key personnel and qualified employees; our expectation regarding the adoption of environmental, health and safety laws by countries world-wide;
our expectations regarding the effect of the Sarbanes-Oxley Act on our corporate governance and disclosure practices; our expectation regarding the expenses associated with compliance with the
Sarbanes-Oxley Act; our expectations regarding the maturation of the PAS market and corresponding decrease in PAS subscriber growth; our expectations regarding our annual effective tax rate; our
expectations regarding the sufficiency of credit facilities, short-term investments, lines of credit, cash and cash equivalents to meet our operating needs for the foreseeable future; our
expectations regarding our ability to receive licenses for our products; our expectation that our business, financial condition and results of operations will continue to be significantly influenced
by the political, economic, legal and social environment in China and other international markets, including Japan; our expectations regarding the nature of political, economic and legal reform in
China; our expectations regarding the continued importance of the Chinese market for our technologies and development; our expectations regarding subscriber growth; our expectations regarding global
expansion of sales outside of China; our plans regarding improvement of our internal supply chain and inventory management processes; our expectations regarding the reliability of stock-based
compensation valuation models; our expectations </FONT></P>

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<P><FONT SIZE=2>regarding
the importance of sales in China to our operating results; and our expectations regarding our ability to implement and enhance our administrative infrastructure. Additional forward-looking
statements may be identified by the words "anticipate," "expect," "believe," "intend," "will," and similar expressions, as they relate to us or our management, or by the words "designed," "intended"
and similar expressions, as they relate to our products and services. Investors are cautioned that these forward-looking statements are inherently uncertain. These statements are subject to risks and
uncertainties that may cause actual results and events to differ materially. For a detailed discussion of these risks and uncertainties, see the "Factors Affecting Future Operating Results" section of
this Form&nbsp;10-Q. We do not guarantee future results and undertake no obligation to update the forward-looking statements to reflect events or circumstances occurring after the date
of this Form&nbsp;10-Q. </FONT></P>

<P><FONT SIZE=2><B>RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2005, we discovered two previously unknown side letter agreements that were provided to a customer in India. The side letter agreements
obligated us to deliver a variety of software bug fixes, features, updates and upgrades for no additional consideration, and, contrary to our policy, these side letter agreements were withheld from
our financial management and the Company's independent registered public accounting firm. As a result, neither management nor our independent registered public accounting firm were able to properly
evaluate their effect on the recognition of revenue under contracts with this customer. The discovery of these side letter agreements prompted an investigation by independent legal counsel that was
ordered by and under the direction of the Audit Committee of the Company's Board of Directors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of the independent review conducted for the Audit Committee of the Board of Directors, we identified accounting errors that impacted certain of our previously issued
financial statements. We have determined that our previously issued financial statements and related financial information for the years ended December&nbsp;31, 2004 and 2003, the corresponding
quarterly periods therein, and the first three quarterly periods of 2005 should be restated to correct accounting errors identified in those periods. The restated financial statements include a number
of restatement adjustments, relating to errors in the accounting for revenue, rebate accrual, inventory reserves, and other miscellaneous items. The financial statements for each restated period has
been presented in the 2005 Form&nbsp;10-K. For additional information regarding the restatement adjustments for the three months ended March&nbsp;31, 2005, see Note&nbsp;2,
"Restatement of Financial Statements," of the Notes to the Condensed Consolidated Financial Statements. </FONT></P>


<P><FONT SIZE=2><B>EXECUTIVE SUMMARY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective July&nbsp;1, 2006 the Company intends to combine the Broadband Infrastructure and the Wireless Infrastructure segments into a newly created Network
Solutions segment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
design, manufacture and sell telecommunications infrastructure, handsets and customer premise equipment and provide services associated with their installation, operation, and
maintenance. 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. While historically the vast majority of our sales have been to service providers in China, we have expanded our focus to build a global presence
and currently sell our products in several other established and emerging growth markets, which include North America, Japan, India, Central and Latin America, Europe, the Middle East, Africa and
Southeast and North Asia. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have structured the Company across five key business segments: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Wireless
Infrastructure: Our Wireless Infrastructure segment designs, builds and sells software and hardware products that enable end users, or subscribers, to send and
receive voice and data communication in either a fixed or mobile environment by using wireless devices;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Broadband
Infrastructure: Our Broadband Infrastructure segment designs, builds and sells software and hardware products that enable end users to access
high-speed, cost effective fixed data, voice and media communication;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Personal
Communications Division: Our Personal Communications Division ("PCD") markets, sells and supports handsets other than PAS handsets for markets other than China.
Most of our handset sales in 2005 and 2004 were designed and built by other manufacturers, but we anticipate that during 2006 and beyond future sales will include more products built by our Handsets
segment;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Handsets:
Our Handsets segment designs, builds and sells consumer devices that allow customers to access wireless services. Revenues from worldwide PAS handsets and all
handset revenues within China are included in this segment; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Services:
Our Services segment provides service and support for Wireless Infrastructure and Broadband Infrastructure customers in the areas of planning, deployment,
operations and ongoing maintenance. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
products within each of these categories, excluding services, include multiple hardware and software subsystems that can be offered in various combinations to suit individual carrier
needs. Our system products are based on widely adopted global communications standards and are designed to allow service providers to quickly and cost-efficiently integrate our systems
into their existing networks and deploy our systems in new broadband, IP and wireless network rollouts. Our products are also designed for quick and cost-effective transition to future
network technologies, enabling our customers to make the best use of their existing infrastructure. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
largest market for the three months ended March&nbsp;31, 2006 and the year ended December&nbsp;31, 2005 was the United States of America representing 55% and 46% of sales,
respectively, for the periods. Prior to 2005, the majority of our sales were to service providers in China. This shift in market concentration and revenue is due to the combination of China's
continued slow-down in its economy since the fourth quarter of 2004 and our ability to capture growth opportunities internationally as well as the incremental sales contributed by PCD
subsequent to its acquisition in November&nbsp;2004. During the three months ended March&nbsp;31, 2005, we posted strong sales revenue in Japan principally resulting from the recognition of
revenue previously deferred in relation to certain agreements with Japan Telecom. As a result, for the three months ended March&nbsp;31, 2005 sales to Japan Telecom were 37% of total sales, the
largest concentration for the period. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China
has been one of our largest markets and we believe that it will continue to be an important market for our current and future technologies and development for the foreseeable
future. However, we have also experienced a maturation of our PAS market in China resulting in our need to have a more diversified product and customer base. We also believe sales generated from
China, as a percentage of total sales, may continue to decline as we continue to grow internationally. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
use subscriber growth statistics to gauge future inventory purchasing requirements as well as to forecast our anticipated revenue growth. We expect this subscriber growth to continue
throughout 2005 since China's teledensity rates, or the number of telephones per person in a region, remain low in comparison to that of developed countries. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of competitors for communications access and switching systems and handsets in China has grown in line with China's telecommunications market expansion. This growth has led to </FONT></P>

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<P><FONT SIZE=2>competitive
pricing pressure, causing average selling prices to decrease during the three months ended March&nbsp;31, 2006 relative to those in the comparative period in 2005. Our gross profit as a
percentage of sales in both our wireless infrastructure and handset product lines have improved despite the decline in sales prices as a result of improved product cost management. We expect gross
profit as a percentage of sales to decline during the remainder of the year as cost reduction measures will not keep pace with price reductions. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
strive to develop products with more advanced features and to enhance the features of our existing products, which we believe will enable us to offer our customers more advanced
products at higher average selling prices than otherwise would be possible in the future. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over
the past few years, we have undertaken a significant globalization program and we intend to continue to expand our global sales outside of China in the current year. As we expand,
we will continue to improve our internal supply chain and inventory management processes to ensure timely deliveries. We will also continue to implement and enhance our administrative infrastructure
to assist with our growth and globalization transformation. </FONT></P>

<P><FONT SIZE=2><B>KEY TRANSACTIONS  </B></FONT></P>

<P><FONT SIZE=2><I>Marvell Technology Group&nbsp;Ltd.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2006, we sold substantially all of the assets and selected liabilities of our semiconductor design business division, including the assets
related to the prior acquisition of Advanced Communications Devices Corporation ("ACD"), to Marvell Technology Group&nbsp;Ltd. ("Marvell"). We received $20.0&nbsp;million in cash in
February&nbsp;2006 and will receive an additional $4.0&nbsp;million in cash in
August&nbsp;2007 currently held in an escrow account in the absence of a material breach of the original contractual terms. We may also receive up to an additional $16.0&nbsp;million from Marvell
if certain defined milestones are achieved before September&nbsp;30, 2006. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the sale of assets, we have entered into a supply agreement with Marvell to purchase chipsets for our handset products over the next five years. The total
consideration received of $24.0&nbsp;million was allocated between the assets sold and the supply agreement, in the amounts of $3 and $21&nbsp;million, respectively. The value allocated to the
supply agreement is included in other current and long-term liabilities, and will be amortized in proportion to the quantities of chipsets purchased under the supply agreement over the
next five years. As of March&nbsp;31, 2006, approximately $0.3&nbsp;million of gain had been recognized. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
considered whether or not the sale of the semiconductor design business constituted a discontinued operation, as defined by Statement of Financial Accounting Standard No.&nbsp;144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS&nbsp;144"). Due to our continuing involvement with the disposed business, as we have committed to purchase product
from Marvell and assist in the development of future products, the requirements for presentation as a discontinued operation have not been met. </FONT></P>

<P><FONT SIZE=2><I>Stock-based Compensation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first quarter of 2006, we adopted the provisions of, and account for stock-based compensation in accordance with, Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards No.&nbsp;123&#151;revised 2004 ("SFAS&nbsp;123R"), "Share-Based Payment." We elected the modified-prospective method, under which prior
periods are not revised for comparative purposes. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of
the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. </FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The determination of the fair value of
stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These
variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected
dividends. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
estimate the expected term of options granted by taking the average of the vesting term and the contractual term of the option. We estimate the volatility of our common stock by using
implied volatility in market traded options in accordance with SAB 107. We base the risk-free interest rate that we use in the option pricing model on U.S. Treasury zero-coupon
issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero
in the option pricing model. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from these estimates. We use
historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All share based payment awards are
amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the future
periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics
not present in our option grants and employee stock purchase plan shares. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the
fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance
to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future. Certain stock-based payments, such as employee stock options,
may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value
may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements. There is currently no
market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the
estimates to actual values. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
guidance in SFAS&nbsp;123R is relatively new. The application of these principles may be subject to further interpretation and refinement over time. There are significant
differences among valuation models, and there is a possibility that we will adopt different valuation models in the future. This may result in a lack of consistency in future periods and materially
affect the fair value estimate of stock-based payments. It may also result in a lack of comparability with other companies that use different models, methods and assumptions. </FONT></P>

<P><FONT SIZE=2><I>Subsequent events:  </I></FONT></P>

<P><FONT SIZE=2>Change in Management </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May&nbsp;5, 2006, Hong Liang Lu notified us of his resignation as our President, Chief Executive Officer and Chairman of the Board, effective December&nbsp;31, 2006. Ying Wu,
Chief Executive Officer of our China operations and Vice Chairman of the Board, will assume the position of Chief Executive </FONT></P>

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<P><FONT SIZE=2>Officer
effective January&nbsp;1, 2007. Thomas Toy, currently an independent director of the Company, will assume the position of Chairman of the Board effective January&nbsp;1, 2007. </FONT></P>

<P><FONT SIZE=2><B>RELATED PARTY TRANSACTIONS:  </B></FONT></P>

<P><FONT SIZE=2><I>Softbank  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognized revenue of $36.1&nbsp;million and $26.0&nbsp;million during the quarters ended March&nbsp;31, 2006 and 2005, respectively, with respect to
sales of telecommunications equipment to affiliates of SOFTBANK CORP. ("Softbank"), a significant stockholder of the Company. Softbank offers asynchronous digital subscriber line
("ADSL") coverage throughout Japan, which is marketed under the name "YAHOO! BB." We support Softbank's fiber-to-the-home service through sales of
our carrier class Gigabit Ethernet Passive Optical Network ("GEPON") product as well as our multi-service optical transport product ("NetRing&#153;"). In addition, we support Softbank's new
internet protocol television ("IPTV"), through sales of our RollingStream&#153; product. Included in revenue for the three months ended March&nbsp;31, 2006 is a fee of $17.0&nbsp;million
charged for the cancellation of orders for broadband products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included
in accounts receivable at March&nbsp;31, 2006 and December&nbsp;31, 2005 were $86.8&nbsp;million and $69.3&nbsp;million, respectively, related to these agreements. Sales
to Softbank include a three year service
period and a penalty clause if product failure rates exceed a certain level over a seven year period. There were $13.1&nbsp;million revenue included and $16.3&nbsp;million included in long term
deferred revenue with respect to these agreements at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively. Additionally, there were $8.7&nbsp;million and $6.3&nbsp;million included in
current deferred revenue at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively. As of March&nbsp;31, 2006 and December&nbsp;31, 2005, there were $5.4&nbsp;million and
$5.4&nbsp;million, respectively, included in customer advance related to Softbank agreements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
August&nbsp;2004, we entered into several agreements with Japan Telecom Co.,&nbsp;Ltd ("JT"), a wholly owned subsidiary of Softbank. These agreements relate to the sale of </FONT> <FONT SIZE=2><I>i</I></FONT><FONT SIZE=2>AN-8000 equipment with
specified value and delivery dates, as well as an oral agreement which subsequently converted into specific service
contracts to manage a sales promotional program for JT. We have determined that the service activities revenue should be recorded net of expected promotional spending. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
we had not provided these activities in the past and could not estimate the fair value of these services, we determined under the guidance of SAB 104 that all revenue related to
these agreements could not be recognized until all goods and services were delivered. We had delivered and received final acceptance for all equipment contemplated under these agreements in the
quarter ended March&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
promotional services discussed above involved contracting with third party promotional vendors, who in turn, facilitated the marketing and subscriber recruitment for the JT
fiber-to-the-home program. During the fourth quarter of 2004, we determined that we would end our involvement with the JT promotional program after completion of
the contract discussed above. Accordingly, late in the fourth quarter of 2004 and during the first quarter of 2005, we either cancelled or assigned to another party all third party contracts with
promotional vendors related to the JT contract. Such termination or assignment of all third party promotional agreements, as well as effective satisfaction of our obligations with JT under such
agreements, satisfied the revenue recognition criteria for these agreements and as such, the net value of the promotional services and the value of equipment delivered, which totaled
$205.4&nbsp;million, was reported in the quarter ended March&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also entered into an agreement with JT during the third quarter of 2004 to supply chassis equipment. The equipment shipped under this agreement is considered linked to the </FONT> <FONT SIZE=2><I>i</I></FONT><FONT SIZE=2>AN-8000 sale noted above and
as such, was also deferred until the completion of the above-mentioned promotional activities. The revenue
recognition criteria related to the sale of the </FONT><FONT SIZE=2><I>i</I></FONT><FONT SIZE=2>AN-8000 equipment was satisfied </FONT></P>

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<P><FONT SIZE=2>in
the first quarter of 2005 and as such, the revenue related to the chassis sale of $66.5&nbsp;million was reported in the quarter ended March&nbsp;31, 2005. During the three months ended
March&nbsp;31, 2006 and 2005, sales to Softbank included $0.5 and $271.9&nbsp;million, respectively, with regards to telecommunications equipment and services sold to JT. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;17, 2003, we entered into a Mezzanine Loan Agreement with BB Modem Rental PLC ("BB Modem"), an affiliate of SOFTBANK CORP. Under the terms of the agreement, we loaned BB
Modem $10.1&nbsp;million at an effective interest rate of 12.01% per annum, for the purpose of investing in a portfolio of ADSL modems and associated modem rental agreements, from Softbank. Softbank
will continue to service such modems and modem rental agreements. Our loan is subordinated to certain senior lenders of BB Modem, and repayments are payable to us over a 42-month period
through January&nbsp;31, 2007, with a substantial portion of the principal amount of the loan schedule to be repaid during the last 16&nbsp;months of this period. Our recourse for nonpayment of
the loan is limited to the assets of BB Modem, the account into which subscriber payments are made and its rights under the securitization transaction documents. The value of BB Modem's modems that
serve as collateral for the loan may decrease over time and may not be sufficient upon sale to pay the outstanding amounts on the loans. We assess the loan for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. We periodically review the underlying quality of the asset pool securing the loan to assess whether impairment has incurred and
needs to be recorded. During the three months ended March&nbsp;31, 2006 and 2005, we recorded $0.2&nbsp;million and $0.3&nbsp;million, respectively, in interest income in respect to this loan.
The loan receivable at March&nbsp;31, 2006 and December&nbsp;31, 2005 was approximately $7.1&nbsp;million and $9.0&nbsp;million, respectively and is included in other long-term
assets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March&nbsp;31, 2006, Softbank beneficially owned approximately 12.1% of our outstanding stock. </FONT></P>

<P><FONT SIZE=2><I>Acoustek Int'l Corp.  </I></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We obtain consulting services from Acoustek Int'l Corp. ("Acoustek"), which employs an individual related to one of our officers. We paid to Acoustek
$0.1&nbsp;million during each of the three months ended March&nbsp;31, 2006 and 2005 for consulting services. </FONT></P>

<P><FONT SIZE=2><I>Cellon  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2002, we entered into a license and a royalty agreement with Cellon International Holding Corporation ("Cellon") in which we have an ownership
interest. We paid $0.8&nbsp;million to license certain technology for the development of certain handset products in China. Per the terms of the royalty agreement, we are required to pay Cellon $3
per unit shipped for a minimum of 0.1&nbsp;million units. This agreement is not material to the overall financial results of Cellon. We have evaluated our relationship with Cellon under FIN 46, and
determined that consolidation is not necessary. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November&nbsp;2005, we entered into an agreement with Cellon, which was completed on May&nbsp;31, 2006. In exchange for preferred stock and warrants of Cellon, we transferred
fixed assets with a net book value
of $3.0&nbsp;million, a lease and a workforce in place consisting of 156 engineers. Additionally, we prepaid $5.0&nbsp;million in exchange for future product development. Cellon will pay us a
royalty if certain technology shared by us to Cellon is used in products developed and sold through November&nbsp;2007. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March&nbsp;31, 2006 we had an accounts payable balance of $0.5&nbsp;million. </FONT></P>

<P><FONT SIZE=2><I>Fiberxon  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have an outstanding purchase commitment with Fiberxon, in which we have a 7% ownership interest, to purchase component parts for optical networking products.
Purchases from Fiberxon totaled </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>47</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_dq1172_1_48"> </A>
<BR>

<P><FONT SIZE=2>$1.5&nbsp;million
and $5.0&nbsp;million during the three months ended March&nbsp;31, 2006 and 2005, respectively and we had $0.2&nbsp;million and $0.3&nbsp;million in accounts payable to
Fiberxon at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively. </FONT></P>

<P><FONT SIZE=2><I>Global Asia Partners L.P.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Global Asia Partners L.P. is a venture capital fund formed to make private equity investments in private or pre-IPO technology and telecommunications
companies in Asia. The general partner of this fund is also one of our sales agents. Between June&nbsp;2002 and April&nbsp;2005, we have invested a total of $2.6&nbsp;million in the fund. As of
March&nbsp;31, 2006 and December&nbsp;31, 2005, we have 49% of the outstanding partnership units. </FONT></P>

<P><FONT SIZE=2><I>Immenstar  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have an outstanding purchase commitment with Immenstar, in which we own Series&nbsp;A preferred stock, to purchase component parts. Purchases from Immenstar
totaled $2.0&nbsp;million during the three months ended March&nbsp;31, 2006, and payments to Immenstar totaled $0.9 during the three months ended March&nbsp;31, 2006. </FONT></P>

<P><FONT SIZE=2><I>Matsushita Joint Venture  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2002, we entered into a joint venture agreement with Matsushita Communication Industrial Co.,&nbsp;Ltd. to jointly design and develop,
manufacture and sell telecommunication products. We have a 49% ownership interest in the joint venture company. As of March&nbsp;31, 2005 and December&nbsp;31, 2005, we had a receivable of
$0.4&nbsp;million and $0.1&nbsp;million, respectively. In December&nbsp;2005, the partners agreed to dissolve the joint venture. </FONT></P>

<P><FONT SIZE=2><I>Org,&nbsp;Inc.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a 49% ownership in Global Asia Partners L.P. which in turn is a significant shareholder in Org,&nbsp;Inc. During the three months ended March&nbsp;31,
2006, we had sales of $0.1&nbsp;million to Org,&nbsp;Inc. As of March&nbsp;31, 2006 and December&nbsp;31, 2005, we had a receivable of $0.1&nbsp;million and $0.2&nbsp;million,
respectively, and deferred revenue of $0.1&nbsp;million as of December&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2><I>Spacetime  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2005, we formed a joint venture with two other parties to provide mobile communication, broadband and IP related value added services in
Mongolia. The operations of the joint venture are consolidated into our financial statements. In the first quarter of 2006, we decided to terminate the joint venture arrangement and wrote off the
remaining net assets, of approximately $4.7&nbsp;million. (See Note&nbsp;24 to the Condensed Consolidated Financial Statements) As of March&nbsp;31, 2006 and December&nbsp;31, 2005, we had
$0.3&nbsp;million included in related party receivables, and $0.3&nbsp;million in long term debt related to one of the joint venture partners, Spacetime Golden Communication Technology
USA,&nbsp;Inc. </FONT></P>

<P><FONT SIZE=2><I>Xalted Networks  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We received purchase orders from Xalted Networks totaling approximately $1.3&nbsp;million in 2005 for telecommunications equipment that is for product not
typically sold by us to other customers. We are charging a 10% procurement fee to Xalted for obtaining and reselling these products. The equipment was delivered during 2005 but revenue has not been
recognized as the revenue recognition process had not been completed. The equipment cost is included in inventory as of March&nbsp;31, 2006 and December&nbsp;31, 2005. In March&nbsp;2006 the
Company invested an additional $0.3&nbsp;million in Xalted Networks. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>48</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_ds1172_1_49"> </A> </FONT> <FONT SIZE=2><B>RESULTS OF OPERATIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manage our business based principally upon product families of five operating segments, (i)&nbsp;Broadband Infrastructure, (ii)&nbsp;Wireless
Infrastructure, (iii)&nbsp;PCD, (iv)&nbsp;Handsets, and (v)&nbsp;Service. Broadband infrastructure is primarily comprised of digital subscriber line products, multi-service access node products,
fiber optics products and IP-based television. Wireless infrastructure is primarily comprised of the PAS family of core infrastructure equipment and Code Division Multiple Access ("CDMA")
family of infrastructure equipment. Our PCD segment markets wireless handsets through international wireless carriers and their agents. The Handsets segment includes global PAS handset sales and sales
of CDMA, Wireless Fidelity ("WiFi") and CDMA handset sales in China. We also provide installation and certain maintenance services. For each of the periods presented, total services sales accounted
for less than 10% of net sales. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
July&nbsp;1, 2006 the Company intends to combine the Broadband Infrastructure and the Wireless Infrastructure segments into a newly created Network Solutions segment. We are
currently evaluating the reporting effect of this change. </FONT></P>

<P><FONT SIZE=2><B>THREE MONTHS ENDED MARCH 31, 2006 AND 2005  </B></FONT></P>

<P><FONT SIZE=2><B>NET SALES  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>% of net<BR>
sales</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>% of net<BR>
sales</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Broadband</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>57,156</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>326,307</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>36</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Wireless</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>100,433</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>17</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>109,437</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>PCD</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>322,995</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>315,552</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>35</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Handsets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>99,019</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>128,083</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Service</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>16,968</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>22,505</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Net sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>596,571</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>901,884</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><I>Three months ended March&nbsp;31, 2006 and 2005  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales decreased by 34% to $596.6&nbsp;million during the quarter ended March&nbsp;31, 2006 compared to the same period in 2005. The decrease is primarily
due to a decrease in sales in the Broadband segment by 83% from March&nbsp;31, 2005 to March&nbsp;31, 2006. The greater Broadband segment sales during the three months ended March&nbsp;31, 2005
included sales of $271.9&nbsp;million to Japan Telecom, an affiliate of Softbank, primarily for the iAN8000 product. Due to the customer concentration in the Broadband segment, revenues fluctuate
based upon the magnitude and timing of revenue recognition on certain contracts. Additionally, Handset sales declined by $29.1&nbsp;million, or 23%. As we have been experiencing in the recent
quarters, the demand of our PAS/iPAS products including PAS/iPAS system based handsets in the China market continued to mature which resulted in lower demand and average selling price. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
sales increased in our PCD segment and declined in the other four segments in the three months ended March&nbsp;31, 2006, compared to the corresponding quarter in fiscal 2005. For
additional discussion see Segment Reporting. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>49</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ds1172_1_50"> </A>
<BR>

<P><FONT SIZE=2><B>GROSS PROFIT  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Gross<BR>
profit %</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Gross<BR>
profit %</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Broadband</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>22,957</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>164,057</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Wireless</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>49,517</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>49</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>29,670</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>27</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>PCD</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>14,434</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>13,692</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Handsets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>31,599</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>32</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>14,539</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Service</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,947</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>23</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>15,466</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>69</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Gross Profit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>122,454</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>237,424</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>26</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost
of sales consists primarily of material and labor costs associated with manufacturing, assembly and testing of products, costs associated with installation and customer training,
warranty costs, fees to agents, inventory provision 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 our obtaining Chinese import permits and approvals. We also rely on third party manufacturers to
manufacture and assemble most of our CDMA handsets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
gross profit has been affected by average selling prices, material costs, product mix and the impact of warranty charges as well as inventory reserves. 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 from period to period 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. </FONT></P>

<P><FONT SIZE=2><I>Three months ended March&nbsp;31, 2006 and 2005  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit was $122.5&nbsp;million, or 21% of net sales, in the three months ended March&nbsp;31, 2006, compared to $237.4&nbsp;million, or 26% of net
sales, in the corresponding quarter of 2005. The overall gross profit decrease is due to a decline in sales and lower gross profit percentages in the Broadband segment. Gross profit percentages
improved in the Wireless and Handset segments, declined in the Broadband and Service segments, and remained the same in PCD. For additional discussion see "Segment Reporting." </FONT></P>

<P><FONT SIZE=2><B>OPERATING EXPENSES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes our operating expenses: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>% of net<BR>
sales</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>% of net<BR>
sales</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Selling, general and administrative</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>83,172</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>109,011</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>46,309</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>66,260</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Amortization of intangible assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,925</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,972</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>134,406</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>23</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>182,243</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>20</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling,
general and administrative expenses ("SG&amp;A") include compensation and benefits, professional fees, sales commissions, provision for doubtful accounts receivable and travel and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>50</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2>entertainment
costs. Research and development 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. A portion of our costs are fixed and are difficult to quickly reduce in periods of lower sales. However, during the second
quarter of 2005, we announced and initiated a restructuring plan which resulted in the reduction of certain SG&amp;A and research and development costs. We believe that continued investment in research
and development is critical to our long-term success. </FONT></P>

<P><FONT SIZE=2><I>SELLING, GENERAL AND ADMINISTRATIVE  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses decreased $25.8&nbsp;million but increased by 2% as a percentage of net sales during the three months ended
March&nbsp;31, 2006 compared to the same period in 2005. The decrease in SG&amp;A expenses was primarily due to a $16.7&nbsp;million decrease in our provision for doubtful accounts compared to the
same period in 2005. Approximately $4.5&nbsp;million in reduction was due to lower travel and entertainment costs, particularly in the China operations. In addition, there were reductions in
expenses across all entities due to expense controls. Days sales outstanding was 74&nbsp;days at March&nbsp;31, 2006 as compared to 90&nbsp;days at March&nbsp;31, 2005. The shorter days sales
outstanding and resultant decrease in provision for doubtful accounts is the result of improved cash collections in the first quarter of 2006 relative to the comparable period in 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the first quarter of 2006, the Company decided to terminate the Mongolian joint venture arrangement and wrote off the remaining net assets, of approximately $4.7&nbsp;million. </FONT></P>

<P><FONT SIZE=2><I>RESEARCH AND DEVELOPMENT  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development ("R&amp;D") expenses decreased by $19.9&nbsp;million but increased by 1% as a percentage of net sales during the three months ended
March&nbsp;31, 2006 compared to the same period in 2005. The absolute decrease in R&amp;D expenses can be attributed to a decrease in headcount of approximately 778 employees resulting from
restructuring activities and the transfer of engineers as part of the sale of ACD. Personnel related expenses decreased by $4.7&nbsp;million and facility and depreciation costs decreased by
$5.6&nbsp;million as a result of restructuring and write down of R&amp;D equipment. Additionally, professional services decreased by $3.6&nbsp;million due to a decreased use of consultants. </FONT></P>

<P><FONT SIZE=2><I>AMORTIZATION OF INTANGIBLE ASSETS  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of intangible assets decreased by $2.0&nbsp;million in the three months ended March&nbsp;31, 2006 compared to the same quarter last year.
Amortization of intangible assets declined as several intangible assets became fully amortized during the preceding twelve months. </FONT></P>

<P><FONT SIZE=2><I>INTEREST INCOME  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income was $3.5&nbsp;million and $1.3&nbsp;million for the three months ended March&nbsp;31, 2006 and 2005, respectively. Interest income was
generated from cash and short-term investment balances which remained consistent in the three months ended March&nbsp;31, 2006 and the corresponding quarter of 2005. The effective
interest rate doubled between the two periods. </FONT></P>

<P><FONT SIZE=2><I>INTEREST EXPENSE  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense was $3.5&nbsp;million and $4.3&nbsp;million for the three months ended March&nbsp;31, 2006 and 2005, respectively. The decrease in interest
expense for the three months ended March&nbsp;31, 2006 was attributable to the decrease in borrowings. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>51</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2><I>OTHER INCOME (EXPENSES)  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net other income or expense was an income of $3.6&nbsp;million and an expense of $6.8&nbsp;million for the three months ended March&nbsp;31, 2006 and 2005,
respectively. Net other income for the three months ended March&nbsp;31, 2006 was primarily due to a $2.8&nbsp;million gain on foreign currency revaluation and a $0.5&nbsp;million financial
subsidy from the local Chinese government. Net other expense for the three months ended March&nbsp;31, 2005 was primarily due to a $7.8&nbsp;million loss on foreign currency revaluation and offset
by consumption tax refunds in Japan of $1.2&nbsp;million, and a $0.5&nbsp;million financial subsidy from the local Chinese government. </FONT></P>


<P><FONT SIZE=2><I>INCOME TAX EXPENSE  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax expense was $2.8&nbsp;million and $7.7&nbsp;million for the three months ended March&nbsp;31, 2006 and 2005, respectively. The Company's 2006 annual effective tax rate
is estimated to be negative 14%. There are two primary reasons for the negative 14% effective tax rate. First, we have not provided any tax benefit on the forecasted current year losses incurred and
tax credits generated in the United States and other countries, because management believes that it is more likely than not that the tax benefit associated with these losses will not be realized.
Also, we continue to accrue tax expense in jurisdictions where we have been historically profitable. Estimates of the annual effective tax rate at the end of the interim periods are based on
evaluations of possible future events and transactions and may be subject to subsequent refinement or revision. </FONT></P>

<P><FONT SIZE=2><I>EQUITY IN NET LOSS OF AFFILIATED COMPANIES  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity in net gain or loss of affiliated companies was zero for the three months ended March&nbsp;31, 2006 and a loss of $0.5&nbsp;million for the three
months ended March&nbsp;31, 2005. The loss in 2005 primarily resulted from losses incurred by our joint venture with Matsushita Communication Industrial Co.,&nbsp;Ltd., and was partially offset by
the gain recognized on our investment in Restructuring Fund. </FONT></P>

<P><FONT SIZE=2><B>SEGMENT REPORTING  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manage our business on the basis of our five operating segments, namely Broadband Infrastructure, Wireless Infrastructure, Handsets, PCD, and Service. Each
operating segment represents its own reporting segment and each operating segment is responsible for its own production and sales management. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently evaluate operating performance of and allocate resources to the reporting segments based on segment gross profit. Cost of sales and direct expenses in relation to production
are assigned to the reporting segments. Corporate headquarters expenses and non-operating items are not allocated to the segments. The accounting policies used in measuring segment assets
and operating performance are the same as those used by corporate and are consistently applied across all segments. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>52</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
July&nbsp;1, 2006 the Company intends to combine the Broadband Infrastructure and the Wireless Infrastructure segments into a newly created Network Solutions segment. We are
currently evaluating the reporting effect of this change. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized
below are our segment sales revenue and gross profit for the three months ended March&nbsp;31, 2006 and 2005, respectively. </FONT></P>

<P><FONT SIZE=2><I>Broadband Infrastructure  </I></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>57,156</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>326,307</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>22,957</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>164,057</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Gross profit as a percentage of sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
largest Broadband Infrastructure customer is Softbank in Japan, representing approximately 60% and 87% of total broadband sales during the three months ended March&nbsp;31, 2006
and 2005. Due to the customer concentration in this segment, revenues fluctuate based upon the magnitude and timing of revenue recognition on certain contracts. Broadband Infrastructure net sales
during the three months ended March&nbsp;31, 2005 included one large transaction with Softbank totaling $271.9&nbsp;million of revenue on certain agreements entered into with Japan Telecom
primarily for the iAN8000 product in 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included
in Broadband Infrastructure sales for the three months ended March&nbsp;31, 2006 are order cancellation fees of $22.6&nbsp;million and included in cost of sales is a
$3.1&nbsp;million inventory write-down. During the three months ended March&nbsp;31, 2006 we incurred a negative gross profit in China of $2.1&nbsp;million, primarily as a result of
a reduction in the realizable value of inventory at customer sites without contracts for products in the IPTV, GEPON and IPDSLAM product lines. </FONT></P>

<P><FONT SIZE=2><I>Wireless Infrastructure  </I></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>Sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>100,433</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>109,437</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>49,517</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>29,670</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>Gross profit as a percentage of sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>49</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>27</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the three months ended March&nbsp;31, 2006, PAS systems sales declined 18% and now comprise approximately 85% of our Wireless Infrastructure sales compared to 95% during the
same period in 2005. Wireless sales declined in China by 9%, and were offset by marginal increases in other regions. The decrease in PAS systems sales is primarily a result of our customers in China
transitioning from new system installations to system expansions as PAS/iPAS systems reach product maturity. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
profit increased by 22&nbsp;percentage points in the three months ended March&nbsp;31, 2006, as compared to the corresponding quarter in 2005 due to a number of factors,
including: (i)&nbsp;The margins on PAS infrastructure improved due to a shift in product mix towards higher margin cell sites as well as a reduction in product discounts given; (ii)&nbsp;an
improvement in inventory management resulting in a decrease in excess inventory write-downs; and (iii)&nbsp;sales of voice and data networks software totaling $8.6&nbsp;million which has nearly
100% gross margins. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>53</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=54,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=423786,FOLIO='53',FILE='DISK132:[06PAL2.06PAL1172]DS1172A.;11',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_ds1172_1_54"> </A>
<BR>

<P><FONT SIZE=2><I>PCD  </I></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>Sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>322,995</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>315,552</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>14,434</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>13,692</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>Gross profit as a percentage of sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
from external customers in the three months ended March&nbsp;31, 2006 was consistent with the corresponding quarter of 2005, increasing $7.4&nbsp;million or 2%. The number of
units sold during the three months ended March&nbsp;31, 2006 increased to 1.65 units from 1.55 units in the comparable period in the prior year. The average sales price per unit declined by
approximately 4%. During the three months ended March&nbsp;31, 2006, the sales activities of the PCD division were expanded to include sales of handsets other than PAS in countries other than China
that were previously included in the Handset division. This resulted in additional sales of $3.1&nbsp;million for the segment. Although gross profit as a percentage of sales was greater for these
sales, there was no significant effect on the overall segment gross profit. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically,
PCD has relied upon a limited number of manufacturers to supply its handset products. During the three months ended March&nbsp;31, 2006, one vendor accounted for
approximately 45% of PCD purchases. This vendor will continue to supply PCD existing handset models but plans to sell new
models directly to some of our customers. We plan to replace this supplier by introducing more models of our own design and expanding our relationships with other manufacturers, but we still expect to
see flat or declining sales during the first half of 2006 while we make this transition. The percentage of product sourced from this vendor has already declined from 67% of PCD purchases during the
three months ended March&nbsp;31, 2005 and 63% of PCD purchases during all of 2005. During the three months ended March&nbsp;31, 2006, sales of UTStarcom branded devices increased to approximately
seven percent from zero in the same period last year </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
profit as a percentage of sales remained the same for the periods ending March&nbsp;31, 2006 and 2005. </FONT></P>

<P><FONT SIZE=2><I>Handsets  </I></FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>99,019</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>128,083</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>31,599</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>14,539</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Gross profit as a percentage of sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>32</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
sales declined 23% primarily due to decreases in both volume and price for our PAS handsets in China as the units sold declined to 2.0&nbsp;million compared to 2.5&nbsp;million
in the comparable period last year. We believe that the 20% volume decline was primarily attributed to lower demand for our PAS handsets resulting from slower subscriber growth. During the three
months ended March&nbsp;31, 2006, the PAS net subscriber growth slowed to 4.0&nbsp;million from 5.5&nbsp;million during the comparable period in the prior year as service providers reduced
marketing efforts for PAS handsets in anticipation of next generation technology networks. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>54</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=55,EFW="2171483",CP="UTSTARCOM, INC.",DN="1",CHK=334539,FOLIO='54',FILE='DISK132:[06PAL2.06PAL1172]DS1172A.;11',USER='TCHAN',CD='23-JUN-2006;23:56' -->
<A NAME="page_ds1172_1_55"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe the average selling price per unit declined 14% due to a combination of competitive pricing pressures, and a shift in product mix to sales of lower-end models. We
have also experienced continuing pricing pressure in the China telecommunications market since the latter part&nbsp;2003, which has driven average unit selling prices lower. We expect to see
cumulative PAS subscriber growth at lower rates in future periods. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
profit as a percentage of sales for our handsets segment increased by 21% in the three months ended March&nbsp;31, 2006, as compared to the corresponding quarter in 2005. A
portion of the improvement in the gross profit percentage relates to increased use of chip-sets with greater functionality in PAS handsets that reduce the overall component costs of each
unit. Additional factors leading to the improvement in gross profit is a reduction in scrap, variances and warranty costs. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
future periods, the chip-sets will be supplied by Marvell as a result of the sale of the semiconductor design division. (See Note&nbsp;11) We anticipate that the costs
of chip-sets supplied by Marvell will continue to decline due to improved purchasing efficiencies experienced by Marvell. However, we do not expect gross profit as a percentage of sales to
continue at this level over the remainder of the year as the decline of the price per unit will likely exceed our ability to continue to reduce per-unit costs. </FONT></P>

<P><FONT SIZE=2><I>Service  </I></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three months ended March&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>as restated<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>16,968</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>22,505</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,947</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>15,466</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%"><FONT SIZE=2>Gross profit as a percentage of sales</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>23</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>69</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Service segment's revenue from external customers decreased by $5.5&nbsp;million, or 25%, in the three months ended March&nbsp;31, 2006 as compared to the corresponding quarter
last year. The Service segment's revenue for the quarter ended March&nbsp;31, 2005 includes $12.6&nbsp;million of revenue and gross profit associated with promotional services for Softbank and
affiliates. There was no comparable revenue during the same period in 2006. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the first quarter of 2006, we focused on the revenue opportunities with respect to support in China. Approximately 477 employees previously providing sales and support services
were shifted towards generating revenue from support arrangements, resulting in additional cost of goods sold of $3.4&nbsp;million and a corresponding decrease to operating expenses. Additionally,
revenues of $2.6&nbsp;million from Wireless Infrastructure and $0.2&nbsp;million from Broadband segment sales in China were allocated to the Service segment during the three months ended
March&nbsp;31, 2006. The allocation was made on certain completed contracts for which the service element was not separately priced. </FONT></P>

<P><FONT SIZE=2><B>LIQUIDITY AND CAPITAL RESOURCES  </B></FONT></P>

<P><FONT SIZE=2><I>Operating Activities  </I></FONT></P>

<P><FONT SIZE=2><I>2006  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities for the three months ended March&nbsp;31, 2006 was $53.7&nbsp;million. Operating cash was affected by changes in
deferred costs/inventories at customer sites under contract, customer advances, accounts receivable, and accounts payable and offset by the net loss as well as changes in other current liabilities and
inventory. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>55</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer
advances increased by $43.1&nbsp;million for the three months ended March&nbsp;31, 2006. Customer advances represent cash deposits we have received from our customers for
orders that have not yet received final acceptance. Upon subsequent receipt of final acceptances and revenue recognition, customer advances are reduced and revenue and cost of sales is recorded.
Deferred costs/inventories at customer sites under contracts decreased by $0.8&nbsp;million from December&nbsp;31, 2005 to March&nbsp;31, 2006. The decrease in deferred costs results from a
greater number of customer acceptances. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
$28.8&nbsp;million decrease in accounts receivable was attributable to a decline in sales preceding the end of the March&nbsp;31, 2006 quarter as compared to sales in the
preceding quarter. Partially offsetting this is a lengthening of days sales outstanding to 74&nbsp;days at March&nbsp;31, 2006 as compared to 65&nbsp;days at December&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
payable increased by $18.1&nbsp;million, inventory decreased by $4.3&nbsp;million, and other current liabilities decreased by $51.0&nbsp;million. The decrease in other
current liabilities is primarily the result of a decrease in taxes payable of approximately $14.2&nbsp;million, a decrease in compensation related costs of approximately $8.8&nbsp;million, a
decrease in accrued expenses, such as warranty, royalty and legal, of approximately $13.9&nbsp;million, and a decrease of approximately $14.1&nbsp;million in other liabilities. </FONT></P>

<P><FONT SIZE=2><I>2005  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities for the three months ended March&nbsp;31, 2005 was $182.9&nbsp;million. Operating cash was affected by changes in
accounts receivable, inventory and customer advances offset by changes in accounts payable and deferred revenue. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
$120.6&nbsp;million increase in accounts receivable was attributable to incremental sales derived from PCD sales and longer China collection cycles experienced during the three
months ended March&nbsp;31, 2005 as compared to the same quarter in the prior year. Days sales outstanding was 119&nbsp;days excluding PCD, or 90&nbsp;days including PCD, at March&nbsp;31,
2005 as compared to 63&nbsp;days at March&nbsp;31, 2004. Also contributing to the increase was a larger volume of sales, from $901.9&nbsp;million for the three months ended March&nbsp;31, 2005
compared to $617.6&nbsp;million for the same quarter in 2004. The longer days sales outstanding is a direct result of slower collection cycles in China due to the recent slow-down in the
economy. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory
increased by $15.7&nbsp;million, due to the increase in sales volume noted above. Also contributing to the increase was a larger volume of sales, from $901.9&nbsp;million
for the three months ended March&nbsp;31, 2005. Customer advances decreased by $223.7&nbsp;million for the three months ended March&nbsp;31, 2005. Customer advances represent cash deposits we
have received from our customers for orders that have not yet received final acceptance. Upon subsequent receipt of final acceptances and revenue recognition, customer advances are reduced and revenue
and cost of sales is recorded. The reduction of customer advances in the three months ended March&nbsp;31, 2005 was primarily due to the completion of the revenue earning process for most of the
agreements with Japan Telecom,&nbsp;Inc. ("JT"), an affiliate of Softbank Corp. All cash received from JT in advance of revenue recognition and in advance of spending for promotional activities was
reflected as a customer advance in prior periods. Revenue for certain of these agreements has been recognized in the three months ended March&nbsp;31, 2005. For additional information, refer to
Note&nbsp;18, "Related Party Transactions," to our condensed consolidated financial statements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Offsetting
the activity that decreased operating cash for the period were net income and non-cash charges, including $25.9&nbsp;million of depreciation and amortization,
$17.5&nbsp;million of provision for doubtful accounts and $15.2&nbsp;million of inventory provision. Accounts payable increased by $33.4&nbsp;million, deferred revenue increased by
$28.0&nbsp;million and other current and non-current assets decreased by $49.6&nbsp;million, all of which contributed to the increase in operating cash. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>56</FONT></P>

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<P><FONT SIZE=2><I>Investing Activities  </I></FONT></P>

<P><FONT SIZE=2><I>2006  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by investing activities for the three months ended March&nbsp;31, 2006 totaled $2.8&nbsp;million. Cash of $20.0&nbsp;million was received
from the sale of assets of the semiconductor design business division to Marvell Technology Group,&nbsp;Ltd., and $13.3&nbsp;million was received from the net sale of short-term
investments. Cash outflows from investing activities included an increase in restricted cash of $17.0&nbsp;million as well as $10.8&nbsp;million used to purchase short-term
investments. </FONT></P>

<P><FONT SIZE=2><I>2005  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by investing activities for the three months ended March&nbsp;31, 2005 totaling $79.1&nbsp;million was primarily due to
$120.1&nbsp;million of proceeds from the net sale of short-term investments which was used to pay down our borrowings. Cash outflows from investing activities included our purchase of
the selected assets of Giga, which resulted in a cash outflow of $18.5&nbsp;million as well as $28.3&nbsp;million invested in property, plant and equipment. </FONT></P>

<P><FONT SIZE=2><I>Financing Activities  </I></FONT></P>

<P><FONT SIZE=2><I>2006  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities was $30.8&nbsp;million, primarily consisting of a net repayment of short-term borrowings in excess of new
borrowing of $27.6 for the three months ended March&nbsp;31, 2006. </FONT></P>

<P><FONT SIZE=2><I>2005  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities was $83.3&nbsp;million for the repayment of short-term borrowings in excess of new borrowing for the three
months ended March&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2><I>Liquidity  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our working capital was $0.9&nbsp;billion and $1.1&nbsp;billion at March&nbsp;31, 2006, and 2005, respectively. This decrease in working capital was
primarily due to decrease in accounts receivable, and increases in customer advances and deferred revenue. These are partially offset by smaller accounts payable and short-term debt. Cash
and cash equivalents increased to $673.6&nbsp;million at March&nbsp;31, 2006 from $372.7&nbsp;million at March&nbsp;31, 2005 while short-term investments decreased to
$10.9&nbsp;million at March&nbsp;31, 2006 from $16.2&nbsp;million at March&nbsp;31, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
China sales are generally denominated in local currency. Due to the limitations on converting Renminbi, we are limited in our ability to engage in foreign currency hedging activities
in China. We cannot guarantee that fluctuations in foreign currency exchange rates in the future will not have a material adverse effect on revenues from international sales and, correspondingly, on
our business, financial condition and results of operations. We have contracts negotiated in Japanese Yen and we maintain a bank account in Japanese Yen for purchasing portions of our inventories and
supplies. The balance of this Japanese Yen account at March&nbsp;31, 2006 was approximately $4.1&nbsp;million. We may hedge certain Japanese Yen-denominated balance sheet exposures
against future movements in foreign currency exchange rates by using foreign currency forward contracts. Gains and losses on these fair value hedges are intended to offset gains and losses from the
revaluation of our Japanese Yen-denominated recognized assets and liabilities. In accordance with Statement of Financial Accounting Standards No.&nbsp;133 ("SFAS&nbsp;133"),
"Accounting for Derivative Instruments and Hedging Activities," we recognize derivative instruments and hedging activities as either assets or liabilities on the balance sheet and measure them at fair
value. We do not intend to utilize derivative financial instruments for speculative trading purposes. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>57</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
accept bank notes receivable and commercial notes receivable with maturity dates of between three and six months from our customers in China in the normal course of business. Notes
receivable available for sale was $7.7&nbsp;million and $2.1&nbsp;million at March&nbsp;31, 2006 and December&nbsp;31, 2005, respectively. We may discount these notes with banking institutions
in China. Any notes that have been sold are not included in our consolidated balance sheets as the criteria for sale treatment established by Statement of Financial Accounting Standards
No.&nbsp;140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS&nbsp;140"), have been met. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March&nbsp;2003, we completed an offering of $402.5&nbsp;million of convertible subordinated notes due March&nbsp;1, 2008 to qualified institutional buyers pursuant to
Rule&nbsp;144A under the Securities Act of 1933, as amended. The notes bear interest at a rate of <SUP>7</SUP>/<SMALL>8</SMALL>% per annum and are convertible into our common stock at a conversion price of
$23.79 per share and are subordinated to all of our present and future senior debt. Concurrent with the issuance of the convertible notes, we entered into a convertible bond hedge and a call option
transaction with respect to our common stock. Both the bond hedge and call option transactions may be settled at our option either in cash or net shares and expire on March&nbsp;1, 2008. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2005, we completed exchanges of approximately 5.0&nbsp;million shares of our common stock and approximately $57.1&nbsp;million in cash for $127.9&nbsp;million aggregate
principal amount of outstanding notes. As a result of the early extinguishment, we also amended the above convertible bond hedge and call option transactions to reflect the change in principal amount
of the underlying notes. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
August&nbsp;1, 2005, we entered into a 364-day $100.0&nbsp;million committed receivables purchase facility with a financial institution. The initial term of the
Agreement will expire one year from execution but shall be extended automatically. Pursuant to the terms of the receivable purchase facility, we may sell certain receivables arising from the sale of
telecommunications equipment to this financial institution. No receivables had been sold, pursuant to this arrangement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that our existing credit facilities and cash and cash equivalents, short-term investments and cash from operations will be sufficient to finance our operations
through at least the next 12&nbsp;months. As of March&nbsp;31, 2006, we had cash, short-term restricted cash, and investments of $753.6&nbsp;million. We also had credit facilities
totaling $703.5&nbsp;million of which $504.2 remained available for future borrowings. $642.4&nbsp;million of these credit facilities expire in 2006 and $61.1&nbsp;million of these facilities
expire in 2007. We are proceeding with the extension or renewal of these credit facilities, however, such renewal is not certain. Interest rates for borrowings under these credit facilities range from
approximately 4.7% to 5.22%. We have not guaranteed any debt that is not included in the consolidated balance sheet. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of
our total cash and short-term investment balance, as of March&nbsp;31, 2006 $499.8&nbsp;million was held in China, where currency exchange controls exist. As a result,
our ability to make payments in other jurisdictions could be limited by our ability to move money from China to other jurisdictions</FONT><FONT SIZE=2><B>.</B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event that our current cash balances, future cash flows from operations and current credit facilities are not sufficient to meet our obligations or strategic needs or in the event
that market conditions are favorable, we would consider raising additional funds in the capital or equity markets. Due to the delinquent filing of our Annual Report on Form&nbsp;10-K for
the year ended December&nbsp;31, 2005, we are not eligible to register equity securities using Form&nbsp;S-3, which could have an impact on our ability to raise additional funds. If
additional financing is needed, there can be no assurance that such financing will be available to us on commercially reasonable terms, or at all. In addition, the delayed filing has resulted in a
technical default of the Company's 7/8%
Convertible Subordinated Notes due in 2008. The technical default was cured upon the recent filing of the 2005 Form&nbsp;10-K. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>58</FONT></P>

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<P><FONT SIZE=2><I>Income taxes  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain subsidiaries and joint ventures located in China enjoy tax benefits in China which are generally available to foreign investment enterprises, including
full exemption from national enterprise income tax for two years starting from the first profit-making year and/or a 50% reduction in national income tax rate for the following three years. In
addition, local enterprise income tax is often waived or reduced during this tax holiday/incentive period. Under current regulations in China, foreign investment enterprises that have been accredited
as technologically advanced enterprises are entitled to additional tax incentives. These tax incentives vary in different locales and could include preferential national enterprise income tax
treatment at 50% of the usual rates for different periods of time. The tax holidays discussed above are applicable or potentially applicable to CUTS, HUTS, Hangzhou UTStarcom Telecom Co.,&nbsp;Ltd.
("HSTC") and UTStarcom China Co.,&nbsp;Ltd. ("UTSC"), our active subsidiaries in China, as those entities may qualify as accredited technologically advanced enterprises. </FONT></P>

<P><FONT SIZE=2><I>Off balance sheet arrangements  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;1, 2005, we entered into a 364-day committed receivables purchase facility with Citibank, N.A., which provides for the sale of up to
$100.0&nbsp;million of trade accounts receivable of our PCD segment. Sales of the accounts receivables to Citibank, N.A. under this program will result in a reduction of total accounts receivable in
our consolidated balance sheet. The remaining accounts receivables not sold to Citibank, N.A. will be carried at their net realizable value, including an allowance for doubtful accounts. We have not
sold any receivables pursuant to this facility during 2005 or the first three months of 2006. We believe that available funding under our accounts receivable financing program provides us increased
flexibility to manage working capital requirements, and that there are sufficient trade accounts receivable to support the U.S. financing programs. Under the program, we will continue to service the
accounts receivable. </FONT></P>

<P><FONT SIZE=2><I>Contractual obligations and other commitments  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our obligations under contractual obligations and commercial commitments at March&nbsp;31, 2006 were as follows: </FONT></P>

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<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>March 31, 2006<BR>
Payments due by period</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Less than<BR>
1 year</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1-3 years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>3-5 years</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>Contractual Obligations</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Bank loans</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>172,441</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>172,141</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>300</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Convertible subordinated notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>274,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>274,600</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Interest payable on subordinated notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4,806</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2,403</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2,403</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Lease obligations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>40,320</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>15,527</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>18,042</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>6,751</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>Other Commercial Commitments</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Standby letters of credit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>98,287</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>96,316</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,971</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Purchase commitments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>676,083</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>667,253</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>8,830</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2><B><I>Notes payable  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Occasionally, we issue short-term notes payable to our vendors in lieu of trade accounts payable. The payment terms are normally three to nine months
and are typically non-interest bearing. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>59</FONT></P>

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<P><FONT SIZE=2><B><I>Bank loans  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March&nbsp;31, 2006, we had loans with various banks totaling $172.1&nbsp;million with interest rates ranging from 4.70% to 5.22% per annum. These bank
loans mature during 2006 and first quarter of 2007 and are included in short-term debt. </FONT></P>

<P><FONT SIZE=2><B><I>Convertible subordinated notes  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our convertible subordinated notes, due March&nbsp;1, 2008, bear interest at a rate of 7/8% per annum, payable semiannually on May&nbsp;1 and
September&nbsp;1, are convertible into our common stock at a conversion price of $23.79 per share and are subordinated to all our present and future senior debt. The principal is due only at
maturity of the notes. </FONT></P>

<P><FONT SIZE=2><B><I>Operating leases  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We lease certain facilities under non-cancelable operating leases that expire at various dates through 2011. </FONT></P>

<P><FONT SIZE=2><B><I>Standby letters of credit  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We issue standby letters of credit primarily to support international sales activities outside of China. When we submit a bid for a sale, often the potential
customer will require that we issue a bid bond or a standby letter of credit to demonstrate our commitment through the bid process. In addition, we may be required to issue standby letters of credit
as guarantees for advance customer payments upon contract signing or performance guarantees. The standby letters of credit usually expire six to twelve months from date of issuance without being drawn
by the beneficiary thereof. </FONT></P>

<P><FONT SIZE=2><B><I>Purchase commitments  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are obligated to purchase raw materials and work-in-process inventory under various orders from various suppliers, all of which should
be fulfilled without adverse consequences material to our operations or financial condition. As of March&nbsp;31, 2006 total open commitments under these purchase orders extending beyond one year
were approximately $8.8&nbsp;million. Additionally, we have agreed to purchase from Marvell certain chip-sets that will be included in 50% to 100% of our PAS handsets, through 2011. </FONT></P>

<P><FONT SIZE=2><B><I>Investment commitments  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2006, we had invested a total of $2.6&nbsp;million in Global Asia Partners L.P. that is recorded as a long-term investment.
The fund size is anticipated to be $10&nbsp;million, and was formed to make private equity investments in private or pre-IPO technology and telecommunications companies in Asia. We have
a commitment to invest up to a maximum of $5.0&nbsp;million. The remaining amount is due at such times and in such amounts as shall be specified in one or more future capital calls to be issued by
the general partner. </FONT></P>

<P><FONT SIZE=2><B><I>Intellectual property  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain sales contracts include provisions under which customers would be indemnified by us in the event of, among other things, a third-party claim against the
customer for intellectual property rights infringement related to our products. There are no limitations on the maximum potential future payments under these guarantees. We have not accrued any
amounts in relation to these provisions as no such claims have been made and we believe we have valid enforceable rights to the intellectual property embedded in our products. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>60</FONT></P>

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<P><FONT SIZE=2><B>RECENT ACCOUNTING PRONOUNCEMENTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB issued FASB Statement No.&nbsp;154, "Accounting Changes&nbsp;&amp; Error Corrections," ("SFAS&nbsp;154"). The statement applies to
all voluntary changes in accounting principle and changes the requirements for the accounting for and reporting of, a change in accounting principle. SFAS&nbsp;154 requires retrospective application
to prior period's financial statements unless this would impracticable. Also, if an entity changes it method of depreciation, amortization, or depletion for long-lived,
non-financial assets, the change must be accounted for as a change in accounting estimate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
adopted this standard in the quarter ended March&nbsp;31, 2006. The adoption will only impact the financial statements in periods in which a change in accounting principle is made. </FONT></P>

<P><FONT SIZE=2><A
NAME="du1172_item_3_#151;quantitative_and_q__ite02622"> </A>
<A NAME="toc_du1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 3&#151;QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to the impact of interest rate changes, changes in foreign currency exchange rates and changes in the stock market. </FONT></P>

<P><FONT SIZE=2><I>Interest Rate Risk  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. The fair value of our investment portfolio would not be
significantly affected by either a 10% increase or decrease in interest rates due mainly to the short-term nature of most of our investment portfolio. However, our interest income can be
sensitive to changes in the general level of U.S. interest rates since the majority of our funds are invested in instruments with maturities less than one year. Our policy is to ensure the safety of
invested funds by generally attempting to limit market risk. Funds in excess of current operating requirements are mostly invested in government-backed notes, commercial paper, floating rate corporate
bonds, fixed income corporate bonds and tax-exempt instruments. In accordance with our investment policy, all short-term investments are invested in "investment grade" rated
securities with minimum A or better ratings. Currently, most of our short-term investments have AA or better ratings. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table below represents carrying amounts and related weighted-average interest rates of our investment portfolio at March&nbsp;31, 2006: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="68%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands,<BR>
except interest rates)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2>673,625</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2>Average interest rate</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2>2.09</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2><BR>
Restricted cash</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2><BR>
69,078</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2>Average interest rate</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2>4.22</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2><BR>
Short-term investments</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2><BR>
10,852</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2>Average interest rate</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2>1.44</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2><BR>
Total cash, cash equivalents and investment securities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2><BR>
753,555</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="68%"><FONT SIZE=2>Average interest rate</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT"><FONT SIZE=2>2.28</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><I>Equity Investment Risk  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our investment portfolio includes equity investments in publicly traded companies, the values of which are subject to market price volatility. Economic events
could adversely affect the public equities market and general economic conditions may continue to worsen. Should the fair value of our publicly traded equity investments decline below their cost basis
in a manner deemed to be other-than-temporary, our earnings may be adversely affected. We have also invested in several privately held companies as well as investment funds
which invest primarily in privately held companies, </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>61</FONT></P>

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<P><FONT SIZE=2>many
of which can still be considered in the start-up or development stages. These investments are inherently risky, as the market for the technologies or products they have under
development are typically in the early stages and may never materialize. </FONT></P>

<P><FONT SIZE=2><I>Debt Investment Risk:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our debt investment portfolio consists of a $7.1&nbsp;million note receivable from BB Modem, an affiliate of SOFTBANK CORP., pursuant to a Mezzanine Loan
Agreement we entered into with BB Modem on July&nbsp;17, 2003. Our loan is subordinated to certain senior lenders of BB Modem, and repayments are payable to us over a 42-month period,
with a substantial portion of the principal amount of the loan schedule to be repaid during the last 16&nbsp;months of this period. Our recourse for nonpayment of the loan is limited to the assets
of BB Modem, the account into which subscriber payments are made and its rights under the securitization transaction documents. The value of BB Modem's modems that serve as collateral for the loan may
decrease over time and may not be sufficient upon sale to pay the outstanding amounts on the loan. </FONT></P>


<P><FONT SIZE=2><I>Foreign Exchange Rate Risk:  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to foreign currency exchange rate risk because most of our sales in China are denominated in Renminbi and portions of our accounts receivable and
payable are denominated in Japanese Yen. Due to the limitations on converting Renminbi, we are limited in our ability to engage in foreign currency hedging activities in China. Although the impact of
currency fluctuations of Renminbi to date has been slight, fluctuations in currency exchange rates in the future may have a
material adverse effect on our results of operations. The balance of cash and short-term investment balance held in China was $499.8&nbsp;million at March&nbsp;31, 2006. In
July&nbsp;2005, China uncoupled the Renminbi from the U.S. dollar and let it float in a narrow band against a basket of foreign currencies. The move revalued the Renminbi by 2.1% against the U.S.
dollar. Additionally, during 2005 and the first three months of 2006 we made significant sales in both Japanese Yen and in Euros. We maintain Japanese yen bank accounts for purchasing portions of our
inventories and supplies. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
revenues, earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. We may hedge currency exposures associated with certain assets and
liabilities denominated in nonfunctional currencies and certain anticipated nonfunctional currency transactions using forward foreign currency exchange rate contracts. We have not hedged any such
transactions, and due to the limitations on converting Renminbi, we are limited in our ability to engage in currency hedging activities in China. As a global concern, we face exposure to adverse
movements in foreign currency exchange rates. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have performed a sensitivity analysis as of March&nbsp;31, 2006, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% positive or
adverse movement in the levels of foreign currency exchange rates relative to the U.S. Dollar, with all other variables held constant. The analysis covers all of our foreign currency contracts offset
by the underlying exposures. The foreign currency exchange rates used were based on market rates in effect at March&nbsp;31, 2006. The sensitivity analysis indicated that a hypothetical 10% movement
in foreign currency exchange rates would result in a gain or loss in the fair values of our foreign exchange financial instruments of $9.7&nbsp;million at March&nbsp;31, 2006. </FONT></P>


<P><FONT SIZE=2><A
NAME="du1172_item_4_#151;controls_and_procedures"> </A>
<A NAME="toc_du1172_2"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 4&#151;CONTROLS AND PROCEDURES    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>Evaluation of Disclosure Controls and Procedures  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;UTStarcom,&nbsp;Inc. (the "Company") maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the
reports the Company files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>62</FONT></P>

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<P><FONT SIZE=2>summarized
and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required financial disclosure. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the preparation of this Quarterly Report on Form&nbsp;10-Q, the Company carried out an evaluation under the supervision and with the participation of the
Company's management, including the CEO and CFO, as of March&nbsp;31, 2006 of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as such term is
defined in Rules&nbsp;13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, the CEO and CFO concluded that as of March&nbsp;31, 2006 the Company's
disclosure controls and procedures were not effective because of the material weaknesses described in Item&nbsp;9A of the Company's Annual Report on Form&nbsp;10-K for the fiscal year
ended December&nbsp;31, 2005 (the "2005 Form&nbsp;10-K"), which we are still the in the process of remediating. Investors are directed to Item&nbsp;9A of the 2005
Form&nbsp;10-K for the description of these weaknesses. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
address the material weaknesses described in "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005 Form&nbsp;10-K, the Company
performed additional analyses and other procedures (as further described below under the subheading "Interim Measures" under "Management's Further Remediation Initiatives and Interim Measures") to
ensure that the Company's consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States. Accordingly, the Company's management
believes that the consolidated financial statements included in this Quarterly Report on Form&nbsp;10-Q fairly present in all material respects the Company's financial condition, results
of operations and cash flows for the periods presented and that this Quarterly Report on Form&nbsp;10-Q does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report. </FONT></P>

<P><FONT SIZE=2><B>Management's Remediation Initiatives and Interim Measures  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the matter discussed in "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005
Form&nbsp;10-K, the Company plans to continue to review and make necessary changes to the overall design of its control environment, including the roles and responsibilities of each
functional group within the organization and reporting structure, as well as policies and procedures to improve the overall internal control over financial reporting. In particular, the Company has
implemented and/or plans to implement during 2006 the specific measures described below to remediate the material weaknesses described above in "Management's Report on Internal Control Over Financial
Reporting" in Item&nbsp;9A of the 2005 Form&nbsp;10-K. In addition, in the absence of full implementation of these remediation measures as of March&nbsp;31, 2006, during the first
quarter of 2006 or subsequent to March&nbsp;31, 2006 and in connection with the March&nbsp;31, 2006 quarter-end reporting process, the Company has undertaken the additional measures
described under the subheadings "&#151;Interim Measures" below to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated
financial statements included in this Quarterly Report on Form&nbsp;10-Q and to ensure that material information relating to the Company and its consolidated subsidiaries was made known
to management in connection with the preparation of this Quarterly Report on Form&nbsp;10-Q. </FONT></P>

<P><FONT SIZE=2><B><I>Material weaknesses described in item&nbsp;1 of "Management's Report on Internal Control Over Financial Reporting"  </I></B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remediation Initiatives.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company's failure to have a sufficient complement of personnel with a level of accounting
knowledge, experience and training in the application of generally accepted </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>63</FONT></P>

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<P><FONT SIZE=2>accounting
principles commensurate with the Company's financial reporting requirements contributed to the Company's failure to maintain effective controls over the financial reporting process. To
remediate the material weaknesses described in item&nbsp;1 of "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005 Form&nbsp;10-K, the
Company has implemented or plans to implement the measures described below, and will continue to evaluate and may in the future implement additional measures. </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>General
plan for hiring and training of personnel&#151;The Company's planned remediation measures are intended to generally address this material weakness by ensuring that the
Company will have sufficient personnel with knowledge, experience and training in the application of generally accepted accounting principles commensurate with the Company's financial reporting
requirements. These measures include the following:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>The
Company hired an executive vice president and chief financial officer with relevant accounting experience, skills and knowledge in August&nbsp;2005;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>The
chief financial officer, with assistance from senior financial staff and outside consultants, other than the Company's independent registered public accounting firm, has reviewed
and will continue to review and adapt the overall design of the Company's financial reporting structure, including the roles and responsibilities of each functional group within the Company;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>The
Company hired a corporate controller and vice president of finance with relevant accounting experience, skills and knowledge in November&nbsp;2005;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>The
Company hired a vice president of finance for the Company's China operations with relevant accounting experience, skills and knowledge in April&nbsp;2006;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>The
Company hired a vice president of compliance with relevant accounting, audit and compliance experience, skills and knowledge in May&nbsp;2006;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(f)</FONT></DT><DD><FONT SIZE=2>The
Company hired a director of cost accounting with relevant accounting experience, skills and knowledge in March&nbsp;2006;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(g)</FONT></DT><DD><FONT SIZE=2>The
Company retained and intends to continue to retain the services of outside consultants, other than the Company's independent registered public accounting firm, with relevant
accounting experience, skills and knowledge, working under the supervision and direction of the Company's management, to supplement the Company's existing accounting personnel; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(h)</FONT></DT><DD><FONT SIZE=2>The
Company plans to continue to hire, and has allocated resources to hire, additional accounting and internal audit personnel in the U.S., China and Japan, in the areas of tax,
external financial reporting, revenue recognition and corporate accounting with relevant accounting experience, skills and knowledge.
<BR><BR></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Revenue
Recognition&#151;The Company's planned remediation measures are intended to address material weaknesses related to revenue and deferred revenue accounts and associated
cost of sales that have the potential of misstating revenue, deferred revenue and associated cost of sales in future financial periods. The Company's planned remediation measures include the
following:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>In
the fourth quarter of 2005, the Company further expanded the number of personnel required to certify to senior management with respect to identification and communication of
contract amendments, side agreements or other matters which could have a bearing on revenue recognition. The Company also plans to implement additional steps to ensure appropriate members of
management have reviewed and confirmed critical information necessary to assess the proper revenue recognition accounting; </FONT></DD></DL>
</DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>64</FONT></P>

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<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>During
2006, the Company plans to evaluate and enhance its contract review process including requiring sales, operations, finance and legal staff to provide input during the contract
negotiation process to ensure timely identification and accurate accounting treatment of non-standard contracts;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>The
Company plans to evaluate and enhance its process during 2006 related to various specific activities associated with revenue recognition including the evaluation and review of
handset rebates, invoice processing and the assessment of customer credit;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>During
the second quarter of 2006, the Company implemented enhancements to its Oracle system which will improve its controls related to the proper release of costs associated with
revenue; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>The
Company has and will continue its focus on training related to revenue recognition including the impact of amendments and side agreements. In June&nbsp;2005, the Company
conducted a training seminar regarding revenue recognition for the European sales group. In July&nbsp;2005, a similar seminar was held in China. In October&nbsp;2005, the Company's key management
participated in a seminar on the critical factors associated with revenue recognition. During the first quarter of 2006, several additional seminars were conducted for various sales teams in North and
South America and China. The Company plans to conduct additional training seminars in various international locations regarding revenue recognition throughout 2006.
<BR><BR></FONT></DD></DL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Inventory
Management&#151;The Company's planned remediation measures are intended to address material weaknesses related to inventory, deferred costs, inventory reserve accounts
and cost of sales that have the potential of misstating inventory and deferred costs and expected recoverability of inventory in future financial periods. The Company's planned remediation measures
include the following:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>During
the second quarter of 2006, the Company implemented enhancements to its Oracle system which will improve its ability to more effectively track inventory and evaluate deferred
costs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>The
Company hired a director of cost accounting with relevant accounting experience, skills and knowledge in March&nbsp;2006; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>The
Company plans in 2006 to enhance its processes and procedures related to the evaluation and impact of obsolete inventory including the development of detailed inventory reports
and additional review by management.
<BR><BR></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>Recording
of Accrued Expenses&#151;The Company's planned remediation measures are intended to address a material weakness related to the Company's recording of accrued expenses
that has the potential of misstating accrued expenses and related income statement accounts in future financial periods. The Company's planned remediation measures include the implementation in 2006
of a process of enhanced review of open purchase orders and review of invoices and disbursements after the end of each quarter to ensure proper recording of accrued expenses and open purchase order
commitments.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>Accurate
Preparation and Review of Financial Statements and Segment Reporting&#151;The Company's planned remediation measures are intended to address material weaknesses related
to the financial close and reporting process that have the potential of preventing the accurate preparation and review of the Company's consolidated financial statements in future financial periods.
The Company's planned remediation measures include the following:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>During
2005, the Company implemented and in 2006 plans to continue to enhance its month and quarter-end closing procedures to standardize its processes for financial
review to ensure </FONT></DD></DL>
</DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>65</FONT></P>

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<UL>
<UL>

<P><FONT SIZE=2>that
U.S. reviewers monitor financial information from decentralized locations in a consistent manner. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>In
2006, The Company's corporate finance department plans to expand and improve the required reporting package from various business units and subsidiaries in order to ensure it has
accumulated the necessary accounting, finance and operational information to effectively analyze information required for financial statement preparation and footnote disclosures;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>The
Company's external reporting department plans in 2006 to expand and improve the documentation and review of required information associated with the preparation of its quarterly
and annual filings under the Exchange Act; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>During
2005, the Company implemented, and plans to continue to improve new and enhanced procedures to ensure that non-routine transactions are identified and escalated to
senior financial management during the close process to help ensure proper accounting treatment.
<BR><BR></FONT></DD></DL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>6.</FONT></DT><DD><FONT SIZE=2>Income
Tax Analysis&#151;The Company's planned remediation measures are intended to address material weaknesses related to the calculation of its provision for income taxes that
have the potential of misstating the provision for income taxes and related balance sheet accounts in future financial periods. The Company's planned remediation measures include the following:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>The
Company plans to hire and train additional experienced tax managers and supporting staff in 2006 to support the preparation of the Company's income tax provision and to assist in
managing audits and to monitor tax compliance in China and other foreign locations;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>During
2005 and the first quarter of 2006, the Company utilized outside consultants, other than the Company's independent registered public accounting firm, to assist the Company's
management, working under its supervision and direction, in its analysis and calculation of its income tax provision, and the Company plans to continue to utilize outside consultants, other than the
Company's independent registered public accounting firm, to assist the Company's management, working under its supervision and direction, in its analysis of such matters in future periods; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>The
Company plans to develop a more formalized and comprehensive process to accumulate and organize financial and tax data used in connection with income tax calculation and
reporting.
<BR><BR></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>7.</FONT></DT><DD><FONT SIZE=2>Utilization
of Automated Controls&#151;The Company's planned remediation measures are intended to address a material weakness related to the segregation of duties and user
access to certain J. D. Edwards business process applications associated with the Company's Personal Communications Division that have the potential of misstating various accounts in future financial
periods. The Company's planned remediation measures include the following:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>During
the first quarter of 2006, the Company removed access rights from certain employees associated with inappropriate segregation of duties; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>The
Company has expanded its level of management oversight related to areas associated with segregation of duties issues including changes to the general ledger master file, invoice
terms and inventory. </FONT></DD></DL>
</DD></DL>
<BR>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interim Measures.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Management has not yet implemented all of the measures described in items 1 through 7 above and/or tested
them. Nevertheless, management believes those measures identified above as having been implemented, together with the other measures undertaken by the Company described below, all of which were
undertaken during the first quarter of 2006 or subsequent to March&nbsp;31, 2006 in connection with the March&nbsp;31, 2006 quarter-end reporting process, address the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>66</FONT></P>

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<A NAME="page_du1172_1_67"> </A>

<P><FONT SIZE=2>material
weaknesses described in item&nbsp;1 of "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005 Form&nbsp;10-K. These other measures
include the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
March&nbsp;31, 2006 quarter-end reporting process was extended, allowing the Company to conduct additional analysis and make additional adjustments as
necessary to ensure the accuracy of financial reporting.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company retained on an interim basis outside consultants, other than the Company's independent registered public accounting firm, with relevant accounting experience,
skills and knowledge, working under the supervision and direction of the Company's management, to assist with the March&nbsp;31, 2006 quarter-end reporting process.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company conducted an additional review of a substantial majority of its revenue-generating contracts for compliance with revenue recognition criteria. As part of this
review, the Company gathered and analyzed evidence of delivery and final acceptance.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company performed the following reviews of inventory-related matters: it reviewed consolidated revenue schedules from the first quarter of 2006 to determine the proper
recording of cost of goods sold; it conducted a reconciliation of inventories at customer sites to outstanding contracts as of the quarter-end and analyzed inventory for recovery and
potential impairment; and it conducted an analysis of inventory relating to purchase orders to identify under-recorded inventory.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company conducted a review of the processes to record inventory reserves and a review of the manual procedures by which the Company tracks the cost of its products.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company conducted a variety of manual review procedures, such as an extensive review of journal entry postings into the Oracle system and an extensive review of account
reconciliations.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company conducted a detailed and extensive review of the following matters: all non-routine transactions and internal representations; financial statements,
as well as certifications from decentralized locations, for accuracy; spreadsheets; and journal entries.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company reviewed its reserves and related schedules and reported its findings to the Audit Committee. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B><I>Material weakness described in item&nbsp;2 of "Management's Report on Internal Control Over Financial Reporting"  </I></B></FONT></P>


<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remediation Initiatives.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company's failure to ensure that key management fully understood the nature and potential
significance of related parties and to ensure that a robust process for the identification of related party transactions contributed to the Company's failure to maintain effective controls over the
identification of and accounting for related party relationships and related party transactions with the Company. To remediate the material weakness described in item&nbsp;2 of "Management's Report
on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005 Form&nbsp;10-K, the Company has implemented or plans to implement the measures described below, and will
continue to evaluate and may in the future implement additional measures. </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>The
Company conducted an educational seminar with the Company's key management in March&nbsp;2005 in which the Company's internal and outside legal counsel and members of the Audit
Committee reviewed certain key objectives of the Company's Code of Conduct, including the identification, recognition and disclosure of related party transactions.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>In
the fourth quarter of 2005, the Company further expanded the number of Company personnel required to certify to senior management with respect to identification, recognition and
disclosure of related party transactions for SEC reporting purposes, and revised the Company's internal </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>67</FONT></P>

<HR NOSHADE>
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<A NAME="page_du1172_1_68"> </A>
<UL>

<P><FONT SIZE=2>certification
process concerning identification, recognition and disclosure of related party transactions. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>The
Company plans to continue to evaluate the Company's procedures to ensure the identification, recognition and disclosure of related party transactions.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
Company plans to conduct periodic training sessions with key managers and senior executives regarding the Code of Conduct, including the identification, recognition and disclosure
of related party transactions.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
Company plans to provide key managers and senior executives with access to legal and accounting personnel to enable such managers and executives to more accurately and
comprehensively comply with the Company's internal certification process for SEC reporting purposes. </FONT></DD></DL>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interim Measures.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Management has not yet implemented all of the measures described above and/or tested them. Nevertheless,
management believes those measures identified above as having been implemented, together with the other measures undertaken by the Company described below, all of which were undertaken during the
first quarter of 2006 or subsequent to March&nbsp;31, 2006 in connection with the March&nbsp;31, 2006 quarter-end reporting process are sufficient to address the material weakness
described in item&nbsp;2 of "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005 Form&nbsp;10-K. These other measures include the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Senior
executives provided new certifications regarding related party transactions. </FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2><B><I>Material weakness described in item&nbsp;3 of "Management's Report on Internal Control Over Financial Reporting"  </I></B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remediation Initiatives.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Lack of clarity in roles and responsibilities in certain areas affecting the Company's financial
reporting structure contributed to a material weakness relating to the monitoring of its business unit accounting functions. To remediate this material weakness, described in item&nbsp;3 of
"Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005 Form&nbsp;10-K, the Company has implemented or plans to implement the measures described
under "&#151;Material weaknesses described in item&nbsp;1 of 'Management's Report on Internal Control Over Financial Reporting'&#151;Remediation
Initiatives&#151;1.&nbsp;General plan for hiring and training of personnel" in Item&nbsp;9A of the 2005 Form&nbsp;10-K., as well as those described below. The Company will
continue to evaluate and may in the future implement additional measures. </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>During
2005, the Company implemented and in 2006 plans to continue to enhance its month and quarter-end closing procedures to standardize its processes for financial review
to ensure that U.S. reviewers monitor financial information from decentralized locations in a consistent manner.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>In
2006, the Company's corporate finance department plans to expand and improve the required reporting package from various business units and subsidiaries in order to ensure it has
accumulated the necessary accounting, finance and operational information to effectively analyze information required for financial statement preparation and footnote disclosures.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>In
2006, the Company's external reporting department plans to expand and improve the documentation and review of required information associated with the preparation of its quarterly
and annual filings under the Exchange Act.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
Company plans to expand the size of the internal audit group and the scope of the internal audit group's responsibilities to monitor decentralized operations through reviews and
audits of such business units, subsidiaries and locations. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>68</FONT></P>

<HR NOSHADE>
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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
Company's chief financial officer, with assistance from senior financial staff and outside consultants, other than the Company's independent registered public accounting firm, has
reviewed and will continue to review and adapt the overall design of the Company's financial reporting structure, including the roles and responsibilities of each functional group within the Company. </FONT></DD></DL>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interim Measures.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Management has not yet implemented all of the measures described above and/or tested them. Nevertheless,
management believes those measures identified above as having been implemented, together with the other measures undertaken by the Company described below, all of which were undertaken during the
first quarter of 2006 or subsequent to March&nbsp;31, 2006 in connection with the March&nbsp;31, 2006 quarter-end reporting process, address the material weakness described in
item&nbsp;3 of "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005 Form&nbsp;10-K. These other measures include the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Senior
financial staff in the Company's U.S. headquarters did a thorough review of trial balances issued from decentralized locations.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company utilized outside consultants, other than the Company's independent registered public accounting firm, to assist the Company's management, working under its
supervision and direction, with the March&nbsp;31, 2006 quarter-end review of decentralized operations.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>All
non-routine material transactions for decentralized locations were documented by staff in such decentralized locations and reviewed by senior financial staff
in the Company's U.S. headquarters. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B><I>Material weakness described in item&nbsp;4 of "Management's Report on Internal Control Over Financial Reporting"  </I></B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remediation Initiatives.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company's failure to have sufficient personnel with knowledge, experience and training in the
application of generally accepted accounting principles commensurate with the Company's financial reporting requirements as well as failure to prevent or detect instances of
non-compliance with established policies and procedures or instances of non-compliance with laws and regulations contributed to a material weakness relating to the Company's
control environment. To remediate this material weakness, described in item&nbsp;4 of "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005
Form&nbsp;10-K, the Company has implemented or plans to implement the measures described under "&#151;Material weaknesses described in item&nbsp;1 of 'Management's Report on
Internal Control Over Financial Reporting'&#151;Remediation Initiatives&#151;1.&nbsp;General plan for hiring and training of personnel" in Item&nbsp;9A of the 2005
Form&nbsp;10-K, as well as those described below. The Company will continue to evaluate and may in the future implement additional measures. </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>During
the second quarter of 2006, the Company launched a formal investigation at the direction of the Audit Committee, to review alleged violations of the Foreign Corrupt Practices
Act. Upon the conclusion of this investigation, the Company will take any appropriate actions including possible changes to its processes and procedures related to the due diligence evaluation of
business partnerships.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>During
2005, the Company implemented and in 2006 plans to continue to enhance its month-end and quarter-end closing procedures to standardize its processes for
financial review to ensure that U.S. reviewers monitor financial information from decentralized locations in a consistent manner.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>In
2006, the Company's corporate finance department plans to expand and improve the required reporting package from various business units and subsidiaries in order ensure it has
accumulated the necessary accounting, finance and operational information to effectively analyze information required for financial statement preparation and footnote disclosures. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>69</FONT></P>

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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>In
2006, the Company's external reporting department plans to expand and improve the documentation and review of required information associated with the preparation of its quarterly
and annual filings under the Exchange Act.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
Company plans to expand the size of the internal audit group and the scope of the internal audit group's responsibilities to monitor decentralized operations through reviews and
audits of such business units, subsidiaries and locations.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>6.</FONT></DT><DD><FONT SIZE=2>The
Company's chief financial officer, with assistance from senior financial staff and outside consultants, other than the Company's independent registered public accounting firm, has
reviewed and will continue to review and adapt the overall design of the Company's financial reporting structure, including the roles and responsibilities of each functional group within the Company. </FONT></DD></DL>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interim Measures.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Management has not yet implemented all of the measures described above and/or tested them. Nevertheless,
management believes those measures identified above as having been implemented, together with the other measures undertaken by the Company described below, all of which were undertaken during the
first quarter of 2006 or subsequent to March&nbsp;31, 2006 in connection with the March&nbsp;31, 2006 quarter-end reporting process, address the material weaknesses described in
item&nbsp;4 of "Management's Report on Internal Control Over Financial Reporting." These other measures include the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Senior
financial staff in the Company's U.S. headquarters did a thorough review of trial balances issued from decentralized locations.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
Company utilized outside consultants, other than the Company's independent registered public accounting firm, to assist the Company's management, working under its
supervision and direction, with the March&nbsp;31, 2006 quarter-end review of decentralized operations.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Non-routine
material transactions for decentralized locations were documented by staff in such decentralized locations and reviewed by senior financial staff in
the Company's U.S. headquarters. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B><I>Control deficiencies not constituting material weaknesses  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the material weaknesses described in "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005
Form&nbsp;10-K, management has identified other deficiencies in internal control over financial reporting that did not constitute material weaknesses as of December&nbsp;31, 2005. The
Company has implemented and/or plans to implement during 2006 various measures to remediate these control deficiencies and has undertaken other interim measures to address these control deficiencies. </FONT></P>

<P><FONT SIZE=2><B><I>Management's Conclusions  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes the remediation measures described under "Management's Remediation Initiatives and Interim Measures" above will strengthen the Company's
internal control over financial reporting and remediate the material weaknesses identified in "Management's Report on Internal Control Over Financial Reporting" in Item&nbsp;9A of the 2005
Form&nbsp;10-K. However, management has not yet implemented all of these measures and/or tested them. Management has concluded that the interim measures described under "Management's
Further Remediation Initiatives and Interim Measures" above provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements
included in this Quarterly Report on Form&nbsp;10-Q and has discussed its conclusions with the Company's Audit Committee. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is committed to continuing to improve its internal control processes and will continue to diligently and vigorously review its disclosure controls and procedures and its
internal </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>70</FONT></P>

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<P><FONT SIZE=2>control
over financial reporting in order to ensure compliance with the requirements of Section&nbsp;404 of the Sarbanes-Oxley Act. However, any control system, regardless of how well designed,
operated and evaluated, can provide only reasonable, not absolute, assurance that its objectives will be met. As management continues to evaluate and work to improve the Company's internal control
over financial reporting, it may determine to take additional measures to address control deficiencies, and it may determine not to complete certain of the measures described under "Management's
Further Remediation Initiatives and Interim Measures" above. </FONT></P>


<P><FONT SIZE=2><B>Changes in Internal Control over Financial Reporting  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The discussion above under "Management's Remediation Initiatives and Interim Measures" describes the material planned and actual changes to the Company's internal
control over financial reporting during the first quarter of 2006 and subsequent to March&nbsp;31, 2006 that materially affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>71</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dw1172_part_ii_#151;other_information"> </A>
<A NAME="toc_dw1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART&nbsp;II&#151;OTHER INFORMATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2><A
NAME="dw1172_item_1_#151;legal_proceedings"> </A>
<A NAME="toc_dw1172_2"> </A></FONT> <FONT SIZE=2><B>ITEM&nbsp;1&#151;LEGAL PROCEEDINGS    <BR>    </B></FONT></P>

<P><FONT SIZE=2><I>Securities Class Action Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in October&nbsp;2004, several shareholder class actions alleging federal securities violations were filed against us and various officers and
directors. The actions have been consolidated in United States District Court for the Northern District of California. The lead plaintiffs in the case filed a First Amended Consolidated Complaint on
July&nbsp;26, 2005. The First Amended Complaint alleged violations of the Securities Exchange Act of 1934, and was brought on behalf of a putative class of shareholders who purchased our stock after
April&nbsp;16, 2003 and before September&nbsp;20, 2004. On April&nbsp;13, 2006, the lead plaintiffs filed a Second Amended Complaint adding new allegations and extending the end of the class
period to October&nbsp;6, 2005. In addition to the Company defendants, the plaintiffs are also suing Banc of America Securities LLC and Softbank. Plaintiffs' complaint seeks recovery of damages in
an unspecified amount. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
litigation is in its preliminary stage, and we cannot predict its outcome. Our management believes that the claims are not meritorious. Nevertheless, an adverse outcome in the
litigation, if it occurred, could have a material adverse effect on our results of operations, financial position and cash flows. </FONT></P>

<P><FONT SIZE=2><I>Governmental Investigations  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have received notice of a formal inquiry by the staff of the Securities&nbsp;&amp; Exchange Commission ("SEC") into certain aspects of our financial disclosures
during prior reporting periods and certain other issues. In addition, in December&nbsp;2005 the U.S. Embassy in Mongolia informed us that it had forwarded to the Department of Justice ("DOJ")
allegations that an agent of our Mongolia joint venture had offered payments to a Mongolian government official in possible violation of the Foreign Corrupt Practices Act (the "FCPA"). In
April&nbsp;2006, we became aware that an agent of the Company may have made an offer to pay an Indian government official in possible violation of the FCPA. We, through our Audit Committee,
authorized an independent investigation into these matters, and we have been in contact with the DOJ and SEC regarding the investigation. At this time, we cannot predict when any governmental inquiry
will be completed or what the outcome of any governmental inquiry will be. </FONT></P>

<P><FONT SIZE=2><I>IPO Allocation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;31, 2001, a complaint was filed in United States District Court for the Southern District of New York against us, some of our directors and
officers and various underwriters for our initial public offering. Substantially similar actions were filed concerning the initial public offerings for more than 300 different issuers, and the cases
were coordinated as </FONT><FONT SIZE=2><I>In re Initial Public Offering Securities Litigation</I></FONT><FONT SIZE=2>, 21 MC 92 for pretrial purposes. In April&nbsp;2002, a consolidated amended
complaint was filed in the matter against the Company, captioned </FONT><FONT SIZE=2><I>In re UTStarcom, Initial Public Offering Securities Litigation</I></FONT><FONT SIZE=2>, Civil Action
No.&nbsp;01-CV-9604. Plaintiffs allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 through undisclosed improper underwriting practices
concerning the allocation of IPO shares in exchange for excessive brokerage commissions, agreements to purchase shares at higher prices in the aftermarket and misleading analyst reports. Plaintiffs
seek unspecified damages on behalf of a purported class of purchasers of our common stock between March&nbsp;2, 2000 and December&nbsp;6, 2000. Our directors and officers have been dismissed
without prejudice pursuant to a stipulation. On February&nbsp;19, 2003, the Court granted in part and denied in part a motion to dismiss brought by defendants including us. The order dismisses all
claims against us except for a claim brought under Section&nbsp;11 of the Securities Act of 1933, which alleges that the registration statement filed in accordance with the IPO was misleading. In
June&nbsp;2004, a stipulation of settlement and release of claims </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>72</FONT></P>

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<P><FONT SIZE=2>against
the issuer defendants, including us, was submitted to the court for approval. The terms of the settlement, if approved, would dismiss and release all claims against the participating
defendants (including us). In exchange for this dismissal, D&amp;O insurance carriers would agree to guarantee a recovery by the plaintiffs from the underwriter defendants of at least $1&nbsp;billion,
and the issuer defendants would agree to an assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. On February&nbsp;15, 2005, the Court
issued an order granting conditional preliminary approval of the settlement. On August&nbsp;31, 2005, the Court entered an order confirming its preliminary approval of the settlement. The settlement
remains subject to a number of conditions, including final court approval. The total amount of the loss associated with the above litigation is not determinable at this time. Therefore, we are unable
to currently estimate the loss, if any, associated with the litigation. </FONT></P>

<P><FONT SIZE=2><I>Starent Patent Infringement Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have sued Starent Networks Corporation ("Starent") for patent infringement in the U.S. District Court for the Northern District of California. On
March&nbsp;22, 2004, we filed our Complaint. On June&nbsp;3, 2004, we served our Complaint on Starent. On July&nbsp;30, 2004, Starent filed and served its answer and counterclaims. On
August&nbsp;30, 2004, we served and filed our Amended Complaint. In our Amended Complaint, we assert that Starent infringes a UTStarcom patent through the manufacture, use, offer for sale, and sale
of Starent's ST-16 Intelligent Mobile Gateway. We seek, inter alia, compensatory damages and injunctive relief. Starent filed its answer to the Amended Complaint and counterclaims on
September&nbsp;17, 2004. In its answer and counterclaims, Starent denies our allegations
and seeks a declaration that the patent-in-suit is not infringed, is invalid, and is unenforceable. The Court held an initial case management conference on November&nbsp;2,
2004. On February&nbsp;17, 2005, we filed a motion for a preliminary injunction against Starent's use, sale, and offer for sale of products having the infringing feature. The Court held a hearing on
our motion on May&nbsp;11, 2005 and denied our motion on June&nbsp;17, 2005. On June&nbsp;30, 2005, the Court held a hearing on the proper meaning or construction of the claims of the
patent-in-suit and entered an order construing these claims on August&nbsp;11, 2005. On September&nbsp;20, 2005, Starent filed a motion for summary judgment of
non-infringement and UTStarcom filed a motion for summary judgment that Starent is estopped from asserting invalidity and unenforceability. On October&nbsp;4, 2005, Starent filed a
motion to strike UTStarcom's final infringement contentions. On November&nbsp;7, 2005, Starent's motion to strike was denied. Oral argument on UTStarcom's estoppel motion and Starent's
non-infringement motion was held on November&nbsp;8, 2005. On December&nbsp;6, 2005, the Court granted Starent's motion for summary judgment of non-infringement. On
December&nbsp;12, 2005, the Court dismissed as moot Starent's counterclaims for declaratory relief based on invalidity or unenforceability of the asserted patent. On February&nbsp;2, 2006, the
Court entered judgment in favor of Starent. On March&nbsp;2, 2006, UTStarcom filed a notice of appeal. We have indicated that we believe that this adverse judgment will not have a material adverse
effect on the business, financial condition, or results of our operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;16, 2005, we filed a second suit against Starent for patent infringement in the U.S. District Court for the Northern District of California. On May&nbsp;6, 2005, we
served the Complaint on Starent. In the Complaint, we assert that Starent infringes a UTStarcom patent through Starent's development and testing of a software upgrade for its customer's installed
ST-16 Intelligent Mobile Gateways. We seek, inter alia, declaratory and injunctive relief. Starent filed its answer and counterclaims on May&nbsp;31, 2005, denying our allegations and
seeking a declaration that the patent-in-suit is not infringed, is invalid, and is unenforceable. On June&nbsp;16, 2005, we filed a motion to strike Starent's affirmative
defense and dismiss Starent's counterclaim alleging inequitable conduct. Pursuant to the parties' stipulation, we withdrew our motion to strike and, on July&nbsp;27, 2005, Starent filed an amended
answer and counterclaims, which pleaded its inequitable conduct allegations with more specificity. UTStarcom filed its answer to the amended counterclaims on August&nbsp;10, 2005. We have indicated
that we believe that any adverse judgment on Starent's counterclaims will not have a </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>73</FONT></P>

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<P><FONT SIZE=2>material
adverse effect on the business, financial condition, or results of our operations. However, we have not made an evaluation of the possibility of a favorable or unfavorable outcome. </FONT></P>

<P><FONT SIZE=2><I>Fenner Investments Patent Infringement Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;6, 2005, Fenner Investments,&nbsp;Ltd. ("Fenner") filed suit against us and co-defendants Juniper Networks,&nbsp;Inc.,
Nokia,&nbsp;Inc., Nortel Networks Corp., Lucent Technologies,&nbsp;Inc., and Cisco Systems,&nbsp;Inc. in the U.S. District Court for the Eastern District of Texas. On May&nbsp;17, 2005, Fenner
amended its complaint to add as defendants Ericsson&nbsp;Inc., Ericsson AB, Telefonaktiebolaget LM Ericsson, and Alcatel USA&nbsp;Inc. The suit alleged that certain products infringe
two Fenner patents, U.S. Patent Nos.&nbsp;5,561,706 and 6,819,670, for which Fenner sought compensatory and injunctive relief. On March&nbsp;20, 2006, we agreed to settle Fenner's claims against
us. As part of this settlement, Fenner agreed to dismiss with prejudice its claims against us. On April&nbsp;27, 2006, the court ordered the dismissal with prejudice of Fenner's claims against us as
a result of the settlement. The settlement did not have a significant financial impact on operations. </FONT></P>

<P><FONT SIZE=2><I>Telos Technology,&nbsp;Inc. Arbitration  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;22, 2005, Telos Technology,&nbsp;Inc. ("Telos") filed a formal Demand for Arbitration against us with JAMS/Endispute in San&nbsp;Jose,
California. The Demand for Arbitration seeks the release of $2.4&nbsp;million from an escrow fund. Pursuant to the terms of an Asset Purchase Agreement dated April&nbsp;21, 2004 and an Escrow
Agreement dated May&nbsp;19, 2004 between the parties, the escrow fund was created to indemnify us from certain losses associated with our purchase of assets from Telos. Telos asserts that our
refusal to release the escrowed funds constitutes a breach of our contractual obligations under the agreements. Telos also seeks attorneys' fees, costs and prejudgment interest in the amount of
$500,000. In our response to the Demand for Arbitration, we denied that we had breached our contractual obligations. In January&nbsp;2006, Telos moved for summary judgment on its claim and we
opposed the motion. On March&nbsp;6, 2006, the Arbitrator issued a ruling denying Telos' motion. In light of the ruling on summary judgment, Telos dismissed its claim for arbitration without
prejudice, subject to its contractual right to dispute any future disbursement from escrow. </FONT></P>


<P><FONT SIZE=2><I>Telos Technology,&nbsp;Inc. Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;22, 2005, plaintiffs Telos Technology,&nbsp;Inc., Telos Technology (Canada),&nbsp;Inc., Telos Technology (Bermuda)&nbsp;Ltd., and Telos
Engineering Limited (collectively, the "Telos Plaintiffs") filed a Complaint against us in the Superior Court of California, County of Santa Clara. The Complaint alleges five causes of action,
including breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent inducement, intentional misrepresentation and negligent misrepresentation, all of which arise
from the Asset Purchase Agreement between the parties dated April&nbsp;21, 2004. The Telos Plaintiffs assert that we breached the express and implied terms of the Asset Purchase Agreement and made
representations to the Telos Plaintiffs during negotiations that we never intended to fulfill. The Telos Plaintiffs seek at least $19&nbsp;million in damages, unspecified punitive damages and
attorneys' fees. On December&nbsp;28, 2005, the Telos Plaintiffs filed a First Amended Complaint, alleging substantially the same facts and seeking the same relief. On January&nbsp;26, 2006, we
filed a demurrer with respect Telos' three tort causes of action. On March&nbsp;23, 2006, the Court sustained our demurrer to all three tort causes of action and allowed Telos thirty days to amend
its complaint. On April&nbsp;12, 2006, Telos filed a Second Amended Complaint, alleging substantially the same facts and seeking the same relief as in the First Amended Complaint. We have not yet
answered Telos' allegations in the Second Amended Complaint and intend to file another demurrer to the tort causes of action, denying all of the material allegations therein. Discovery is underway,
and no trial date has been set. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>74</FONT></P>

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<P><FONT SIZE=2><I>Passave,&nbsp;Inc. Litigation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2005, we filed suit against Passave,&nbsp;Inc. ("Passave") for breaches of contract and warranties in connection with a semiconductor device
sold by Passave,&nbsp;Ltd. (Passave's wholly-owned subsidiary) to us. The case is currently pending in the Superior Court of California, County of Santa Clara. Our Complaint alleges that the Passave
device, known as the PAS5001M3 chip, has exhibited certain operational malfunctions within some of our Fiber-to-the-Home product line, and has thereby caused damage
to us. On or about January&nbsp;20, 2006, Passave filed its answer, affirmative defenses and demurrer to the Complaint. The Court sustained Passave's demurrer after the hearing on March&nbsp;28,
2006. On May&nbsp;9, 2006, we filed our Amended Complaint naming both Passave,&nbsp;Inc. and its Israeli subsidiary, Passave,&nbsp;Ltd., as defendants. The Amended Complaint states causes of
action for breach of contract, breaches of warranty, indemnification, unfair competition and negligent misrepresentation, and seeks compensatory damages and other relief. Discovery is ongoing. On
June&nbsp;7, 2006, Passave,&nbsp;Ltd. filed a notice of removal in the Northern District of California. Passave,&nbsp;Inc. filed a motion to dismiss the Amended Complaint in the Northern
District Court on June&nbsp;14, 2006, and noticed the hearing for August&nbsp;18, 2006. On June&nbsp;19, 2006, we filed a motion for remand to return the action to the Santa Clara County
Superior Court, and noticed the hearing for August&nbsp;4, 2006. We intend to pursue our rights and remedies against Passave,&nbsp;Inc. and Passave,&nbsp;Ltd. vigorously. </FONT></P>

<P><FONT SIZE=2><I>Cell Communication&nbsp;Ltd. Arbitration  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;27, 2005, we received notice of a demand for arbitration filed against us by Cell Communication&nbsp;Ltd. of Nigeria. The demand was filed in
the London Court of International Arbitration ("LCIA"). In its Amended Claim, Cell Communication claims 'general' damages of $26.6&nbsp;million and "special' damages of $15&nbsp;million
(alternatively $41&nbsp;million general damages) in connection with alleged failures of products purchased from Telos Technology, whose assets have been acquired by us. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
arbitrator has been selected by the LCIA. The arbitrator has ordered the determination of certain preliminary issues as to whether the claims made by Cell Communication are
irrecoverable as a matter of English law. There was a hearing on May&nbsp;26, 2006 in respect of these preliminary issues. On June&nbsp;13, 2006, the arbitrator issued a partial award in which he
addressed several issues. Among them, the arbitrator adopted our position that liability in this matter is limited to the amount of the purchase price paid by Cell Communications. No date for the
substantive hearing has been scheduled. We intend to deny all liability, and believe we have meritorious defenses. </FONT></P>

<P><FONT SIZE=2><I>Other  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a party to other litigation matters and claims that are normal in the course of operations, and while the results of such litigation matters and claims
cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse impact on our financial position or results of operations. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the future we may subject to other lawsuits. Any litigation, even if not successful against us, could result in substantial costs and divert management's attention and other resources
away from our business operations. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>75</FONT></P>

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<P><FONT SIZE=2><A
NAME="dw1172_item_1a_#151;risk_factors"> </A>
<A NAME="toc_dw1172_3"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM&nbsp;1A&#151;RISK FACTORS    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>FACTORS AFFECTING FUTURE OPERATING RESULTS<BR>
RISKS RELATED TO OUR COMPANY  </B></FONT></P>

<P><FONT SIZE=2><I>Our future product sales are unpredictable and, as a result, our operating results are likely to fluctuate from quarter to quarter.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate in the future due to a variety of factors, some of which are
outside of our control. Factors that may affect our future operating results include: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
timing and size of the orders for our products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>consumer
acceptance of new products we may introduce to market;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in the growth rate of customer purchases of communications services;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
lengthy and unpredictable sales cycles associated with sales of our products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>revenue
recognition, which is based primarily on customer acceptance of delivered products, is unpredictable;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>cancellation,
deferment or delay in implementation of large contracts;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>quality
issues resulting from the design or manufacture of the products, or from the software used in the product;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>cash
collection cycles in China and other emerging markets;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
decline in business activity we typically experience during the Chinese Lunar New Year, which leads to decreased sales and collections during our first fiscal quarter;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>issues
that might arise from the integration of acquired entities or the inability to achieve expected results from such acquisitions; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>shifts
in our product mix or market focus. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of these and other factors, period-to-period comparisons of our operating results are not necessarily meaningful or indicative of future performance.
In addition, the factors noted above may make it difficult for us to forecast and provide in a timely manner public guidance (including updates to prior guidance) related to our projected financial
performance. Furthermore, it is possible that in some future quarters our operating results will fall below the expectations of securities analysts or investors. If this occurs, the trading price of
our common stock could decline. </FONT></P>

<P><FONT SIZE=2><I>Competition in our markets may lead to reduced prices, revenues and market share.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have experienced intense competition in the past years, and we believe that we will continue to face intense competition from both domestic and international
companies in our target markets, many of which may operate under lower cost structures or may be given preferential treatment by applicable governmental regulators and policies and have much larger
sales forces than we do. Additionally, other companies not presently offering competing products may also enter our target markets. Many of our competitors have significantly greater financial,
technical, product development, sales, marketing and other resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in service
provider requirements. Our competitors may also be able to devote greater resources than we can to the development, promotion and sale of new products. These competitors may be able to offer
significant financing arrangements to service providers, which may give them a competitive advantage in selling systems to service providers with limited financial resources. In many of the developing
markets in which we operate or intend to operate, relationships </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>76</FONT></P>

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<P><FONT SIZE=2>with
local governmental telecommunications agencies are important to establish and maintain. In many such markets, our competitors may have or be able to establish better relationships with local
governmental telecommunications agencies than we have, which could result in their ability to influence governmental policy formation and interpretation to their advantage. Additionally, our
competitors might have better relationships with their third party suppliers and obtain component parts at a reduced rate, allowing them to offer their end products at reduced prices. Moreover, the
telecommunications and data transmission industries have experienced significant consolidation, and we expect this trend to continue. If we have fewer significant customers, we may be more reliant on
such large customers and our bargaining position and profit margins may suffer. Increased competition is likely to result in price reductions, reduced gross profit as a percentage of net sales and
loss of market share, any one of which could materially harm our business, cash flows and financial condition, including potential impairment in value of our tangible and intangible assets and
goodwill if extended losses were incurred. </FONT></P>

<P><FONT SIZE=2><I>If we seek to secure additional financing and are not able to do so, our ability to expand strategically may be limited. If we are able to secure additional financing, our
stockholders may experience dilution of their ownership interest, or we may be subject to limitations on our operations and increased leverage.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently anticipate that our available cash resources, which include existing cash and cash equivalents, short-term investments, cash from
operations and available credit lines will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next twelve months. If we are unable to generate
sufficient cash flows from operations, we may need to raise additional funds to develop new or enhanced products, respond to competitive pressures, take advantage of acquisition opportunities or raise
capital for strategic purposes. If we raise additional funds through the issuance of equity securities, our stockholders will experience dilution of their ownership interest, and the newly issued
securities may have rights superior to those of common stock.
If we raise additional funds by issuing debt, we may be subject to limitations on our operations and our leverage may increase. For example, in connection with the sale of convertible debt securities
in March&nbsp;2003, we incurred $402.5&nbsp;million of indebtedness. As a result of this indebtedness, our principal and interest payment obligations have increased substantially. In fiscal year
2005, approximately $127.9&nbsp;million of this indebtedness was exchanged with the holders for $57.1&nbsp;million in cash and 4,988,100 shares of our common stock. The degree to which we are
leveraged could materially and adversely affect our ability to obtain financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and
competitive pressures. Our ability to meet our debt service obligations will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our
operations, many of which are beyond our control. Finally, we are not certain that we can maintain our existing unsecured credit lines available to our China operations or additional sources of
financing may not be available on reasonable terms or at all if and when we require it, either of which could harm our business. </FONT></P>


<P><FONT SIZE=2><I>The average selling prices of our products may decrease, which may reduce our revenues and our gross profit. As a result, we must introduce new products and reduce our costs in
order to maintain profitability.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The average selling prices for communications access and switching systems and handsets have historically declined as a result of a number of factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>increased
competition;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>aggressive
price reductions by competitors;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>rapid
technological change; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>constant
change in customer buying behavior and market trends. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>77</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
average selling prices of our products may continue to decrease in the future in response to product introductions by us or our competitors or other factors, including price
pressures from customers. Certain of our products, including wireless handsets, have historically had low gross profit margins, and any further deterioration of our profit margins on such products
could result in losses with respect to such products. Therefore, we must continue to develop and introduce new products and enhancements to existing products that incorporate features that can be sold
at higher average selling prices. Failure to do so, or the failure of consumers or our direct customers to accept such new products could cause our revenues and gross profit to decline. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
cost reduction efforts may not allow us to keep pace with competitive pricing pressures or lead to improved gross profit, as a percentage of net sales. In order to be competitive, we
must continually reduce the cost of manufacturing our products through design and engineering changes. We may not be successful in these efforts or in delivering our products to market in a timely
manner. In addition, any redesign may not result in sufficient cost reductions to allow us to reduce the prices of our products to remain competitive or to improve or maintain our gross profit, as a
percentage of net sales, which would cause our financial results to suffer. </FONT></P>

<P><FONT SIZE=2><I>Sales in China have historically accounted for a material portion of our total sales, and our business, financial condition and results of operations are to a significant
degree subject to economic, political and social events in China.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately $929.0&nbsp;million, or 32%, and $2,133.3&nbsp;million, or 79%, of our net sales in the fiscal years ended 2005 and 2004, respectively, occurred
in China. While we have expanded into other markets, a significant portion of our net sales will be derived from China for the foreseeable future. In addition, we have made substantial investments in
China and, therefore, our business, financial condition and results of operations are to a significant degree subject to economic, political, legal and social developments and other events in China.
Please read the risks detailed below under the heading "Risks Related to Conducting Business in China" for additional information about the risks we face in connection with our China operations. </FONT></P>


<P><FONT SIZE=2><I>Our market is subject to rapid technological change, and to compete effectively, we must continually introduce new products and product enhancements that achieve market
acceptance.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for communications equipment is characterized by rapid technological developments, frequent new product introductions, changes in consumer preferences
and evolving industry and regulatory standards. Our success will depend in large part on our ability to enhance our technologies and develop and introduce new products and product enhancements that
anticipate changing service provider requirements, technological developments and evolving consumer preferences. We may need to make substantial capital expenditures and incur significant research and
development costs to develop and introduce new products and enhancements. If we fail to develop and introduce new products or enhancements to existing products that effectively respond to
technological change on a timely basis, our business, financial condition and results of operations could be materially adversely affected. Certain of our products, including wireless handsets, have a
short product life. Moreover, from time to time, our competitors or we may announce new products or product enhancements, technologies or services that have the potential to replace or shorten the
life cycles of our products and that may cause customers to defer purchasing our existing products, resulting in charges for inventory obsolescence reserves. Future technological advances in the
communications industry may diminish or inhibit market acceptance of our existing or future products or render our products obsolete. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>78</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even
if we are able to develop and introduce new products, they may not gain market acceptance. Market acceptance of our products will depend on various factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>our
ability to obtain necessary approvals from regulatory organizations within the countries in which we operate and for any new technologies that we introduce;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
length of time it takes service providers to evaluate our products, causing the timing of purchases to be unpredictable;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
compatibility of our products with legacy technologies and standards existing in previously deployed network equipment;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>our
ability to attract customers who may have preexisting relationships with our competitors;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>product
pricing relative to performance;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
level of customer service available to support new products; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
timing of new product introductions meeting demand patterns. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
our products fail to obtain market acceptance in a timely manner, our business and results of operations could suffer. </FONT></P>

<P><FONT SIZE=2><I>We depend on some sole source and key suppliers, as well as international sources, for handsets, base stations, components and materials used in our products. If we cannot
secure adequate supplies of high quality products at competitive prices or in a timely manner from these suppliers or sources, or if the suppliers successfully market their products directly to our
customers, our competitive position, reputation and business could be harmed.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have contracts with a limited group of suppliers to purchase some components and materials used in our products. If any supplier is unwilling or unable to
provide us with high-quality components and materials in the quantities required and at the costs specified by us, we may not be able to find alternative sources on favorable terms, in a
timely manner, or at all. Further, a supplier could market its products directly to our customers. The possibility of a supplier marketing its own products would create direct competition and may
affect our ability to obtain adequate supplies. Our inability to obtain or to develop alternative sources if and as required could result in delays or reductions in manufacturing or product shipments.
From time to time, there could be shortages of certain products or components. Moreover, our suppliers may supply us with inferior quality products. If an inferior product supplied by a third party is
embedded in our end product and causes a problem, it might be difficult to identify the source of the problem as being due to the component parts. If any of these events occur, our competitive
position, reputation and business could suffer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ability to source a sufficient quantity of high-quality, cost-effective components used in our products may also be limited by import restrictions and duties
in the foreign countries in which we manufacture our products. We require a significant number of imported components to manufacture our products, and imported electronic components and other imported
goods used in the operation of our business may be limited by a variety of permit requirements, approval procedures, import duties and licensing requirements. Moreover, import duties on such
components increase the cost of our products and may make them less competitive. </FONT></P>

<P><FONT SIZE=2><I>Product defects or performance quality issues could cause us to lose customers and revenue or to incur unexpected expenses.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of our products are highly complex and may have quality deficiencies resulting from the design or manufacture of such product, or from the software or
components used in the product. For example, during 2005 we recorded warranty charges of $70.6&nbsp;million, including special warranty charges </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>79</FONT></P>

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<P><FONT SIZE=2>of
$11.7&nbsp;million for certain asynchronous digital subscriber line ("ADSL") products, $4.0&nbsp;million for NetRing&#153; equipment and $14.9&nbsp;million for GEPON
equipment sold to SBBC, an affiliate of SOFTBANK CORP and SOFTBANK America&nbsp;Inc., during 2003 and 2004. Often these issues are identified prior to the shipment of the products and may cause
delays in market acceptance of our products, delays in shipping products to customers, or the cancellation of orders. In other cases, we may identify the quality issues after the shipment of products.
In such cases, we may incur unexpected expenses and diversion of resources to replace defective products or correct problems. Such pre-shipment and post-shipment quality issues
could result in delays in the recognition of revenue, loss of revenue or future orders, and damage to our reputation and customer relationships. In addition, we may be required to pay damages for
failed performance under certain customer contracts. </FONT></P>

<P><FONT SIZE=2><I>Our global diversification strategy and growth has strained our resources, and if we are unable to manage this growth, our operating results will be negatively affected.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have recently experienced a period of rapid growth and anticipate that we must continue to transform our operations to address market demands and potential
market opportunities globally. This transformation will place a significant strain on our management, operational, financial and other resources. To manage this transformation effectively, we will
need to take various actions, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>enhancing
management information systems, including forecasting procedures;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>further
developing our operating, administrative, financial and accounting systems and controls;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>managing
our working capital and sources of financing;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>maintaining
close coordination among our engineering, accounting, finance, marketing, sales and operations organizations;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>retaining,
training and managing our employee base;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>enhancing
human resource operations and improving employee hiring and training programs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>reorganizing
our business structure to more effectively allocate and utilize our internal resources;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>improving
and sustaining our supply chain capability; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>managing
both our direct and indirect sales channels in a cost-efficient and competitive manner. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we fail to implement or improve systems or controls or to manage any future growth and transformation effectively, our business could suffer. </FONT></P>

<P><FONT SIZE=2><I>Any failure by us to execute planned cost reductions successfully could result in total costs and expenses that are greater than expected.  </I></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have undertaken restructuring plans to bring operational expenses to appropriate levels for each of our businesses, while simultaneously implementing extensive
new company-wide expense-control programs. In 2005, we announced workforce restructurings. These programs involved the termination of approximately 1,595 employees worldwide through
December&nbsp;31, 2005. We expect the cost savings to be used to offset market forces or to be reinvested in our businesses to strengthen our competitiveness. We may have further workforce
reductions or rebalancing actions in the future. Significant risks associated with these actions and other workforce management issues that may impair our ability to achieve anticipated cost
reductions or may otherwise harm our business include delays in implementation of anticipated workforce reductions in highly regulated locations outside of the United States, particularly in Europe
and Asia, redundancies among restructuring programs, decreases in employee morale and the failure to meet operational targets due to the loss of employees, particularly sales employees. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>80</FONT></P>

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<P><FONT SIZE=2><I>Our success is dependent on continuing to hire and retain qualified personnel, and if we are not successful in attracting and retaining these personnel and in managing key
employee turnover, our business will suffer.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The success of our business depends in significant part upon the continued contributions of key technical and senior management personnel, many of whom would be
difficult to replace. In particular, our success depends in large part on the knowledge, expertise and services of Hong Liang Lu, our Chairman of the Board, President and Chief Executive Officer, Ying
Wu, our Chairman and Chief Executive Officer of China Operations, and Philip Christopher, President and Chief Executive Officer of our Personal Communications Division. The loss of any key employee,
the failure of any key employee to perform satisfactorily in his or her current position or our failure to attract and retain other key technical and senior management employees could have a
significant negative impact on our operations. For example, Mr.&nbsp;Lu has announced that he will resign as our Chairman of the Board, President and Chief Executive Officer, effective as of
December&nbsp;31, 2006, and we are searching for a Chief Operating Officer. Mr.&nbsp;Wu will assume the CEO position as of January&nbsp;1, 2007. Moreover, we have experienced turnover in key
employee positions within our financial management team&#151;each of our current chief financial officer and controller joined the Company in the latter half of 2005. If we cannot adequately
transition management of our Company after Mr.&nbsp;Lu's resignation or if we cannot recruit a suitable Chief Operating Officer, or if we cannot successfully manage employee turnover in other key
positions, our business may suffer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
our workforce restructurings, to effectively manage our operations, we will need to recruit, train, assimilate, motivate and retain qualified employees both locally and
internationally. Competition for qualified employees is intense, and the process of recruiting personnel in all fields,
including technology, research and development, sales and marketing, administration and management with the combination of skills and attributes required to execute our business strategy can be
difficult, time-consuming and expensive. As we grow globally, we must implement hiring and training processes that are capable of quickly deploying qualified local residents to
knowledgeably support our products and services. Alternatively, if there is an insufficient number of qualified local residents available, we might incur substantial costs importing expatriates to
service new global markets. For example, we have historically experienced difficulty finding qualified accounting personnel knowledgeable in both U.S. and Chinese accounting standards who are Chinese
residents. If we fail to attract, hire, assimilate or retain qualified personnel, our business would be harmed. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competitors
and others have in the past, and may in the future, attempt to recruit our employees. In addition, companies in the telecommunications industry whose employees accept
positions with competitors frequently claim that the competitors have engaged in unfair hiring practices. We may be the subject of these types of claims in the future as we seek to hire qualified
personnel. Some of these claims may result in material litigation and disruption to our operations. We could incur substantial costs in defending ourselves against these claims, regardless of their
merit. </FONT></P>

<P><FONT SIZE=2><I>Any acquisitions and divestitures that we undertake could be difficult to integrate, disrupt our business, dilute our stockholders and harm our operating results.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have acquired and divested certain businesses, products and technologies. Anticipated benefits of these acquisitions and divestitures may not be realized. We
have in the past and will continue to evaluate acquisition prospects that would complement our existing product offerings, augment our market coverage, enhance our technological capabilities, or that
may otherwise offer growth opportunities. Acquisitions may result in dilutive issuances of equity securities, use of our cash resources, the incurrence of debt and the amortization of expenses related
to intangible assets. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of operations, technologies, products and personnel of the acquired company,
diversion of management's attention from other business concerns, risks of entering markets in which we have no direct or limited prior experience, the potential loss of key employees of the acquired
company, unanticipated costs and, in </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>81</FONT></P>

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<P><FONT SIZE=2>the
case of the acquisition of financially troubled businesses, challenges as to the validity of such acquisitions from third party creditors of such businesses. For example, in the fourth quarter
2004, we encountered difficulties in integrating Hyundai Syscomm,&nbsp;Inc. ("HSI") legacy operations into our operations and determined to abandon a substantial amount of HSI's legacy operations.
As a result, in the fourth quarter 2004, we wrote off the entire goodwill and intangibles associated with HSI. </FONT></P>

<P><FONT SIZE=2><I>We may be unable to adequately protect the loss or misappropriation of our intellectual property, which could substantially harm our business.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on a combination of patents, copyrights, trademarks, trade secret laws and contractual obligations to protect our technology. We have applied for patents
in the United States and internationally. Additional patents may not be issued from our pending patent applications, and our issued patents may not be upheld. In addition, we have, from time to time,
chosen to abandon previously filed patent and trademark applications. Moreover, we may face difficulties in registering our existing trademarks in new jurisdictions in which we operate, and we may be
forced to abandon or change product or service trademarks because of the unavailability of our existing trademarks. We cannot guarantee that the intellectual property protection measures that we have
taken will be sufficient to prevent misappropriation of our technology or trademarks or that our competitors will not independently develop technologies that are substantially equivalent or superior
to ours. In addition, the legal systems of many foreign countries do not protect or honor intellectual property rights to the same extent as the legal system of the United States. For example, in
China, the legal system in general, and the intellectual property regime in particular, are still in the development stage. It may be very difficult, time-consuming and costly for us to
attempt to enforce our intellectual property rights in these jurisdictions. </FONT></P>

<P><FONT SIZE=2><I>We may be subject to claims that we infringe the intellectual property rights of others, which could substantially harm our business.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The industry in which we compete is moving towards aggressive assertion, licensing, and litigation of patents and other intellectual property rights. From time to
time, we have become aware of the possibility or have been notified that we may be infringing certain patents or other intellectual property rights of others. Regardless of their merit, responding to
such claims could be time consuming, divert management's attention and resources and cause us to incur significant expenses. In addition, although some of our supplier contracts provide for
indemnification from the supplier with respect to losses or expenses incurred in connection with any infringement claim, certain contracts with our key suppliers do not provide for such protection.
Moreover, certain of our sales contracts provide that we must indemnify our customers against claims by third parties for intellectual property rights infringement related to our products. There are
no limitations on the maximum potential future payments under these guarantees. Therefore, we may incur substantial costs related to any infringement claim, which may substantially harm our results of
operations and financial condition. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have been and may in the future become subject to litigation to defend against claimed infringements of the rights of others or to determine the scope and validity of the proprietary
rights of others. Future litigation may also be necessary to enforce and protect our patents, trade secrets and other intellectual property rights. Any intellectual property litigation or threatened
intellectual property litigation could be costly, and adverse determinations or settlements could result in the loss of our proprietary rights, subject us to significant liabilities, require us to
seek licenses from or pay royalties to third parties which may not be available on commercially reasonable terms, if at all, and/or prevent us from manufacturing or selling our products, which could
cause disruptions to our operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event that there is a successful claim of infringement against us and we fail to develop non-infringing technology or license the propriety rights on commercially
reasonable terms and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>82</FONT></P>

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<P><FONT SIZE=2>conditions,
our business, results of operations and financial condition could be materially and adversely impacted. </FONT></P>

<P><FONT SIZE=2><I>Our multinational operations subject us to various economic, political, regulatory and legal risks.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We market and sell our products globally, with a significant portion of our sales made in China. The expansion of our existing multinational operations and entry
into new markets will require significant management attention and financial resources. Multinational operations are subject to a variety of risks, such as: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
burden of complying with a variety of foreign laws and regulations;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
burden of complying with United States laws and regulations for foreign operations, including the Foreign Corrupt Practices Act;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>difficulty
complying with continually evolving and changing global product and communications standards and regulations for both our end products and their component
technology;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>market
acceptance of our new products, including longer product acceptance periods in new markets into which we enter;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>reliance
on local original equipment manufacturers ("OEMs"), third party distributors and agents to effectively market and sell our products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>unusual
contract terms required by customers in developing markets;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in local governmental control or influence over our customers;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
to import and export regulations, including quotas, tariffs, licensing restrictions and other trade barriers;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>evolving
and unpredictable nature of the economic, regulatory, competitive and political environments;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>reduced
protection for intellectual property rights in some countries;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>unproven
business operation models developed or operated in specific countries or regions;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>longer
accounts receivable collection periods; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>difficulties
and costs of staffing, monitoring and managing multinational operations, including but not limited to internal controls and compliance. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><I>We do business in markets that are not fully developed, which subjects us to various economic, political, regulatory and legal risks unique to developing economies.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less developed markets present additional risks, such as the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>customers
that may be unable to pay for our products in a timely manner or at all;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>new
and unproven markets for our products and the telecommunications services that our products enable;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>lack
of a large, highly trained workforce;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>difficulty
in controlling local operations from our headquarters;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>variable
ethical standards and an increased potential for fraud;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>unstable
political and economic environments; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>lack
of a secure environment for our personnel, facilities and equipment. </FONT></DD></DL>
</UL>
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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In particular, these factors create the potential for physical loss of inventory and misappropriation of operating assets. We have in the past experienced cases of vandalism and armed
theft of our equipment that had been or was being installed in the field. If disruptions for any of these reasons become too severe in any particular market, it may become necessary for us to
terminate contracts and withdraw from that market and suffer the associated costs and lost revenue. </FONT></P>

<P><FONT SIZE=2><I>Our wireless handset products are subject to a wide range of environmental, health and safety laws, and may expose us to potential health and environmental liability claims.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our handset products are subject to a wide range of environmental, health and safety laws, including laws relating to the use, disposal and clean up of, and human
exposure to hazardous substances. In the United States, these laws often require parties to fund remedial action regardless of fault. Factors such as the discovery of additional contaminants, the
extent of remediation and compliance expenses, and the imposition of additional clean up obligations could cause us to incur substantial costs relating to remediation activities. Compliance with
existing or future environmental, health and safety laws could also cause us to incur substantial costs relating to such compliance, including the expense of modifying product designs and
manufacturing processes. In addition, restrictions on the use of certain materials in our facilities or products in the future could have a negative impact on our operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally,
there have been claims made alleging a link between the use of wireless handsets and the development or aggravation of certain cancers, including brain cancer. The
scientific community is divided on whether there is a risk from wireless handset use, and if so, the magnitude of the risk. Even if there is no link established between wireless handset use and
cancer, the negative publicity and possible litigation could have a material adverse effect on our business. In the past, several plaintiffs' groups have brought class actions against wireless handset
manufacturers and distributors, alleging that wireless handsets have caused cancer. To date, we have not been named in any of these actions and none of these actions has been successful. In the future
we could incur substantial costs in defending ourselves against similar claims, regardless of their merit. Also, claims may be successful in the future and may have a material adverse effect on our
business. </FONT></P>

<P><FONT SIZE=2><I>We are subject to a wide range of environmental, health and safety laws and efforts to comply with such laws may be costly and may adversely impact our financial performance.  </I></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operations and the products we manufacture and/or sell are subject to a wide range of global environmental, health and safety laws. Compliance with existing
or future environmental, health and safety laws could subject us to future costs, liabilities, impact our production capabilities, constrict our ability to sell, expand or acquire facilities and
generally impact our financial performance. Some of these laws relate to the use, disposal, clean up of, and exposure to hazardous substances. In the United States, laws often require parties to fund
remedial studies or action regardless of fault. Over the last several years, the European Union (the "EU") countries have enacted environmental laws regulating electronic products. Our products are
impacted by laws that mandate the recycling of waste in electronic products sold in the EU and that will limit or prohibit the use of certain substances in electronic products beginning July&nbsp;1,
2006. Other countries outside of Europe are expected to adopt similar laws. We may incur additional expenses to comply with these laws. </FONT></P>

<P><FONT SIZE=2><I>Currency rate fluctuations and exchange controls may adversely affect our cash flow and operating results.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because a significant percentage of our sales are made in foreign countries and denominated in local currency, we are exposed to market risk for changes in
foreign exchange rates on our foreign currency denominated accounts and notes receivable balances. Historically, the majority of our sales have been made in China and denominated in Renminbi. Prior to
July&nbsp;2005, the impact of currency fluctuations of Renminbi were insignificant as it was fixed to the U.S. dollar. However, in July&nbsp;2005, </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>84</FONT></P>

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<P><FONT SIZE=2>China
uncoupled the Renminbi from the U.S. dollar and let it float in a narrow band against a basket of foreign currencies. The move revalued the Renminbi by 2.1% against the U.S. dollar; however, it
is uncertain what further adjustments may be made in the future. The Renminbi-U.S. dollar exchange rate could float, and the Renminbi could appreciate relative to the U.S. dollar. For
example, the Renminbi-U.S. dollar exchange rate was 8.28 to the U.S. dollar prior to the float of the Renminbi in July&nbsp;2005 and 8.07 Renminbi to the U.S. dollar at the end of 2005.
Any significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues, operating results and financial position. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Outside
of China, our primary foreign currency exposures have related to non-dollar denominated sales and purchases in Japan, Europe and Canada. Additionally, we have
exposures to emerging market currencies, which can have extreme currency volatility. We have experienced material adverse impacts on our results of operations from fluctuations in currency exchange
rates and may continue to do so in the future. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may, from time to time, enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on certain foreign currency
receivables and payables. Our attempts to hedge against these risks may not be successful, resulting in an adverse impact on our results of operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moreover,
some of the foreign countries in which we do business might impose currency restrictions that may limit the ability of our subsidiaries and joint ventures in such countries to
obtain and remit foreign currency necessary for the purchase of imported components and may limit our ability to obtain and remit foreign currency in exchange for foreign earnings. For example, China
employs currency controls restricting Renminbi conversion, limiting our ability to engage in currency hedging activities in China. Various foreign exchange controls may also make it difficult for us
to repatriate earnings, which could have a material adverse effect on our ability to conduct business globally. </FONT></P>

<P><FONT SIZE=2><I>Business interruptions could adversely affect our business.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, external interference with our information technology
systems, incidents of terrorism and other events beyond our control. For example, our Hangzhou manufacturing facility's ability to produce sufficient products is dependent upon a continuous power
supply. However, the Hangzhou facility has in the past been subject to power shortages, which has affected our ability to produce and ship sufficient products. We do not have a detailed disaster
recovery plan, and the occurrence of any events like these that disrupt our business could harm our business and operating results. </FONT></P>

<P><FONT SIZE=2><I>We may suffer losses with respect to equipment held at customer sites, which could harm our business.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We face the risk of loss relating to our equipment held at customer sites. In some cases, our equipment held at customer sites is under contract, pending final
acceptance by the customer. We generally do not hold title or risk of loss on such equipment, as title and risk of loss are typically transferred to the customer upon delivery of our equipment.
However, we do not recognize revenue and accounts receivable with respect to the sale of such equipment until we obtain acceptance from the customer. If we do not obtain final acceptance, we may not
be able to collect the contract price and recover this equipment or its associated costs. In other cases, particularly in China, where governmental approval is required to finalize certain contracts,
inventory not under contract may be held at customer sites. We hold title and risk of loss on this inventory until the contracts are finalized and, as such, are subject to any losses incurred
resulting from any damage to or loss of this inventory. If our contract negotiations fail or if the government of China otherwise delays approving contracts, we may not recover or receive payment for
this inventory. Moreover, our insurance may not cover all losses </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>85</FONT></P>

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<P><FONT SIZE=2>incurred
if our inventory at customer sites not under contract is damaged prior to contract finalization. If we incur a loss relating to inventory for any of the above reasons, our financial
condition, cash flows, and operating results could be harmed. </FONT></P>

<P><FONT SIZE=2><I>Restrictions on the use of handsets while driving could affect our future growth.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Several foreign governments and U.S. state and local governments have adopted or are considering adopting legislation that would restrict or prohibit the use of
wireless handsets while driving. Widespread legislation that restricts or prohibits the use of wireless handsets while driving could negatively affect our future growth. </FONT></P>

<P><FONT SIZE=2><I>We have been named as a defendant in securities litigation and other lawsuits, as well as lawsuits in the ordinary course of business.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are currently a defendant in several securities litigation class actions and other lawsuits, as well as lawsuits in the ordinary course of our business. In the
future, we may be subject to similar litigation. The defense of these lawsuits may divert our management's attention, and we may incur significant expenses in defending these lawsuits (including
substantial fees of lawyers and other professional advisors and potential obligations to indemnify officers and directors who may be parties to such actions). In addition, we may be required to pay
judgments or settlements that could have a material adverse effect on our results of operations, financial condition and liquidity. </FONT></P>

<P><FONT SIZE=2><I>We face risks related to pending governmental inquiries.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have received notice of a formal inquiry by the staff of the Securities&nbsp;&amp; Exchange Commission ("SEC") into certain aspects of our financial disclosures
during prior reporting periods and certain other issues. In addition, in December&nbsp;2005 the U.S. Embassy in Mongolia informed us that it had forwarded to the Department of Justice ("DOJ")
allegations that an agent of our Mongolia joint venture had offered payments to a Mongolian government official in possible violation of the Foreign Corrupt Practices Act (the "FCPA"). In
April&nbsp;2006, we became aware that an agent of the Company may have made an offer to pay an Indian government official in possible violation of the FCPA. We, through our Audit Committee,
authorized an independent investigation into these matters, and we have been in contact with the DOJ and SEC regarding the investigation. At this time, we cannot predict when any governmental inquiry
will be completed or what the outcome of any governmental inquiry will be. These inquiries could harm relationships with existing customers and our ability to obtain new customers and partners. If the
SEC or the DOJ makes a determination that we have violated federal laws, we may face sanctions including, but not limited to, fines, disgorgement and an injunction. Additionally, such a determination
by the SEC or the DOJ could adversely affect our stock price. It is also possible that the findings and outcome of these inquiries may affect other lawsuits that are pending. Finally, the inquiries
could divert management attention and resources, which could harm our business. </FONT></P>

<P><FONT SIZE=2><I>Failure to achieve and maintain effective internal controls in accordance with Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our
business and stock price.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") requires that we establish and maintain an adequate internal control structure and
procedures for financial reporting and include a report of management on our internal control over financial reporting. Our annual report on Form&nbsp;10-K must contain an assessment by
management of the effectiveness of our internal control over financial reporting and must include disclosure of any material weaknesses in internal control over financial reporting that we have
identified. In addition, our independent registered public accounting firm must attest to and report on management's assessment of the effectiveness of our internal control over financial reporting. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>86</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have identified material weaknesses in our internal control over financial reporting. See "Item&nbsp;9A&#151;Controls and Procedures&#151;Management's Report on
Internal Control Over Financial Reporting." As of the date of this annual report on Form&nbsp;10-K, we are still in the process of implementing remedial measures related to the material
weaknesses identified both in 2004 and 2005. If our efforts to remediate the weaknesses we identified are not successful, our business and operating results could be harmed and the reliability of our
financial
statements could be impaired, which could adversely affect our stock price. The requirements of Section&nbsp;404 of the Sarbanes-Oxley Act are ongoing and also apply to future years. We expect that
our internal control over financial reporting will continue to evolve as we continue in our efforts to transform our business. Although we are committed to continue to improve our internal control
processes and we will continue to diligently and vigorously review our internal control over financial reporting in order to ensure compliance with the Section&nbsp;404 requirements, any control
system, regardless of how well designed, operated and evaluated, can provide only reasonable, not absolute, assurance that its objectives will be met. In addition, successful remediation of the noted
control deficiencies is dependent on the Company's ability to hire and retain qualified personnel. Therefore, we cannot be certain that in the future additional material weaknesses or significant
deficiencies will not exist or otherwise be discovered. </FONT></P>

<P><FONT SIZE=2><I>Recently enacted changes in securities laws and regulations may result in additional expenses.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Sarbanes-Oxley Act has required and will continue to require changes in some of our corporate governance and securities disclosure or compliance practices.
The Sarbanes-Oxley Act also requires the SEC to promulgate new rules on a variety of subjects, in addition to rule proposals already made, and NASDAQ has revised its requirements for companies that
are quoted on it. These developments (i)&nbsp;have required and may continue to require us to devote additional resources to our operational, financial and management information systems procedures
and controls to ensure our continued compliance with current and future laws and regulations, (ii)&nbsp;will make it more difficult and more expensive for us to obtain director and officer liability
insurance, and may require us to accept reduced coverage, increase our level of self-insurance, or incur substantially higher costs to obtain coverage, and (iii)&nbsp;could make it more
difficult for us to attract and retain qualified members on our board of directors, or qualified executive officers. To implement plans and measures to comply with Section&nbsp;404 of the
Sarbanes-Oxley Act and other related rules, we expect to expend significant resources and incur additional expenses. We continue to evaluate and monitor regulatory developments and cannot estimate the
timing or magnitude of additional costs that we may incur as a result of such developments. </FONT></P>

<P><FONT SIZE=2><I>Changes in accounting rules will increase our compensation expense and may adversely affect our net income.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. These principles are subject to
interpretation by the SEC and various bodies formed to interpret and create appropriate accounting policies. A change in these policies can have a significant effect on our reported results and may
even retroactively affect previously reported transactions. For example, there have been changes to FASB guidelines relating to accounting for stock-based compensation that will increase our
compensation expense, could make our net income less predictable in any given reporting period and could change the way we compensate our employees or cause other changes in the way we conduct our
business. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>87</FONT></P>

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<P><FONT SIZE=2><I>Our ability to complete our planned restructuring and cost-reduction actions and the impact of such actions on our business may be affected by a variety of factors.
These actions may, in turn, expose us to additional operation risks and have an adverse effect on our sales and profitability.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the second and third quarters of 2005, we announced our plans to undertake certain restructuring efforts to reduce costs and simplify our product
portfolios in all of our business units. As a result, we consolidated certain operations in research and development and manufacturing and reduced our employee population. The impact of these actions
on our sales and profitability may be influenced by a variety of factors, including but not limited to our ability to successfully execute our plans, our ability to achieve the anticipated level of
cost savings, and our ability to retain key employees. We may reprioritize our new product development initiatives, which may delay new product introductions to the market and may harm our sales. We
may face additional costs associated with future actions in streamlining our operations, including but not limited to, outsourcing of certain operations to other parties. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
important cost-reduction action has been to reduce the number of employees in our work force. While we have assessed the appropriateness of the size of our work force and
made adjustments accordingly, the reduced work force could cause disruption to our operations. If this were to occur, we could have difficulties fulfilling our orders and our sales and profits could
suffer. Another cost-reduction alternative we may consider is to develop outsourcing arrangements for operations such as supply-chain and information technology management. If we implement
these measures, and the third parties we select to provide such services fail to deliver quality services on time and at reasonable costs, we could have difficulties operating efficiently and our
operating results may be harmed. </FONT></P>

<P><FONT SIZE=2><B>RISKS RELATED TO CONDUCTING BUSINESS IN CHINA  </B></FONT></P>

<P><FONT SIZE=2><I>China's governmental and regulatory reforms may impact our ability to do business in China.  </I></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 1978, the Chinese government has been in a state of evolution and reform. The reforms have resulted in and are expected to continue to result in significant
economic and social development in China. Many of the reforms are unprecedented or experimental and may be subject to change or readjustment due to a variety of political, economic and social factors.
Multiple government bodies are involved in regulating and administering affairs in the telecommunications and information technology industries, among which the Ministry of Information Industry
("MII"), the National Development and Reform Commission ("NDRC"), the State-owned Assets Supervision and Administration Commission ("SASAC") and the State Administration of Radio, Film and Television
("SARFT") play the leading roles. These government agencies have broad discretion and authority over all aspects of the telecommunications and information technology industry in China, including but
not limited to, setting the telecommunications tariff structure, granting carrier licenses and frequencies, approving equipment and products, granting product licenses, approving of the form and
content of transmitted data, specifying technological standards as well as appointing carrier executives, all of which may impact our ability to do business in China. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While
we anticipate that the basic principles underlying the reforms will remain unchanged, any of the following changes in China's political and economic conditions and governmental
policies could have a substantial impact on our business: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
promulgation of new laws and regulations and the interpretation of those laws and regulations;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>inconsistent
enforcement and application of the telecommunications industry's rules and regulations by the Chinese government between foreign and domestic companies;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
restructuring of telecommunications carriers in China, including policy making governing 3G network infrastructure and licensing; </FONT></DD></DL>
</UL>
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<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>restrictions
on IPTV license grants, which could limit the potential market for our products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
introduction of measures to control inflation or stimulate growth;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
introduction of new guidelines for tariffs and service rates, which affect our ability to competitively price our products and services;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in the rate or method of taxation;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
imposition of additional restrictions on currency conversion and remittances abroad; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>any
actions that limit our ability to develop, manufacture, import or sell our products in China, or to finance and operate our business in China. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to modifying the existing telecommunications regulatory framework, the Chinese government is currently preparing a draft of a standard, national telecommunications law (the
"Telecommunications Law") to provide a uniform regulatory framework for the telecommunications industry. Currently a draft of the law has been finished and delivered to the National People's Congress
for discussion. We do not yet know the final nature or scope of the regulations that would be created if the Telecommunications Law is passed. Accordingly, we cannot predict whether it will have a
positive or negative effect on us or on some or all aspects of our business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
China's current regulatory structure, the communications products that we offer in China must meet government and industry standards. In addition, a network access license for the
equipment must be obtained. Without a license, telecommunications equipment is not allowed to be connected to public telecommunications networks or sold in China. Moreover, we must ensure that the
quality of the telecommunications equipment for which we have obtained a network access license is stable and reliable, and will not negatively affect the quality or performance of other installed
licensed products. </FONT></P>

<P><FONT SIZE=2><I>China's changing economic environment may impact our ability to do business in China.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 1978, the Chinese government has been reforming the economic system in China to increase the emphasis placed on decentralization and the utilization of
market forces in the development of China's economy. These reforms have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be
modified or revised by the Chinese government. While we may be able to benefit from the effects of some of these policies, these policies and other measures taken by the Chinese government to regulate
the economy could also have a significant negative impact on economic conditions in China, which would result in a negative impact on our business. </FONT></P>

<P><FONT SIZE=2><I>China's entry into the World Trade Organization and relaxation of trade restrictions have led to increased foreign investment in China's telecommunications industry and may
lead to increased competition in our markets which may have an adverse impact on our business.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China's economic environment has been changing as a result of China's entry, in December of 2001, into the World Trade Organization (the "WTO"). As of 2005, China
had fulfilled its WTO commitments in allowing up to 49% percent foreign investment in wireless service joint-ventures in major cities. Also, a regulation has been issued to allow 25% foreign
investment in basic telecommunication service joint-ventures in Beijing, Shanghai and Guangzhou. Furthermore, China is gradually introducing a market oriented pricing mechanism for the
telecommunication services. In August&nbsp;2005, China MII and National Development and Reform Commission (NDRC) approved the launch of plan-based pricing for fixed-line
telephone service by China's 2 fixed-line operators, China Telecom and China Netcom. In September, MII and NDRC endorsed a "Circular on the Changes in Administration of Telecom Service
Pricing," further loosening the pricing administration on certain </FONT></P>

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<P><FONT SIZE=2>telecom
services. Operators are allowed to freely set price for VOIP service. This is a further step for China toward a full market oriented pricing administration mechanism. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fuelled
by perceived market potential, already many overseas companies are carving out niches in China's telecommunications market, including Vodafone, AT&amp;T, British Telecom, Japan
Telecom and Hong Kong's PCCW and Hutchison Whampoa. France Telecom, for example, has set up a wholly-owned research and development (R&amp;D) facility in China, as a step towards paving the way for future
expansion in the world's biggest telecom market. As China gradually relaxes the foreign-invested enterprises, some international vendors may seize this opportunity to adjust their China strategy,
increasing their investment in China and converting some of their joint-ventures into fully-owned enterprises. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
the existing international vendors increase their investment in China, and more vendors enter the China market, the competition in the telecommunication equipment market may increase,
and as a result, our business may suffer. If China's entry into the WTO results in increased competition or has a negative impact on China's economy, our business could suffer. In addition, although
China is increasingly according foreign companies and foreign investment enterprises established in China the same rights and privileges as Chinese domestic companies as a result of its admission into
the WTO, special laws, administrative rules and regulations governing foreign companies and foreign investment enterprises in China may still place foreign companies at a disadvantage in relation to
Chinese domestic companies and may adversely affect our competitive position. </FONT></P>

<P><FONT SIZE=2><I>Uncertainties with respect to the Chinese legal system may adversely affect us.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct our business in China primarily through our wholly owned subsidiaries incorporated in China. Our subsidiaries are generally subject to laws and
regulations applicable to foreign investment in China. Accordingly, our business might be affected by China's developing legal system. Since 1978, many new laws and regulations covering general
economic matters have been promulgated in China, and government policies and internal rules promulgated by governmental agencies may not be published in time, or at all. As a result, we may operate
our business in violation of new rules and policies without having any knowledge of their existence. In addition, there are uncertainties regarding the interpretation and enforcement of laws, rules
and policies in China. The Chinese legal system is based on written statutes, and prior court decisions have limited precedential value. Because many laws and regulations are relatively new and the
Chinese legal system is still evolving, the interpretations of many laws, regulations and rules are not always uniform. Moreover, the relative inexperience of China's judiciary in many cases creates
additional uncertainty as to the outcome of any litigation, and the interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Finally,
enforcement of existing laws or contracts based on existing law may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment
by a court of another jurisdiction. Any litigation in China may be protracted and result in substantial costs and diversion of resources and management's attention. </FONT></P>

<P><FONT SIZE=2><I>If tax benefits available to our subsidiaries located in China are reduced or repealed, our business could suffer.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Chinese government is considering the imposition of a "unified" corporate income tax that would phase out, over time, the preferential tax treatment to which
foreign investment enterprises, such as ourselves and our joint ventures, are currently entitled. While it is not certain whether the government will implement such a unified tax structure or whether
we will be grandfathered into any new tax structure, if a new tax structure is implemented, such new tax structure may adversely affect our financial condition. Moreover, certain of our subsidiaries
and joint ventures located in China enjoy tax benefits in China that are generally available to foreign investment enterprises. If these tax benefits are reduced or repealed due to changes in tax
laws, our business could suffer. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>90</FONT></P>

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<P><FONT SIZE=2><I>Our ability to continue successful deployment of PAS system and sales of PAS handsets are limited by certain factors, including the following:  </I></FONT></P>

<P><FONT SIZE=2><I>Maturing PAS market and increased competition in handsets and tariffs.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for PAS exceeded 87&nbsp;million users as of the end of fiscal year 2005 and is available in most of the provinces throughout China. We believe the
PAS market has matured. For example, during fiscal year 2005, net sales of the PAS/IPAS system and the wireless infrastructure market declined significantly as compared to fiscal year 2004. In
addition, the increase in handset competitors entering the market has resulted in decreased average selling prices and margins. If additional handset competitors enter the market or if competitors
decide to further reduce pricing, our sales of PAS handsets may be adversely impacted. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
competition from mobile operators, such as China Mobile and China Unicom, has increased in cities where PAS is deployed. Mobile operators offering special promotional
pricing or incentives to customers, such as free incoming calls or free mobile-to-mobile calls, have harmed the ability of our customers, China Telecom and China Netcom, to
compete effectively. The continued use of such incentive programs by mobile operators may adversely impact China Telecom and China Netcom's ability to increase PAS subscriptions. Due to our
relationships with China Telecom and China Netcom, reduced subscription
growth at these carriers may have a material adverse effect on our pricing and harm our business or results of operations. </FONT></P>

<P><FONT SIZE=2><I>Our PAS system and handsets sales may experience a sharp decline if China Telecom or China Netcom obtain licenses allowing them to deliver mobile services.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China's media sources have widely reported that the MII may grant 3G mobile licenses to China Telecom or China Netcom, or to both in 2006 or 2007. If China
Telecom or China Netcom obtain 3G mobile licenses, they may re-allocate capital expenditures to construct 3G networks, and as a consequence, may significantly reduce capital expenditures
relating to PAS networks that utilize our existing products. In addition, it is possible that current PAS frequency bands utilized by PAS networks may be reallocated for use by 3G networks, resulting
in the restriction of or shutting down of PAS networks. If this were to occur, we could lose current and potential future customers of our products, and our financial condition and results of
operations could be significantly harmed. </FONT></P>


<P><FONT SIZE=2><I>We only have trial licenses for the PAS system and handsets in China.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We only have trial licenses for our PAS systems and handsets. We have applied for, but have not yet received, a final official network access license for our PAS
systems and handsets. Based upon communication with the MII, we understand that our PAS systems and handsets are considered to still be in the trial period and sales of our PAS systems and handsets
may continue to be made by us during this trial period, but that licenses will ultimately be required. If we fail to obtain the required licenses, we could be prohibited from making further sales of
the unlicensed products, including our PAS systems and handsets, in China, which would substantially harm our business, financial condition and results of operations. The regulations implementing
these requirements are not very detailed, have not been applied by a court and may be interpreted and enforced by regulatory authorities in a number of different ways. Our legal counsel in China has
advised us that China's governmental authorities may interpret or apply the regulations with respect to which licenses are required and the ability to sell a product while a product is in the trial
period in a manner that is inconsistent with the information received by our legal counsel in China, and either of these conditions could have a material adverse effect on our business, financial
condition and results of operations. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>91</FONT></P>

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<P><FONT SIZE=2><I>Increasing centralization of purchasing decision-making by carriers may lead to customer concentration and affect the results of our business.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most Chinese carriers have three levels of operations: the central headquarters level, the provincial level and the local city/county level. Both central and
provincial levels are independent legal persons and have their own corporate mandate. The purchasing decision-making process may take various forms for different projects and may also differ
significantly from carrier to carrier. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the case of PAS systems, we negotiate and enter into all China Netcom contracts with the provincial operators. However, the central headquarters of China Telecom has chosen to exert
its influence in the purchasing decision-making process by negotiating contractual terms, such as purchase price, payment terms, and acceptance clauses at the central level. The provincial operator
then further negotiates the contract based on the guidelines provided by the headquarters. We enter into final contracts with the provincial operator. However, if this trend of centralized
decision-making expands to unified purchasing, resulting in the negotiation and execution of contracts at the central headquarter level, there may be a concentration of customers which could have a
significant impact on our business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
China Netcom follows China Telecom and exerts the headquarters' influence in price negotiation, it may give downward pressure to the margin of our PAS system products to China Netcom. </FONT></P>

<P><FONT SIZE=2><I>Television over the internet is a new business in China and laws regulating the business have not been fully-developed and are unpredictable. Unfavorable regulation of the
industry may adversely affect our IPTV operations in China and negatively impact our business.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Broadcasting television over the internet has only recently begun in China. The State Administration of Radio, Film and Television (SARFT) issued a measure in
July&nbsp;2004 to regulate the broadcasting of audio-visual programs through the information network, which includes our Internet Protocol television (IPTV) business. SARFT categorized the
information network into the mobile telecommunication network, fixed communications network, microwave communication network, cable television network, satellite or other metropolitan area network,
wide area network, local area network and other information networks categories. The receiving terminal equipment includes computers, television sets, mobile phones and other electronic products.
While regulating the IPTV business, SARFT is encouraging development in China of the digital television business, a business that may be competitive with IPTV in the target market. The digital
television and IPTV target complementary markets and it is not clear the extent of support SARFT will provide for IPTV in setting regulations. For example the Quanzhou Administration of Radio, Film,
and Television issued a notice to stop all IPTV business in Quanzhou on December&nbsp;25, 2005. The Zhejiang Administration of Radio, Film, and Television issued a similar notice on
January&nbsp;10, 2006. In both instances, SARFT had not endorsed the launch of commercial IPTV services in those localities yet through its licensing regime. However, in some other cities, such as
Shanghai and Harbin where IPTV licenses were specifically issued by SARFT, IPTV is progressing well. Because the IPTV industry relates to both television and Internet sectors, it may be subject to
regulation by different governmental authorities, including the Ministry of Information
Industry (MII), which may become involved as a proponent to the IPTV industry. As the growth rate for traditional telecom business slows down, China Telecom, China Netcom and other operators have made
great efforts to develop IPTV. At the end of 2005, an official of MII declared that MII and SARFT would jointly administer the IPTV industry in the coming years. However, due to a lack of uniform
regulation on the development of the IPTV industry, we cannot predict that our IPTV business will operate smoothly in China. Our business may suffer if the law or policy in China does not encourage
the IPTV industry. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>92</FONT></P>

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<P><FONT SIZE=2><I>We currently do not have a license to engage in the IPTV operator service business in China and development of our IPTV business depends upon the cooperation of IPTV license
holder(s) and network operators. If we are unable to work cooperatively with license holder(s) and network operators, our business may suffer.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the measures issued by SARFT in July&nbsp;2004, entities intending to engage in the IPTV operator service business should obtain a license from SARFT and
foreign investment enterprises are prohibited from engaging in the IPTV operator service business. In practice, SARFT only grants such licenses to state-owned companies. Since we are the technical
service and equipment provider in this field, our business development will depend on the cooperation of license holders and network operators. Our business may suffer if we fail to cooperate with
license holders or network operators, or if the license holder(s) we're cooperating with lose their licenses. </FONT></P>

<P><FONT SIZE=2><B>RISKS RELATED TO OUR STOCK PERFORMANCE AND CONVERTIBLE DEBT SECURITIES  </B></FONT></P>

<P><FONT SIZE=2><I>Our stock price is highly volatile.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trading price of our common stock has fluctuated significantly since our initial public offering in March of 2000. Our stock price could be subject to wide
fluctuations in the future in response to many events or factors, including those discussed in the preceding risk factors relating to our operations, as well as: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>actual
or anticipated fluctuations in operating results, actual or anticipated gross profit as a percentage of net sales, levels of inventory, our actual or anticipated rate
of growth and our actual or anticipated earnings per share;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in expectations as to future financial performance or changes in financial estimates or buy/sell recommendations of securities analysts;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in governmental regulations or policies in China;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>our,
or a competitor's, announcement of new products, services or technological innovations;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
operating and stock price performance of other comparable companies; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>news
and commentary emanating from the media, securities analysts or government bodies in China relating to us and to the industry in general. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
market conditions and domestic or international macroeconomic factors unrelated to our performance may also affect our stock price. For these reasons, investors should not rely
on recent trends to predict future stock prices or financial results. In addition, following periods of volatility in a company's securities, securities class action litigation against a company is
sometimes instituted. We have experienced substantial costs and the diversion of management's time and resources on this type of litigation and may do so in the future. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, public announcements by China Telecom, China Netcom, China Mobile, and China Unicom each of which exert significant influence over many of our major customers in China, may
contribute to volatility in the price of our stock. The price of our stock may react to such announcements. </FONT></P>


<P><FONT SIZE=2><I>SOFTBANK CORP. with its related entities, including SOFTBANK America&nbsp;Inc., has significant influence over our management and affairs, which it could exercise against the
best interests of our stockholders.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SOFTBANK CORP. and its related entities, including SOFTBANK America&nbsp;Inc. (collectively, "SOFTBANK"), beneficially owned approximately 12.1% of our
outstanding stock as of March&nbsp;31, 2006. As a result, SOFTBANK has the ability to influence all matters submitted to our stockholders for </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>93</FONT></P>

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<P><FONT SIZE=2>approval,
as well as our management and affairs. Matters that could require stockholder approval include: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>election
and removal of directors;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>our
merger or consolidation with or into another entity; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>sale
of all or substantially all of our assets. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
concentration of ownership may delay or prevent a change of control or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us,
which could decrease the market price of our common stock. </FONT></P>

<P><FONT SIZE=2><I>Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover, even if the transaction would benefit our stockholders.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other companies may seek to acquire or merge with us. Our acquisition or merger could result in benefits to our stockholders, including an increase in the value
of our common stock. Some provisions of our Certificate of Incorporation and Bylaws, as well as provisions of Delaware law, may discourage, delay or prevent a merger or acquisition that a stockholder
may consider favorable. These provisions include: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>authorizing
the board of directors to issue additional preferred stock;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>prohibiting
cumulative voting in the election of directors;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>limiting
the persons who may call special meetings of stockholders;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>prohibiting
stockholder action by written consent;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>creating
a classified board of directors pursuant to which our directors are elected for staggered three year terms; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>establishing
advance notice requirements for nominations for election to the board of directors and for proposing matters that can be acted on by stockholders at stockholder
meetings. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><I>Together with the holders of our convertible subordinated notes due in 2008, we face a variety of risks related to the notes.  </I></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of our convertible subordinated notes due in 2008 (the "Notes") and we face a variety of risks with respect to the Notes, including the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>we
may be limited in our ability to purchase the Notes in the event of a change in control, either for cash or stock, which could result in our defaulting on the Notes at
the time of the change in control, and purchases for stock would be subject to market risk;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>an
event of default under our senior debt, including one of our subsidiaries, could restrict our ability to purchase or pay any or all amounts due on Notes, and after paying
our senior debt in full, we may not have sufficient assets remaining to pay any or all amounts due on the Notes;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>there
is no listed trading market for the Notes, which could have a negative impact on the market price of the Notes;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>we
have significantly increased our leverage as a result of the sale of the Notes which could have an adverse impact on our ability to obtain additional financing for
working capital;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>hedging
transactions related to the Notes and our common stock and other transactions, as well as changes in interest rates and our creditworthiness, may affect the value of
the Notes and of our common stock; and </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>94</FONT></P>

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<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
Notes are not rated, nor do we anticipate that they will be rated, ultimately having a negative effect on the price of the Notes and of our common stock. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we are subject to various covenants and obligations pursuant to the terms of the indenture governing the Notes (the "Indenture"). Should we default on certain of these
obligations, then all unpaid principal and accrued interest on the Notes then outstanding could become immediately due and payable. For example, as of March&nbsp;16, 2006 and continuing through
June&nbsp;1, 2006, we were in technical noncompliance under the Indenture due to the non-filing of our annual report on Form&nbsp;10-K for the year ended
December&nbsp;31, 2005. The Company had received notice from the Trustee asserting that if the Company had failed to file the 2005 Form&nbsp;10-K on or before June&nbsp;2, 2006, such
failure would constitute an event of default pursuant to the Indenture. If such an event were to occur, the trustee under the Indenture or the holders of at least 25% in aggregate principal amount of
the Notes then outstanding would have the right to declare all unpaid principal and accrued interest on the Notes then outstanding to be immediately due and payable. If an event of default under the
Indenture occurs and if payment of principal and accrued interest on the Notes is accelerated, our business could be seriously harmed. </FONT></P>

<P><FONT SIZE=2><I>Our failure to timely file periodic reports with the Securities and Exchange Commission could result in the delisting of our common stock from the NASDAQ National Market and
cause us to default on covenants contained in contractual arrangements.  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are unable to maintain compliance with the conditions for continued listing required by NASDAQ, then our shares of common stock may be subject to delisting
from the NASDAQ National Market. For example, as a result of our failure to timely file our Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2005 and our
Quarterly Report on Form&nbsp;10-Q for the fiscal quarter ended March&nbsp;31, 2006, we were not in full compliance with NASDAQ Marketplace Rule&nbsp;4310(c)(14), which requires us
to make, on a timely basis, all filings with the Securities and Exchange Commission required by the Securities Exchange Act of 1934. We are required to comply with NASDAQ Marketplace
Rule&nbsp;4310(c)(14) as a condition for our common stock to continue to be listed on the NASDAQ National Market. NASDAQ granted us an extension to file our Form&nbsp;10-K for the
fiscal year ended December&nbsp;31, 2005 and Form&nbsp;10-Q for the quarter ended March&nbsp;31, 2006. With our filing of this Form&nbsp;10-Q, we will have complied
with NASDAQ's decision. If our shares of common stock are delisted from the NASDAQ National Market, they may not be eligible to trade on any national securities exchange or the over-the
counter market. If our common stock is no longer traded through a market system, the liquidity of our common stock may be greatly reduced, which could negatively affect its price. In addition, we may
be unable to obtain future equity financing, or use our common stock as consideration for mergers or other business combinations. A delisting from the NASDAQ National Market may also have other
negative implications, including the potential loss of confidence by suppliers, customers and employees, the loss of institutional investor interest, and fewer business development opportunities. </FONT></P>


<P><FONT SIZE=2><A
NAME="ea1172_item_2_#151;unregistered_sales__ite02574"> </A>
<A NAME="toc_ea1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM&nbsp;2&#151;UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None </FONT></P>

<P><FONT SIZE=2><A
NAME="ea1172_item_3_#151;defaults_upon_senior_securities"> </A>
<A NAME="toc_ea1172_2"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM&nbsp;3&#151;DEFAULTS UPON SENIOR SECURITIES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company delayed the filing of the 2005 Form&nbsp;10-K in order to (i)&nbsp;enable the Audit Committee of the Board to complete an
investigation with regard to the circumstances surrounding the premature recognition of revenue on certain transactions, and (ii)&nbsp;management to complete the preparation of its 2005 consolidated
financial statements and its assessment as of December&nbsp;31, 2005 of the Company's internal control over financial reporting under Section&nbsp;404 of the Sarbanes-Oxley Act of 2002. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>95</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the Indenture (the "Indenture") with respect to the Company's <SUP>7</SUP>/<SMALL>8</SMALL>% Convertible Subordinated Notes due 2008 (the "Notes"), the Company is required to file all
reports and other information and documents which it is required to file with the Securities and Exchange Commission pursuant to Section&nbsp;13 or 15(d) of the Exchange Act of 1934 and provide a
copy of such filings to the trustee for the holders of the Notes (the "Trustee"). Pursuant to the Indenture, a default by the Company on this requirement becomes an event of default (as described in
the Indenture) (i)&nbsp;if the Trustee notifies the Company of the default or (ii)&nbsp;the holders of at least 25% in aggregate principal amount of the Notes outstanding notify the Company and
the Trustee of the default, and (iii)&nbsp;the Company does not cure the default within 60&nbsp;days after receipt of such notice. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company received notice from the Trustee asserting that if the Company failed to file the 2005 Form&nbsp;10-K on or before June&nbsp;2, 2006, such failure would
constitute an event of default pursuant to the Indenture. If such an event of default were to occur, the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then
outstanding would have had the right to declare all unpaid principal and accrued interest on the Notes then outstanding to be immediately due and payable. This technical default was cured prior to
June&nbsp;2, 2006 with the filing of the 2005 Form&nbsp;10-K. </FONT></P>

<P><FONT SIZE=2><A
NAME="ea1172_item_4_#151;submission_of_matt__ite02288"> </A>
<A NAME="toc_ea1172_3"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM&nbsp;4&#151;SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None </FONT></P>

<P><FONT SIZE=2><A
NAME="ea1172_item_5_#151;other_information"> </A>
<A NAME="toc_ea1172_4"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM&nbsp;5&#151;OTHER INFORMATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>Director Compensation  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As previously announced in May&nbsp;2006, Hong Liang Lu notified the Company of his resignation as the Company's President, Chief Executive Officer and Chairman
of the Company's Board of Directors, effective December&nbsp;31, 2006, and Thomas Toy, currently an independent director of the Company, will assume the position of Chairman of the Board, effective
January&nbsp;1, 2007. To promote and facilitate a smooth transition of the role of Chairman of the Board, Mr.&nbsp;Toy has assumed greater responsibility on the Board and has been assigned
additional duties on the Board during the transition period. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June&nbsp;20, 2006, the Board approved a cash compensation award of $106,000 to Mr.&nbsp;Toy to compensate Mr.&nbsp;Toy for his additional services on the Board during the
transition period. The compensation award will be payable in three equal payments of approximately $35,434 on each of June&nbsp;30, 2006, September&nbsp;30, 2006 and December&nbsp;31, 2006. The
compensation award is to be paid in addition to the regular annual cash retainer, fees and equity grants previously approved by the Board as compensation for Mr.&nbsp;Toy's services as a member of
the Board and Board committees and as Lead Director of the Board. </FONT></P>

<P><FONT SIZE=2><B>Amendments to Employment Agreements with Section&nbsp;16 Officers  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;20, 2006, the Board approved amendments to the Change of Control and Severance Agreement dated January&nbsp;31, 2003 between the Company and Ying
Wu, Executive Vice President of the Company and Vice Chairman of the Board (the "</FONT><FONT SIZE=2><B>Wu Agreement</B></FONT><FONT SIZE=2>"), the Change of Control and Severance Agreement dated
January&nbsp;31, 2003 between the Company and William Huang, Senior Vice President and Chief Technology Officer of the Company (the "</FONT><FONT SIZE=2><B>Huang
Agreement</B></FONT><FONT SIZE=2>"), and the Change of Control/Involuntary Termination Severance Agreement dated September&nbsp;6, 2005 between the Company and Francis Barton, Executive Vice
President and Chief Financial Officer of the Company (the "</FONT><FONT SIZE=2><B>Barton Agreement</B></FONT><FONT SIZE=2>" and collectively with the Wu Agreement and the Huang Agreement, the
"</FONT><FONT SIZE=2><B>Employment Agreements</B></FONT><FONT SIZE=2>"), as described below. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>96</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2><I>Change of Control Amendments  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the amendments, the Employment Agreements provided that if the employee's employment with the Company terminates as a result of an involuntary
termination (as defined below) at any time within 12&nbsp;months after a change of control (the "</FONT><FONT SIZE=2><B>Determination Period</B></FONT><FONT SIZE=2>"), (i)&nbsp;such employee will
be entitled to 24&nbsp;months of base salary as in effect as of the date of such termination payable in a lump sum within 30&nbsp;days of termination and 100% of the bonus for the year in which
termination occurs, (ii)&nbsp;the Company will continue to provide such employee the same level of health coverage as in effect on the day immediately preceding the termination date until the
earlier of the date such employee is no longer eligible to receive continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or 12&nbsp;months from
the termination date, (iii)&nbsp;all stock options granted to such employee will become fully vested and exercisable as of the date of termination and the Company's right to repurchase any stock
that was purchased by such employee prior to the change of control shall lapse, and (iv)&nbsp;with respect to the Barton Agreement, all share purchase rights granted to such employee will become
fully vested and exercisable to the extent such share purchase rights are outstanding and unexercisable at the time of such termination. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employment Agreements have been amended to extend the Determination Period from 12&nbsp;months to 18&nbsp;months such that, if the applicable employee's employment with the
Company terminates as a result of involuntary termination at any time within 18&nbsp;months after a change of control, the employee will be entitled to the benefits provided in the respective
Employment Agreement, as amended. Additionally, the Employment Agreements have been amended to provide that (i)&nbsp;all equity awards granted to the applicable employee, including without
limitation option grants, restricted stock and stock purchase rights, will become fully vested and/or exercisable to the extent such equity awards are outstanding and/or unexercisable at the time of
such termination, and (ii)&nbsp;such equity awards will remain exercisable for a period of 1&nbsp;year following such termination. </FONT></P>

<P><FONT SIZE=2><I>Involuntary Termination Amendments  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the amendments, the Wu Agreement and the Huang Agreement did not provide for severance benefits to be paid to the employee even if such employee's
employment with the Company is terminated without cause (as defined below) except in the case of an involuntary termination following a change of control (as described below). Prior to the amendments,
the Barton Employment Agreement provided that if such employee's employment with the Company is terminated without cause, even if such termination does not result from a change of control, the
employee would be entitled to (i)&nbsp;12&nbsp;months of his base salary as in effect as of the date of such termination, less applicable withholding, payable in a lump sum within 30&nbsp;days
of such termination, (ii)&nbsp;100% of his bonus for the year in which such termination occurs, and (iii)&nbsp;continued vesting in stock options and share purchase rights granted to such employee
prior to the date of such termination, for a period of 12&nbsp;months from the date of such termination, with the right to exercise said stock options and share purchase rights within 90&nbsp;days
from the end of said 12-month period; however, in the event of a termination for cause, the terminated employee shall not be entitled to any of the foregoing benefits. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employment Agreements have been amended to provide that if the applicable employee's employment with the Company terminates without cause, even if such termination does not result
from a change of control, (i)&nbsp;such employee will be entitled to 12&nbsp;months (24&nbsp;months, in the case of the Barton Agreement) of such employee's base salary as in effect as of the
date of such termination, less applicable withholding, payable in a lump sum within 30&nbsp;days of such termination and 100% of such employee's bonus for the year in which such termination occurs,
(ii)&nbsp;all equity awards, including without limitation option grants, restricted stock and stock purchase rights, granted to such employee will become fully vested and/or exercisable to the
extent such equity awards are outstanding and/or unexercisable at the time of such termination, (iii)&nbsp;such equity awards will remain exercisable for a period of 1&nbsp;year following such
termination, and (iv)&nbsp;the Company will continue to provide such </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>97</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ea1172_1_98"> </A>

<P><FONT SIZE=2>employee
the same level of health coverage as in effect on the day immediately preceding the termination date until the earlier of the date such employee is no longer eligible to receive continuation
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or 12&nbsp;months from the termination date. However, in the event of a termination for cause, the
terminated employee shall not be entitled to any of the foregoing benefits. </FONT></P>

<P><FONT SIZE=2><I>Defined Terms  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the purpose of the Employment Agreements, "involuntary termination" includes (i)&nbsp;without the employee's express written consent, a significant
reduction of the employee's duties, position or responsibilities relative to the employee's duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the
employee from such position, duties and responsibilities, unless the employee is provided with comparable duties, position and responsibilities, (ii)&nbsp;without the employee's express written
consent, a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the employee immediately prior to such reduction,
(iii)&nbsp;a reduction by the Company of the employee's base salary as in effect immediately prior to such reduction, (iv)&nbsp;a material reduction by the Company in the kind or level of employee
benefits to which the employee is entitled immediately prior to such reduction with the result that the employee's overall benefits package is significantly reduced, (v)&nbsp;the relocation of the
employee to a facility or a location more than 50&nbsp;miles from his current location without the employee's express written consent, (vi)&nbsp;any purported termination of the employee by the
Company which is not effected for cause or for which the grounds relied upon are not valid, or (vii)&nbsp;the Company's failure to obtain the assumption of the Employment Agreements by any successor
to the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the purpose of the Employment Agreements, "change of control" is defined as (i)&nbsp;the approval by the Company's stockholders of a merger or consolidation with any other
corporation, other than a merger or consolidation which would result in the Company's voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the Company's voting securities or such surviving entity outstanding
immediately after such merger or consolidation, (ii)&nbsp;the approval by the Company's stockholders of a plan to complete liquidation or an
agreement for the sale or disposition by the company of all or substantially all of the Company's assets, (iii)&nbsp;any "person" (as such term is used in Sections&nbsp;13(d) and 14(d) of the
Exchange Act) becoming the "beneficial owner" (as defined in Rule&nbsp;13d-3 under said Exchange Act), directly or indirectly, of the Company's securities representing 50% or more of the
total voting power represented by the Company's then outstanding voting securities, or (iv)&nbsp;a change in the composition of the Board, as a result of which fewer than a majority of the directors
are incumbent directors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the purpose of the Employment Agreements, "cause" is defined as (i)&nbsp;any act of personal dishonesty taken by the employee in connection with his responsibilities as an employee
which is intended to result in substantial personal enrichment of the employee, (ii)&nbsp;employee's conviction of a felony which the Board reasonably believes has had or will have a material
detrimental effect on the Company's reputation or business, (iii)&nbsp;a willful act by the employee which constitutes misconduct and is injurious to the Company, and (iv)&nbsp;continued willful
violations by the employee of the employee's obligations to the Company after a delivery of a written demand by the Company to the employee for performance which describes the basis of the Company's
belief that the employee has not substantially performed his duties. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>98</FONT></P>

<HR NOSHADE>
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<BR>

<P><FONT SIZE=2><A
NAME="ea1172_item_6_#151;exhibits"> </A>
<A NAME="toc_ea1172_5"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM&nbsp;6&#151;EXHIBITS    <BR>    </B></FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Exhibit<BR>
Number</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="88%" ALIGN="CENTER"><FONT SIZE=1><B>EXHIBIT DESCRIPTION</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>31.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2>Certification of the Chief Executive Officer pursuant to Rule&nbsp;13a-14(a) or Rule&nbsp;15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
31.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Certification of the Chief Financial Officer pursuant to Rule&nbsp;13a-14(a) or Rule&nbsp;15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
32.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>99</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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NAME="page_jc1172_1_100"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="jc1172_signatures"> </A>
<A NAME="toc_jc1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>SIGNATURES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No.&nbsp;1 to the registrant's Quarterly
Report on Form&nbsp;10-Q, which was filed on June&nbsp;22, 2006, to be signed on its behalf by the undersigned thereunto duly authorized. </FONT></P>

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<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>UTSTARCOM,&nbsp;INC.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Date: June&nbsp;26, 2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>HONG LIANG LU</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Hong Liang Lu<BR></FONT> <FONT SIZE=2><I>President, Chief Executive Officer and Director<BR>
(Principal Executive Officer)</I></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Date: June&nbsp;26, 2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>FRANCIS P. BARTON</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Francis P. Barton<BR></FONT> <FONT SIZE=2><I>Executive Vice President of Finance and Chief Financial
Officer<BR>
(Principal Financial Officer)</I></FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>100</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>
<P><br><A NAME="06PAL1172_1">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_bc1172_1">EXPLANATORY NOTE</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_bg1172_1">TABLE OF CONTENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_de1172_1">PART I&#151;FINANCIAL INFORMATION</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_de1172_2">ITEM 1&#151;CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_de1172_3">UTSTARCOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share data)</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_de1172_4">UTSTARCOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dg1172_1">UTSTARCOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_di1172_1">UTSTARCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</A></FONT><BR>

<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_dq1172_1">ITEM 2&#151;MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_du1172_1">ITEM 3&#151;QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du1172_2">ITEM 4&#151;CONTROLS AND PROCEDURES</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dw1172_1">PART II&#151;OTHER INFORMATION</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_dw1172_2">ITEM 1&#151;LEGAL PROCEEDINGS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_dw1172_3">ITEM 1A&#151;RISK FACTORS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_ea1172_1">ITEM 2&#151;UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ea1172_2">ITEM 3&#151;DEFAULTS UPON SENIOR SECURITIES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ea1172_3">ITEM 4&#151;SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ea1172_4">ITEM 5&#151;OTHER INFORMATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ea1172_5">ITEM 6&#151;EXHIBITS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_jc1172_1">SIGNATURES</A></FONT><BR>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>a2171397zex-31_1.htm
<DESCRIPTION>EX-31.1
<TEXT>
<HTML>
<HEAD>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#06PAL1172_2">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<!-- TOC_END -->
<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="km1172_exhibit_31.1"> </A>
<A NAME="toc_km1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;31.1    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>CERTIFICATION  </B></FONT></P>

<P><FONT SIZE=2>I,
Hong Liang Lu, certify that: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I
have reviewed this quarterly report on Form&nbsp;10-Q/A of UTStarcom,&nbsp;Inc.; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f))
for the registrant and have: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial information; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. </FONT></P>
</UL>
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<TR VALIGN="BOTTOM">
<TD WIDTH="40%"><FONT SIZE=2>Date: June 26, 2006</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>HONG LIANG LU</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Hong Liang Lu<BR></FONT> <FONT SIZE=2><I>President and Chief Executive Officer</I></FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>
<P><br><A NAME="06PAL1172_2">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_km1172_1">Exhibit 31.1</A></FONT><BR>
</UL>
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<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>a2171397zex-31_2.htm
<DESCRIPTION>EX-31.2
<TEXT>
<HTML>
<HEAD>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#06PAL1172_3">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
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<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="ko1172_exhibit_31.2"> </A>
<A NAME="toc_ko1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;31.2    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>CERTIFICATION  </B></FONT></P>

<P><FONT SIZE=2>I,
Francis P. Barton, certify that: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I
have reviewed this quarterly report on Form&nbsp;10-Q/A of UTStarcom,&nbsp;Inc.; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f))
for the registrant and have: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial information; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. </FONT></P>
</UL>
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<TD WIDTH="40%"><FONT SIZE=2>Date: June 26, 2006</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>FRANCIS P. BARTON</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE ALIGN=LEFT WIDTH="40%"><FONT SIZE=2> Francis P. Barton<BR></FONT> <FONT SIZE=2><I>Executive Vice President of Finance and
Chief Financial Officer</I></FONT></TD>
</TR>
</TABLE>
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<P style='page-break-before:always'></p>
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<BR>
<P><br><A NAME="06PAL1172_3">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_ko1172_1">Exhibit 31.2</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>a2171397zex-32_1.htm
<DESCRIPTION>EX-32.1
<TEXT>
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<HEAD>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#06PAL1172_4">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<!-- TOC_END -->
<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="kq1172_exhibit_32.1"> </A>
<A NAME="toc_kq1172_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;32.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kq1172_certification_pursuant_to_18_u__cer03869"> </A>
<A NAME="toc_kq1172_2"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATION PURSUANT TO<BR>  18 U.S.C. SECTION 1350,<BR>  AS ADOPTED PURSUANT TO<BR>  SECTION 906 OF THE SARBANES OXLEY ACT OF 2002    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This certification is not to be deemed filed pursuant to the Securities Exchange Act of 1934, as amended, and does not constitute a part of the Quarterly Report
of UTStarcom,&nbsp;Inc. (the "Company") on Form&nbsp;10-Q/A for the period ending March&nbsp;31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"). </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Report, we, Hong Liang Lu and Francis P. Barton, certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes
Oxley Act of 2002, that: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;The
Report fully complies with the requirements of Section&nbsp;13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. </FONT></P>

</UL>

<P><FONT SIZE=2>Dated:
June 26, 2006 </FONT></P>

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<TD WIDTH="5%"><FONT SIZE=2>By:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>/s/ </FONT><FONT SIZE=2>HONG LIANG LU</FONT><HR NOSHADE><FONT SIZE=2> Name: Hong Liang Lu<BR>
Title: President and Chief Executive Officer</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2><BR>
/s/ </FONT><FONT SIZE=2>FRANCIS P. BARTON</FONT><HR NOSHADE><FONT SIZE=2> Name: Francis P. Barton</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Title: Executive Vice President of Finance and Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
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<P style='page-break-before:always'></p>
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<BR>
<P><br><A NAME="06PAL1172_4">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_kq1172_1">Exhibit 32.1</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_kq1172_2">CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002</A></FONT><BR>

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