Tuesday, December 28, 2010

MindTree Wireless - restructuring costs

BANGALORE, INDIA: MindTree Ltd, a global IT Solutions company, announced on October 19, 2010, that it intended to convert the wireless products business of its wholly owned subsidiary MindTree Wireless Pvt. Ltd. (MindTree Wireless) into a design services business.

We had indicated previously that we have had good traction from our global customers for White-labeled smartphones. However, as conversations ensued, we found that contracting with large global service providers required more commitment and risks in areas such as inventory and marketing than we originally anticipated. This was a key change from the market conditions which existed earlier and the new model required significantly higher capitalization.

Considering the interests of all of our current stakeholders, we decided to restructure the wireless business as a design services business. This restructuring has now been completed and the financial implications are as follows:

* The restructuring costs will be approximately $3.60-$3.9 million and will be expensed in the Profit and Loss account for the quarter ending December 31, 2010. No further costs are expected to be incurred in future on the restructuring efforts.

* These costs are mainly in the nature of people separation, fees paid to legal advisors, asset write-offs and payments to vendors for cancellation of contracts.

The restructuring costs were significantly less than the original estimate of $12-$14 million announced in October 2010, since we were able to negotiate better terms with the vendors involved.

* MindTree Wireless will henceforth become a services business.

* The process for merging MindTree Wireless into MindTree is underway and is expected to be completed shortly. When completed, MindTree expects to realize additional operational synergies.

* MindTree is continuing its efforts to monetize the LTE IP & phone design. If these efforts prove successful, it will help offset the restructuring costs to the extent of value realized. However, the outcome and timing of such efforts are difficult to predict.

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