Ubiquiti Networks (UBNT) Crushed On Multiple Concerns

May 2, 2012 12:09 PM EDT
Ubiquiti Networks, Inc. (Nasdaq: UBNT) is having a rough day.

In addition to a post earnings sell-off, the stock was downgraded at Wunderlich and maybe more concerning is a report in China that CEO Robert Pera is under investigation for ties to the mafia.

Shares of UBNT last traded at $28.75, down nearly 18%.

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Jay Miles on 2012-05-02 19:45:28
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All --

As you know, we have been battling counterfeiters in China. The criminals are very clever; both former Ubiquiti distributors. One is Chinese living in DongGuan, China where are contract manufacturers (CM's) are based , the other is Taiwanese living in the United States running a WISP distributor in Argentina. They are working as a team.

In 2011, we stopped doing business with both individuals because they broke our distributor agreement rules.

Later that year, we discovered they had setup a factory in DongGuan producing exact 100% identical versions of our products. We believe they had paid someone inside our CM's, stole our PCB design files, schematics, BOM's, artwork, Factory CD; everything. They even hired former production engineers from LIteOn (our largest CM) to setup their manufacturing testing and processes. And, they used their Ubiquiti reseller connections to blend the counterfeit products into the Ubiquiti sales channel. Because the counterfeit products were based on our designs, artwork, and manufacturing processes; customers were not able to tell the products were counterfeit. They thought they were buying genuine Ubiquiti products.

When we discovered what was going on, we hired legal counsel in China to aggressively shut them down. We were successful and the Chinese individual (based in DongGuan, China) went to jail where he stayed awaiting trial.


We tried our best to make the case public to remove the possibility the criminal could pay his way out of trouble, but unfortunately, the criminal was able to pay off the judge in DongGuan and was released early this year.

Following the release, the criminals now feel empowered and are attempting to ramp up their operations. We also have ramped up our legal efforts to fight them. Jessica Zhou (our new General Counsel) was hired in March and she has been very aggressive in building a team in China and putting legal pressure on the criminals and their supply chains.

Feeling the pressure, I had recently received emails from the criminals threatening to damage our public reputation if we continue to pursue them. I refused. It appears in the past several days, they have made good on their threats.

I want everyone to know what is being said is not true. As a U.S. public company, we must obey FCPA (Foreign Corrupt Practices Act) which prohibits us from directly or indirectly using any form of bribery or illegal means to solve problems in China and we have been very careful in following the rules. The original story was posted by the criminals using a fake account on a China blogging site and inexplicably managed to get picked up by credible news sources (most likely with the help of those who are betting against our stock). We have been working today with most of the news sources and they have taken the story down. Additionally, we are pushing to have them post a formal apology for irresponsibly publicizing the unfounded allegations.

Please do not get distracted by this; it will pass. I have very high confidence in Jessica Zhou and believe her team will have the case resolved soon.

Please stay focused on your projects; we are behind on many of them and must accelerate our time to market.

Any questions, please feel free to contact me.


More information
UBNT Long on 2012-05-02 13:04:37
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In October, Ubiquiti began selling $60 video surveillance cameras that send footage over the Web, helpful for keeping an eye on warehouses, hotels and schools; Pera throws in the viewing and analysis software for free. While Pera says he bats away “99 percent” of the new distributor applications that come in daily, rogues still slip through. In early 2011, a Chinese distributor stole designs for some of Ubiquiti’s AirMax wireless radios and built a factory in Shenzhen to make counterfeit versions bearing the Ubiquiti brand. With the help of lawyers in China and the Shenzhen police, Pera shut down the fraudster and sent him to prison—but not before shelling out an undisclosed but ‘significant’ sum.

Read more: http://forbesindia.com/article/cross-border/robert-pera-quit-apple-and-became-a-billionaire/32058/1#ixzz1tjU7vr2G

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