Mobotix Admits Channel Stuffing

Channel stuffing is becoming an important industry issue.

First, there was an analyst firm's alert against Avigilon and now Mobotix's admission.

In this note, we examine what happened, its ongoing and potential future impact.

Mobotix's CEO has confirmed and acknowledged that the company engaged in channel stuffing. In an email to IPVM, the CEO said:

"After taking responsibility for MOBOTIX' sales in February this year it seems to become transparent that last years sales growth "was driven by "channel stuffing" at a few of the company's Tier-1 distributors, irrespective of and hence exceeding end-market demand".  In the meantime we have corrected this development. These few Tier-1 distributors have lowered their stock-level to a reasonable level now. No doubt, that has effected our sales for this business year and as a consequence we have lowered our financial guidance. It is clear, that this effects our stock pricing actually.

We have taken measurements to refocus and strengthen our sales team and we have worked intensively on our upcoming product innovations so that I am confident to come back to our "growth path" in future."

The February event was the ousting of the previous CEO, Magnus Ekerot, who implicitly is being blamed for this.

Stuffing's Importance

When a channel is 'stuffed', more products are sold to re-sellers than they can timely sell to end users. This makes short term financials look better for the company 'stuffing'. The downside is that this can only be done for so long until a significant miss occurs.

Mobotix's Stock Plunge

Mobotix's stock price is down ~50% over the past 4 months, with the channel stuffing issue being a key factor.

Stuffing Questioned

Others familiar with the situation believe Mobotix may be using this as an excuse to blame the prior regime and that distributor held inventory was not out of line.

The challenge with 'stuffing' is that it depends how much product was stuffed. Equally important, it could be used as a cover to deflect from declining overall sales / product positioning - a challenge Mobotix has had over the past few years.

Going Private?

One potential upside / implication is that this could spur the company to go private. Indeed, the radically lower stock price now makes it a lot less expensive for Mobotix's founder / management to pursue that, if they chose.

Mobotix is clearly still bullish about their future and going private would give them greater control and less hassle with financial disclosures and the ups and downs of a publicly traded company.