Ubiquiti Crisis - Plunging Stock, Lawsuit and Accusations

By: John Honovich, Published on May 22, 2012

Things are getting worse for Ubiquiti. What started as a shocking and seemingly fabricated story about the Chinese mafia has evolved into a lawsuit, more serious allegations and a plunging stock price. Inside this note, we examine the details of recent events and their potential to undermine Ubiquiti's place in the wireless and surveillance markets.

Ubiquiti Lawsuit

Ubiquiti has filed a lawsuit against a number of people, including those they claim fabricated the Chinese mob hit, accusing them of 'masterminding an international counterfeiting ring.' While you can read all the gory details in the court filing, a few points stand out:

  • The counterfeit products allegedly have an alarmingly high failure rate of 12%, according to Ubiquiti's claim.
  • Since the counterfeit products look nearly identical to real ones, Ubiquiti has been honoring warranties on them to minimize customer ill will, at a loss to the company.
  • Millions of dollars of Ubiquiti's products have been counterfeited. Ubiquiti claims that in October 2011 alone, a million dollars of fake products were shipped.
  • The counterfeiting continues with 5,900 fake Ubiquiti products discovered recently in Argentinian customs.

The biggest operational issue we see is the costs of ongoing counterfeiting - lost revenue, increased service, damaged goodwill, etc. While Ubiquiti is a large, now doing hundreds of millions in revenue, having even a few million dollars of counterfeit products could be a significant problem.

Iran Allegations

A blog attacking Ubiquiti has been created by one of the people Ubiquiti alleges is involved in the counterfeiting ring. The central allegation is that Ubiquiti knowingly sold to Iran on an ongoing basis. The problem here is that the US government has sanctions against Iran that carry potential criminal penalties including "a fine up to $1,000,000, and natural persons may be imprisoned for up to 20 years."

While we do not know the specifics of the sanctions or how Ubiquiti would fall under this law, even these allegation's existence can create problems. For instance, the blog shares screenshots showing what seem to be a signed contract from a Ubiquiti executive authorizing resale into Iran as well as emails OKing it.

Ubiquiti will need to sort this out quickly - Did they sell/resell to Iran? Did they do it knowingly? Does their actions violate US sanctions? Even if they are innocent, having this over their heads is not good. However, if they are at fault, the consequences could be quite severe.

Ubiquiti dealt with similiar Iran allegations during their IPO. According to Reuters, Ubiquiti's explanation was that they did not know its products could not be sold into Iran until March 2010 and that, since then, they had taken steps to stop exports to Iran.

Plunging Stock Price

Get Notified of Video Surveillance Breaking News
Get Notified of Video Surveillance Breaking News

While a short drop in stock price is expected after the sensational Chinese mafia allegations, the stock price's continued steady fall - from a peak of $35 to under $20 - a fall of more than 40% - is more troubling.

[Update May 30th - the stock has fell another 12% is now down to $17.50 - a total drop in May of half their valuation.]

In terms of market capitalization, that is a decline of over $1 Billion - a massive amount given the allegations.

It is hard to divine why the stock price continues to go down:

  • Best case scenario, investors are simply spooked (i.e., herd behavior) and will come back when the noise dissipates
  • Worst case scenario, well-informed investors see serious problems with the company (i.e., the smart money) and are staying away

Ubiquiti's Future

Ubiquiti already is a major player in the wireless surveillance market and has the potential to become one in surveillance cameras. However, if the counterfeiting problem, Iranian allegations and plunging stock price continue, it will inevitably create operational problems for the company that could harm their product development and future growth. While the video of a Ubiquiti rival trashing their own office might be initially humorous, this situation is not. Ubiquiti needs to resolve it asap.

Comments : PRO Members only. Login. or Join.

Related Reports on Financial Updates

ASCMA / Monitronics Declares Chapter 11 Bankruptcy on May 22, 2019
Monitronics is entering into Chapter 11 bankruptcy. The company, also called Ascent Capital Group Inc., aka ASCMA, aka Brinks Home Security,...
Milestone Execs on Financials, China and Future on Apr 29, 2019
Milestone has released a 44-page annual report for 2018, an atypical and unrequired move for a subsidiary of a large company, however, Milestone...
ADT Stock Drops After Announcing Loss And Amazon Delay on Mar 12, 2019
ADT's stock price dropped significantly after reporting heavy losses and delays in its Amazon partnership, as seen in the screenshot below: In...
Hikvision 2018 Revenue Tops $7 Billion USD But Growth Slows To Low on Feb 15, 2019
Hikvision's annual revenue topped $7 billion for the first time in 2018, although growth slowed sharply. In this post, we analyze the latest...
Barnes Buchanan 2019: Despite 'Strange Narrative' Great Time To Be In Security on Feb 11, 2019
A "strange narrative" is being spun, said Michael Barnes at the 2019 Barnes Buchanan Conference. However, despite that narrative, it is a "great...
Hikvision Growth Declines Q3 2018 on Oct 22, 2018
Hikvision's growth continues to decline in 2018 going from: Q1 - 33% Q2 - 22% Q3 - 14.6% In this note, we examine Hikvision's newest Q3...
Axis Strong US Growth, Flat EMEA - Q3 2018 Financials on Oct 18, 2018
This spring, Axis had its best financials in many years (see Axis Strong Q2 2018 Results). However, over the summer, Axis had many products sold...
Axis Strong Q2 2018 Results on Aug 20, 2018
Axis reported strong Q2 2018 financial results and, for the first time in many years, Axis grew faster than Hikvision. However, the company's...
Hikvision Strong Domestically, International Business Struggles on Jul 25, 2018
Hikvision's H1 2018 results are out. Overall revenue growth has sharply dropped, with the company acknowledging their "facing geopolitical...
Arlo IPO Filing Reveals Key Financial and Competitive Details on Jul 09, 2018
Arlo is going to IPO at a projected valuation greater than Axis. Now, Arlo has released their 175-page Form S1 Registration Statement for its...

Most Recent Industry Reports

US Army Base To Buy Banned Honeywell Surveillance on Sep 17, 2019
The U.S. Army's Fort Gordon, home to their Cyber Center of Excellence, has issued a solicitation to purchase Honeywell products that are US...
Vivotek "Neural Network-Powered Detection Engine" Analytics Tested on Sep 17, 2019
Vivotek has released "a neural network-powered detection engine", named Smart Motion Detection, claiming that "swaying vegetation, vehicles passing...
Schmode is Back, Aims To Turn Boulder AI Into Giant on Sep 16, 2019
One of the most influential and controversial executives in the past decade is back. Bryan Schmode ascended and drove the hypergrowth of Avigilon...
Manufacturers Unhappy With Weak ASIS GSX 2019 And 2020 Shift on Sep 16, 2019
Manufacturers were generally unhappy with ASIS GSX, both for weak 2019 booth traffic and a scheduling shift for the 2020 show, according to a new...
How Cobalt Robotics May Disrupt Security on Sep 13, 2019
While security robots have largely become a joke over the last few years, one organization, Cobalt Robotics, has raised $50+ million from top US...
Panasonic 4K Camera Tested (WV-S2570L) on Sep 13, 2019
Panasonic has released their latest generation 4K dome, the WV-S2570L, claiming "Extreme image quality allows evidence to be captured even under...
ASIS GSX 2019 Final Show Report on Sep 12, 2019
IPVM went to Chicago for ASIS GSX 2019, with many exhibitors disappointed about traffic and the exhibitor schedule changing next year. However,...
Installation Course - Last Chance - Register Now on Sep 12, 2019
Last Chance - Register Now - September 2019 Video Surveillance Install Course. Thursday, September 12th is your last chance to register for the...
Commend ID5 Intercom Tested on Sep 12, 2019
Commend touts the new ID5 intercom as 'timelessly elegant' and the slim body, glass front touchscreen indeed looks better than common, but ugly,...
US State Department: "Chinese Tech Giants" "Tools of the Chinese Communist Party" on Sep 12, 2019
The US State Department has called out "Chinese tech giants" for being "tools of the Chinese Communist Party" in a blunt new speech that makes...