Who is the fraud, Unifi or Citron research?

[funkywizard]

Therein lies the problem: there’s no way to prove Citron wrong,

It is only the conclusion he makes -- that their numbers are inaccurate -- that there is no way to know if this is true -- by him or anyone else. However, the arguments he uses as support of that claim, is clearly wrong to the point of absurdity.

Put more simply: Just because he's lying doesn't prove that he's wrong, it just proves that he's trying to make you believe something that he does not believe.

 

[Dawg10]

Put more simply: Just because he's lying doesn't prove that he's wrong, it just proves that he's trying to make you believe something that he does not believe.

This applies equally to Robert Pera as it does to Andrew Left.

It’s the School of Deception: manipulate the narrative in the name of greed. It doesn’t matter if you’re long or short, or an outsider along for the ride; if the share price is being manipulated someone is making money. For now... The trick is knowing when to get out; it’ll be interesting to watch the market in the days leading up to the ubnt earnings report due Nov. 2nd.

 

[Grant]

I'm a long-time UBNT shareholder, and have done a lot of research into this topic. I occasionally search the web for new information, which is how I ran across this thread.

To answer the thread's original question, there's little doubt Left's report is fraudulent. Many or most of the facts in his report were either falsehoods or lies by omission, though I suppose it's possible he was just grossly misinformed. I cover most of it at Seeking Alpha (A Review Of Andrew Left's Charges Against Ubiquiti Networks - Ubiquiti Networks, Inc. (NASDAQ:UBNT) | Seeking Alpha).

Of course this doesn't mean UBNT is squeaky clean. Left gets three things right which are materiel to his thesis: UBNT's returns on overseas cash are oddly low, some community metrics presented in its investor presentation are overstated (though some are under-stated), and there is a accounts payable/receivable mismatch between the financial statements of PW Batna and UBNT. Note the lawsuits which have popped up from all this only cite the last two problems. Nothing else from Left's report is included, corroborating my findings.

I can point to many times over the years where Pera has been excessively optimistic about the potential of his future products (UVCs, VOIP, the UAP-AC-HD, the AirMax AC launch, etc.). I track their R&D via their forums, as well as inventory levels and sales rankings at a few distributors, and I cannot point to a time he's lied or misrepresented the demand for any existing products.

Dawg10 is wrong when he suggests UBNT's buybacks are designed to purchase Pera's shares, for the simple reason the buybacks have been going on since 2012 (UBNT buybacks), and Pera has only sold shares once (1.8% of his holdings, last month). The big recent buybacks were also only authorized after his share sale. The buybacks have produced an excellent return for investors, with an IRR of 39% as of today. Of course it's possible Pera's latest round of buybacks is more nefarious, but recall he does not take any sort of compensation. He could pay a dividend or give himself a large bonus and still be far under the executive compensation collected by most CEOs, let alone CEOs as successful as he has been.

Concentrated ownership allows fraud to go undetected, and 70% of the company is owned by Robert Pera. However fraud is usually done to extract money from shareholders, while Pera seems to take as little from the company as he can. His actions match his words, and he says he's in it for the long term. Repurchasing shares produces compounding returns for shareholders and the best long-term benefits.

UBNT lacks many of the controls of normal public companies. However these controls exist to deal with agency problems not present in UBNT because Pera owns 70% of the stock and does not pay himself. The question isn't whether or not he's greedy and self-interested, but how this self-interest manifests.

As Dawg10 notes, UBNT has loosened credit terms with its distributors (DSOs are about 50 days, compared to about 40 for Cisco) in order to incent them to carry more stock. It's worked, and resulted in an increase in inventory. Installers are complaining less about not being able to get inventory. However it's also resulted in a big increase in orders from UBNT, which translates into an increase in reported revenues (hence the $240-$250M Q1 revenue guidance). It's quite possible this increase isn't sustainable.

Thus the FY2018 guidance which caused the stock to pop may have been incorrect. A more nefarious reading would be that Pera purposefully overstated the FY2018 guidance in order to create a pop so he could sell his shares for $61 instead of $51. We'll see. The stock is certainly not trading like EPS will be $4 in a year. As long as LTU enjoys a good launch (as other AirFiber products have) I'm optimistic.

UBNT is an odd company, and investors should never completely trust management. However I believe its oddities are much better explained by management's explanations than by fraud: the company (and especially Robert Pera) was simply not ready to go public, but a bad private equity deal forced it. Pera was an EE who knew nothing about running a public company, and has been learning as he goes. Fortunately for long-term shareholders, he's always been good at compounding growth. Good optics may or may not come in time, but optics don't compound.

We also have a forensic accounting firm which handled Enron's bankruptcy (FTI Consulting) which was brought in for 9 months following the wire fraud. One of their employees (Mark Spragg) was acting CFO and signed off on the company's financial statements during some of the alleged fraud (PW Batna mismatch).

As far as UBNT products being the best, they're not. They have a lot of product lines which are very hit-or-miss. The good news is it's easy for prosumers or professionals to find out what is crap or what isn't, via their forums. It might be that other brands are equally hit-or-miss, but it's hard to judge when they don't have vibrant, largely-unmoderated communities discussing them. In my opinion UBNT doesn't test nearly enough, though they've been getting much better in recent years (as revenues show).

AmpliFi is a good product, but I'm skeptical they'll be able to penetrate the consumer space without marketing. They haven't been selling nearly as well as Pera hoped.

 

[Dawg10]

Thank you for your candid comments; I characterize your position as "wary".

There's a couple things bugging me; perhaps you can shed some light...

• Given the terms of the buyback(s), the "big recent buybacks" being authorized after his share sale is immaterial.

The timing, manner, price and amount of any repurchases will be determined in the Company’s discretion and the New Program may be suspended, terminated or modified at any time for any reason. The New Program does not obligate the Company to acquire any specific number of shares, and all open market repurchases will be made in accordance with Rule 10b-18 of the Exchange Act, which sets certain restrictions on the method, timing, price and volume of open market stock repurchases.​

• There was only 1 buyback (April 1, 2017) after the latest buyback authorization (March 3, 2017), until RJP sold 1 million shares on August 28, 2017.
• Between August 4, 2017 and September 14, 2017 the UBNT trading volume was never over the 1 million share mark.
• RJP's 1 million share sale of August 28, 2017 was not conducted on the open market.

RJP introduces, controls and directs the share buyback program(s) and arranges the buyback of his personal shares at close to the all-time high.

How's your sense of smell...?

/edit:

This is getting juicy.

Mark Spragg was brought in as the "interim CAO" not CFO. Yes, there's a difference, despite what RJP says.

Mark Spragg was a partner at PriceWaterhouseCoopers before leaving to become a founding member of FTI Consulting.

PriceWaterhouseCoopers was UBNT's accounting firm during the wire fraud!

Love it! Absolutely love it...!

 

[Grant]

I'm less wary with UBNT than my other investments due to the amount of visibility I have into its channel and R&D.

I thought you were alleging Pera instituted buybacks in order to give the PPS a short-term boost so he could get more for his shares? If not, then what exactly are you suggesting? UBNT has been buying dips for years, and it'd be odd if they stopped now.

In August he issued annual guidance for the first time since I've owned the stock. Though the guidance wasn't historically aggressive, it was relative to the persistently-pessimistic analyst estimates. This caused the stock to pop to $66, a lot of shorts to cover, and it was into this pop Pera sold his shares. A case could be made the guidance was exaggerated so he could make an extra $5M. We'll know when Q2 results come in February, or maybe from guidance issued in November.

 

[Grant]

Legally speaking there is no difference between a CAO, CFO, or any other title. Officers who sign financial statements vouch for their correctness. Since Enron/Sarbox they face criminal charges for knowingly signing false statements. In business terms CAOS are usually focused on accounting, while CFOs often have additional duties communicating with Wall Street analysts and banks.

Mark left PwC for FTI in 2002 (https://www.linkedin.com/in/mark-c-spragg-1821ab4/), long before UBNT existed. He specializes in telcomm.

 

[Dawg10]

I'm not alleging anything; just trying to figure out the script. RJP controls everything: the financials, the share buyback program, freaking everything. Every buyback program and every share purchased under it has his stamp of approval on it. RJP controls the narrative ie every press release, every sales summary, every answer to every question: Everything is Great! Share price goes up and he sells his own shares back to the company, thus being careful not to influence the share price. He wins, the shareholders win, everybody wins!

It's too good to be true! RJP is an evangelical magician. PT Barnum would be laughing, and Jeffrey Skilling is taking notes...

I know Mark Spragg's timeline; it doesn't matter. His kids go to school with the current PWC partners kids, their wives shop together while Spragg and his former partners golf and have cocktails once a week. The meetings re: fraud were conducted among a cabal of MBAs who shared a common interest: how do we bury this mess?

The addition of Mark Spragg to the story makes this clearer: PWC was fired and badmouthed by RJP; PWC responded by saying they agreed with the allegations of malfeasance and it all went away...

Mark Spragg himself makes the distinction between interim CAO and CFO; perhaps he thinks there's a difference...

 

[Grant]

Of course there's a difference between CFOs and CAOs. Again I was speaking legally, specifically referring to Sarbanes-Oxley. Whomever signs the statements is liable for fraud.

The notion that UBNT is too good to be true is Left's expressed opinion, and it is not shared by any shareholder I've spoken with. UBNT has many flaws. Everything isn't great; there's a reason why other companies spend money on G&A. We've had wire fraud, counterfeited products, poor management of many R&D teams, and doomed product lines like SunMax and FrontRow. Other networking companies have been more successful, some with even better operating metrics. Look at Arista Networks (better growth, better gross margin, same operating margin despite actually paying executives) today, or Cisco over the last two decades. This said, Pera and UBNT are both improving every year, and my hope is their future is bright.

UBNT is exceptional because it combines good growth with a relatively low share price (Arista trades at a P/E of 50). The buybacks are successful because of this share price. The notion that UBNT's share price is too good to be true and therefore there's something wrong with it is not sound logic to investors who actively seek out under-priced companies.

I cannot comment on any conspiracy theories surrounding UBNT, FTI, PwC, and KPMG as there's no evidence to support such a conclusion. I'm not aware of any corporate fraud which included three different accounting firms as willing participants; can you point to one?

 

[Dawg10]

I don't see KPMG as a willing participant to fraud; I view them as a reputable company crawling into bed with a partner rife with crabs. How they deal with the itch is a matter of integrity. Year 1 they will work hard to clear up any irregularities, relying upon the actions of the client to diligently pursue The Plan. Year 2 is where the meat is; if the client is following advice then Everything is Great. If not, well, now we have a problem...

While we're commenting on CAOs... Given UBNT is coming off a failed relationship with PWC and losing 10's of millions of dollars to fraud, would it not be prudent to have a financial wizard on the board? Someone that RJP could lean upon to help chart the direction forward? Someone who could implement the proper hygiene so the crabs never come back?

But no. RJP brings in Kevin Radigan; quite possibly the lowest paid accountant in corporate America. 20 years older than RJP and from New England, not California as most of his playmates are. UBNT is Radigans only gig, so no networking, no insider business advice, no coordination on market timing, nothing... I see Kevin as a disposable outsider who does what he's told, and he's been told those aren't crabs.

There's nothing in RJPs background to suggest he has any formal business management experience, let alone the financial chops to captain a company the size of UBNT. Perhaps there's another hand on the tiller...? I started looking at what the world was up to at the time UBNT was conceived: the markets had just spurned Chinese Reverse Takeovers, although this was at the insistence of the DOJ.

Perhaps there was a Chinese billionaire who wanted to try the back door into the markets; to take the stereotypical long march position. Pure speculation on my part, but it doesn't take much imagination to fill in the empty boxes on the forensic accounting chart.

Where did that $47 million go?
Who is actually directing the ebb and flow of UBNT finance?
Who is in charge of the manufacturing and allied reporting?
Why is the message so tightly controlled?

Next time you're checking for crabs, dwell for a moment upon the Who What Where and Why. It tends to focus down to How UBNT Operates, and magnifies the potential that Chinese crustaceans are involved. That smell might very well be seafood.

______________________

Several posts back TrevorX provided insight into how he perceived UBNT was managing distribution in his home country of 25 million consumers. The picture he painted was from an outsiders perspective, so maybe rosy, maybe not. But it motivated me to check up on distribution here in my country of 35 million. Should be a decent comparison, eh?

Yep; Canada. I invite you to check it out yourself. National distribution is from a cottage close to the middle of nowhere. The dealer handles multiple product lines and works from home. But he is close to the lake, so perhaps that explains the fishy smell?

 

[Aestr]

@Dawg10 that's a misleading statement about national distribution in Canada. As per your invitation I took a look at the distributors listed. All three distributors addresses are clearly businesses with appropriate facilities.

One of the resellers, ubnt.ca does have an address matching your description, but that doesn't mean much as I've actually ordered from them in the past and they operate like any other reseller and shipped my order quickly from stock they had on hand.

It's funny you chose to imply all national distribution is from that one location when the list on UBNT's website clearly shows big names like Ingram Micro.

Again I don't know or really care all that much if there are shady dealings at UBNT as I don't have any skin in this game, but it's very clear that you are intentionally misleading people with your posts.

 

[Dawg10]

I don't follow you... ?

Ingram Micro is a wholesaler of IT products and services. Its headquarter remains in Irvine, California despite the fact the company has been acquired by the Chinese group HNA in 2016.

 

[Aestr]

You claim "national distribution" for Canada is run from a cottage. In the list of Canadian distributors there are 3 very legitimate businesses. One is Ingram Micro, which while headquartered in California, has a very large presence in Canada as a distributor with it's own warehouses.

In short official national distribution for Canada is from three companies, one of which is a multinational with well established supply chains, none of which are located in cottages.

 

[Grant]

KPMG already signed off on a 10-K last month. I read through every filing, and I did not see anything significantly different. Note KPMG could be brought down by any serious UBNT fraud, just as Arthur Andersen fell after Enron.

As I mentioned previously, Pera had no experience or training in business management or finance before starting UBNT. He was an electrical engineer at Apple. When he went public he says he didn't even know what a short seller was. This is one of the reasons I find it very difficult to believe he is running an complex, international financial conspiracy.

UBNT's message is not tightly controlled. It's perhaps the least controlled of any business I'm familiar with, because customers, beta, and sometimes alpha testers routinely slam it on the forums. I've never seen any of these posts deleted.

And yes, Ingram Micro is huge. Small resellers for any business are often shady, especially those located in more corrupt parts of the world like Brazil, ex-Soviet countries, and of course the linchpin of international financial corruption, Canada.

 

[Dawg10]

UBNT's message is not tightly controlled. It's perhaps the least controlled of any business I'm familiar with, because customers, beta, and sometimes alpha testers routinely slam it on the forums. I've never seen any of these posts deleted.

I was referring to the flow of communications from the company, the answers to questions asked by the likes of Andrew Left. And the questions posed at shareholder meetings; the replies come from RJP and they are invariably "You don't understand how we do business", Everything is Great.

I understand your comments re: testers slamming products, as I've been holding off buying their 10GB switch that doesn't communicate very well with its built in 1GB ports. Yes; I like and use their products, and will likely upgrade to a fully UBNT wireless network now that WPA2 has been compromised.

And yes, Ingram micro is huge. Small resellers for any business are often shady, especially those located in more corrupt parts of the world like Brazil, ex-Soviet countries, and of course the linchpin of international financial corruption, Canada.

We pay attention to the lessons provided by our brothers to the south...

Aestr; you are correct. I followed links that led me to believe UBNT.ca was the go-to source for distribution in Canada. Silly of me to think UBNT.ca would be the Canadian arm of UBNT.com. I should have dug deeper.

And thank you; insight provided by you has provided another avenue of exploration: Major UBNT Distributor Ingram Micro is owned by the Chinese group HNA. This relationship needs to be examined further.

 

[Aestr]

And thank you; insight provided by you has provided another avenue of exploration: Major UBNT Distributor Ingram Micro is owned by the Chinese group HNA. This relationship needs to be examined further.

I think I'm out with this one. Ingram Micro deals with pretty much every vendor and I expect that any profits from colluding with UBNT would not be worth their effort. At this point either your criticisms are insincere and you're just having some fun, or you so deeply want there to be a conspiracy that you're grasping at straws and there is no point in discussing it. Either way no hard feelings and hope you have a good day

 

[nkw]

I don't see KPMG as a willing participant to fraud;

I haven't been reading the postings on this thread in depth, but skimming the thread I saw this and it cause me to literally chuckle out loud.

 

[TrevorX]

Major UBNT Distributor Ingram Micro is owned by the Chinese group HNA. This relationship needs to be examined further.

You're clearly not in the IT space if you don't know who Ingram Micro is. Believe me, Ubiquiti sales wouldn't be worth 0.1% of their turnover. While I'm sure their Ubuqiti sales team and account managers represent the UBNT product fairly and are keen to sell them, their sales managers and large customer account managers aren't focussed on it - it would barely register to them. They're not going to be 'colluding' with UBNT to commit fraud - if you genuinely think that, you're smoking crack.

Therein lies the problem: there’s no way to prove Citron wrong, nor is the CEO answering any questions. This in itself is a huge red flag.

Your premise seems to be that the CEO's lack of engagement with the quite obvious lies of a known short seller with a vested interest is a 'huge red flag'. Despite the fact that, at the time, he immediately responded by disputing the claims, and analysis that has been performed since has clearly demonstrated that Left was making utterly false and deliberately misleading claims. Reg flags? No, what Robert Pera's doing is getting on with his job, focussing on running his company and building great products, as he should be. This topic was put to bed weeks ago - Left is a con-artist and a liar, out to damage companies in the hope that a) the stock will drop, he can settle his short position and clean up, and b) no one will be willing to commit to ten years and $20m in legal fees to try to stop him.

Sorry mate, your position is untenable - it makes no logical sense. Because when you look at the evidence, UBNT's position is sound and really quite transparent, where Left's argument is utterly riddled with holes, discrepancies, errors and flat out falsification. If you want to spend your life being influenced by liars and con-artists, go right ahead - who are we to tell you how to spend your short existence? But please, don't come on a sensible forum like this and expect people to jump through hoops responding to your febrile, fatuous inanity. People have much better things to do with their time than waste it responding to the intellectually dishonest. Your questions have been asked and more than answered - time to move on.

 

[Dawg10]

Open your minds. The only thing ethically-challenged here is every global corporation in the world. Do you think UBNT is clean?

HNA is a Chinese company based out of the Hainan Economic Zone; it will celebrate its 30th anniversary next year. It started life as an airline company with one plane and gained credibility when George Soros invested in it. Twice. Corporate ownership is a dogs breakfast, with the majority seemingly held by the "Hainan Province Cihang Charity Foundation", which, given the lack of information, could very will be a Lotus Garden version of the Cheyenne Sporting Society.

Up until 2016 HNA expanded its aviation assets, buying airports and branching out to encompass tourism and hotels. Along the way its air cargo business added shipbuilding and related logistics to the portfolio.

In late 2016 the conglomerate went on a buying spree. Backed by FX-flush Chinese banks and encouraged by relaxed government policy, HNA leveraged ownership stakes in more hotels, airports and air services companies, extending its reach as a global player.

2017 saw further expansion in the air travel and lodging sectors, completely in keeping with its history. But '17 also saw the purchase of a 10% stake in Deutsche Bank, becoming its single largest shareholder, followed by forays into Manhattan real estate and the purchase of hi-tech electronics distributor Ingram-Micro for $6 billion.

Say what? How the heck does Ingram-Micro mesh with the portfolio? When asked, the company explains this will allow foreign companies access to the Chinese market, through the HNA-owned gateway. Non-Chinese companies will still face a stiff import tariff, but the door is open...

So there you have it: HNA has embarked on a brand new avenue of expansion; the importation and selling of electronic goods into the Chinese marketplace.

Skeptical? Reuters recently (Oct. 27) reported that HNA is in talks to buy Chinese Amazon-clone/e-commerce firm Dangdang for roughly $1 billion. Once again, this is outside its historical line of business. Btw: HNA Hong Kong shares advanced 26% after Premier Xi consolidated power on Oct. 26 and a key advisor who preferred restricted foreign investment stepped down.

That makes two pieces to the strategy: distribution and retail. What's missing? A couple things: Product that the market wants, how to get it there, and how to beat the competition.

Chinese consumers share in the global lust for wifi enabled products and their relatives: the type of products UBNT manufactures and Ingram-Micro distributes.

In order to maximize profits and streamline logistics, HNA will need to cut out both the middlemen and the suppliers; to own the manufacturing and the transportation. HNA already does logistics, both air and sea. This is great for global distribution, but if the product is already made in China by a Chinese owned company there's minimal transportation costs and zero tarrifs, allowing disruptive pricing to undercut competitors in the local economy.

Who might be the competition in China for commercial and pro-sumer wifi products? Only one stands out: Huawei, the "Cisco of China."

How might HNA compete with Huawei, given their similar strengths? By manufacturing locally and partnering with an already established brand. The Reuters Dengdeng article has one curious paragraph: "HNA is also scouting for co-investors for the deal..." Curious because HNA has the financial depth and backing to complete the buyout on its own. Privately held cell phone manufacturer Xiaomi could be a player, but partnering with Huawei is not out of the question if market segment boundaries can be honored.

So HNA will own everything in the product-chain except the product. Expect HNA to start buying foreign manufacturers that contract to Chinese factories. Think long term.

UBNT is a target; HNA only has to deal with one person. It's that persons job to portray the company in the best possible light, and it's in that persons best interest to have the share price as high as possible until such time as the books are closed and any and all questions simply go away.

 

[audio catalyst]

Open your minds. The only thing ethically-challenged here is every global corporation in the world. Do you think UBNT is clean?

HNA is a Chinese company based out of the Hainan Economic Zone; it will celebrate its 30th anniversary next year. It started life as an airline company with one plane and gained credibility when George Soros invested in it. Twice. Corporate ownership is a dogs breakfast, with the majority seemingly held by the "Hainan Province Cihang Charity Foundation", which, given the lack of information, could very will be a Lotus Garden version of the Cheyenne Sporting Society.

Up until 2016 HNA expanded its aviation assets, buying airports and branching out to encompass tourism and hotels. Along the way its air cargo business added shipbuilding and related logistics to the portfolio.

In late 2016 the conglomerate went on a buying spree. Backed by FX-flush Chinese banks and encouraged by relaxed government policy, HNA leveraged ownership stakes in more hotels, airports and air services companies, extending its reach as a global player.

2017 saw further expansion in the air travel and lodging sectors, completely in keeping with its history. But '17 also saw the purchase of a 10% stake in Deutsche Bank, becoming its single largest shareholder, followed by forays into Manhattan real estate and the purchase of hi-tech electronics distributor Ingram-Micro for $6 billion.

Say what? How the heck does Ingram-Micro mesh with the portfolio? When asked, the company explains this will allow foreign companies access to the Chinese market, through the HNA-owned gateway. Non-Chinese companies will still face a stiff import tariff, but the door is open...

So there you have it: HNA has embarked on a brand new avenue of expansion; the importation and selling of electronic goods into the Chinese marketplace.

Skeptical? Reuters recently (Oct. 27) reported that HNA is in talks to buy Chinese Amazon-clone/e-commerce firm Dangdang for roughly $1 billion. Once again, this is outside its historical line of business. Btw: HNA Hong Kong shares advanced 26% after Premier Xi consolidated power on Oct. 26 and a key advisor who preferred restricted foreign investment stepped down.

That makes two pieces to the strategy: distribution and retail. What's missing? A couple things: Product that the market wants, how to get it there, and how to beat the competition.

Chinese consumers share in the global lust for wifi enabled products and their relatives: the type of products UBNT manufactures and Ingram-Micro distributes.

In order to maximize profits and streamline logistics, HNA will need to cut out both the middlemen and the suppliers; to own the manufacturing and the transportation. HNA already does logistics, both air and sea. This is great for global distribution, but if the product is already made in China by a Chinese owned company there's minimal transportation costs and zero tarrifs, allowing disruptive pricing to undercut competitors in the local economy.

Who might be the competition in China for commercial and pro-sumer wifi products? Only one stands out: Huawei, the "Cisco of China."

How might HNA compete with Huawei, given their similar strengths? By manufacturing locally and partnering with an already established brand. The Reuters Dengdeng article has one curious paragraph: "HNA is also scouting for co-investors for the deal..." Curious because HNA has the financial depth and backing to complete the buyout on its own. Privately held cell phone manufacturer Xiaomi could be a player, but partnering with Huawei is not out of the question if market segment boundaries can be honored.

So HNA will own everything in the product-chain except the product. Expect HNA to start buying foreign manufacturers that contract to Chinese factories. Think long term.

UBNT is a target; HNA only has to deal with one person. It's that persons job to portray the company in the best possible light, and it's in that persons best interest to have the share price as high as possible until such time as the books are closed and any and all questions simply go away.

Dude,

You believe in aliens from area 54 too ?

A bit too much consperacy theory here

send from a mobile device, so typo's are to be expected

 

[funkywizard]

Open your minds. The only thing ethically-challenged here is every global corporation in the world. Do you think UBNT is clean?

HNA is a Chinese company based out of the Hainan Economic Zone; it will celebrate its 30th anniversary next year. It started life as an airline company with one plane and gained credibility when George Soros invested in it. Twice. Corporate ownership is a dogs breakfast, with the majority seemingly held by the "Hainan Province Cihang Charity Foundation", which, given the lack of information, could very will be a Lotus Garden version of the Cheyenne Sporting Society.

Up until 2016 HNA expanded its aviation assets, buying airports and branching out to encompass tourism and hotels. Along the way its air cargo business added shipbuilding and related logistics to the portfolio.

In late 2016 the conglomerate went on a buying spree. Backed by FX-flush Chinese banks and encouraged by relaxed government policy, HNA leveraged ownership stakes in more hotels, airports and air services companies, extending its reach as a global player.

2017 saw further expansion in the air travel and lodging sectors, completely in keeping with its history. But '17 also saw the purchase of a 10% stake in Deutsche Bank, becoming its single largest shareholder, followed by forays into Manhattan real estate and the purchase of hi-tech electronics distributor Ingram-Micro for $6 billion.

Say what? How the heck does Ingram-Micro mesh with the portfolio? When asked, the company explains this will allow foreign companies access to the Chinese market, through the HNA-owned gateway. Non-Chinese companies will still face a stiff import tariff, but the door is open...

So there you have it: HNA has embarked on a brand new avenue of expansion; the importation and selling of electronic goods into the Chinese marketplace.

Skeptical? Reuters recently (Oct. 27) reported that HNA is in talks to buy Chinese Amazon-clone/e-commerce firm Dangdang for roughly $1 billion. Once again, this is outside its historical line of business. Btw: HNA Hong Kong shares advanced 26% after Premier Xi consolidated power on Oct. 26 and a key advisor who preferred restricted foreign investment stepped down.

That makes two pieces to the strategy: distribution and retail. What's missing? A couple things: Product that the market wants, how to get it there, and how to beat the competition.

Chinese consumers share in the global lust for wifi enabled products and their relatives: the type of products UBNT manufactures and Ingram-Micro distributes.

In order to maximize profits and streamline logistics, HNA will need to cut out both the middlemen and the suppliers; to own the manufacturing and the transportation. HNA already does logistics, both air and sea. This is great for global distribution, but if the product is already made in China by a Chinese owned company there's minimal transportation costs and zero tarrifs, allowing disruptive pricing to undercut competitors in the local economy.

Who might be the competition in China for commercial and pro-sumer wifi products? Only one stands out: Huawei, the "Cisco of China."

How might HNA compete with Huawei, given their similar strengths? By manufacturing locally and partnering with an already established brand. The Reuters Dengdeng article has one curious paragraph: "HNA is also scouting for co-investors for the deal..." Curious because HNA has the financial depth and backing to complete the buyout on its own. Privately held cell phone manufacturer Xiaomi could be a player, but partnering with Huawei is not out of the question if market segment boundaries can be honored.

So HNA will own everything in the product-chain except the product. Expect HNA to start buying foreign manufacturers that contract to Chinese factories. Think long term.

UBNT is a target; HNA only has to deal with one person. It's that persons job to portray the company in the best possible light, and it's in that persons best interest to have the share price as high as possible until such time as the books are closed and any and all questions simply go away.

Reply needs work. Didn't even say "sheeple" once.