Ubiquiti stock tumbles after counterfeiters slash sales

Ubiquiti Networks’ stock fell 40 per cent after it revealed counterfeiting of its WiFi technology is causing a sales slump.

South American sales of Ubiquiti’s lead product, AirMax, tumbled 40 per cent as the availability of counterfeits drove a drop in demand. The downwards trend prompted Ubiquiti to slash sales guidance until it can regain ground lost to a particularly professional counterfeiting organisation.

"What we are facing are a group of very resourceful ex-distributors who know our sales channel, who have managed to get our [intellectual property] in China [and] set up rogue manufacturing facilities," Robert Pera, CEO of Ubiquiti, told investors during the firm' fourth quarter results call.

Backed by this know-how and assets counterfeiters have managed to place fake products in the legitimate sales channel. In the fourth quarter AirMax sales dropped by five per cent but worse is still to come. Ubiquiti warned investors to expect a drop in quarterly sales of up to 35 per cent.

Investors reacted angrily to the news and Ubiquiti now faces a battle to reassure both analysts and consumers. Ubiquiti is working to take down the counterfeiters through the courts but it will take time for legal victories to translate into increased consumer confidence in AirMax products.

A lack of confidence is causing South American customers to delay ordering until they know the product is real. Ubiquiti is trying to regain trust through the use of anti-counterfeiting technologies across its product portfolio.

“"Every product that runs through manufacturing has a...security ID that's linked to a very secure file base production authorisation system. So, it is very, very difficult to have a reoccurrence of this problem," Pera said.

Ubiquiti is also trying to address the root cause of the problem. Over the past two years demand for AirMax has outstripped supply and this has created a business opportunity for counterfeiters. Ubiquiti is now trying to close the door on fakers by becoming more responsive to client needs.

It will take time for gains to show up in financials but Ubiquiti claims the fight back is progressing. Intelligence gathered by Ubiquiti suggests the shipping of counterfeits has fallen significantly but the company must still contend with fakes that are already in the legitimate AirMax supply chain.

"There is definitely counterfeit product in the channel today," Pera said.