August 10, 2012 / 1:22 PM / 5 years ago

Ubiquiti Networks stung by counterfeiters; shares set to slump

(Reuters) - Ubiquiti Networks Inc (UBNT.O) shares were set to open 37 percent lower on Friday after the wireless equipment maker said fake wireless equipment were hurting sales.

UBS Investment Research and Wedbush Securities Inc downgraded the company’s stock.

Ubiquiti said on Thursday it was facing a group of “very resourceful” former distributors, who know its sales channel and have managed to get the company’s Intellectual Property (IP) in China.

The company said the group has set up manufacturing facilities and placed Ubiquiti’s products in legitimate sales channels, misleading customers to consider fake products as original ones.

Ubiquiti said most of the counterfeiting was in South America, where revenue fell 30 percent to $16.6 million in the fourth quarter from the third quarter.

“We clearly underestimated the magnitude of the company’s challenges as it relates to the prevalence of counterfeit products in the channel and concerns regarding Ubiquiti’s distribution model,” Wedbush analyst Sanjit Singh said in a client note.

    While the company said it will need two quarters to resolve the counterfeiting concerns, analysts dubbed the timeframe as too optimistic. Analysts say it may take four to six quarters, or more to solve the issue.

    Ubiquiti shares traded at $9.48 before the bell on Friday, down 37 percent from the closing price of $15.01 on the Nasdaq on Thursday.

    Reporting by Chandni Doulatramani in Bangalore; Editing by Maju Samuel

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