Chapter 36: Tales from the Towers – a take on Ubiquiti’s woes

I’ve rewritten this article several times in the last few weeks due to the sinking stock price of Ubiquiti (Nasdaq: UBNT). Since the first part of this article was based on where I thought the company is going and Ubiquiti stock has been sinking faster than Eddie Murphy’s box office appeal from Pluto Nash, I was hoping to see things settle down first. Right now since it’s almost impossible to make any predictions but I’m going to anyway because I have as many opinions as Obama has excuses. I’m willing to stick my neck out if I have some reasonable foundation on which to base my prediction, but frankly these may be as much a coin flip as anything else. I’ve also been delayed in putting this together because I’m down to typing with two thumbs which is slightly slower, albeit some may say more accurate, than my usual technique (if you ever find your arm pinned to your chest for a month, I heartily recommend the Azio thumb keyboard).

Ubiquiti’s IPO has gone from boom to bust. When the company went public on Nasdaq, I envisioned great sales, great profit, and what I believed to be a great future based on what was coming out. Then they throw X-concepts under the bus to keep the United States government happy, pick a fight with a counterfeiter (which could be same guy but I haven’t figured out all the players yet), and then get back-doored, look the other direction, or actively participate in sales to Iran and possibly other countries not on Uncle Sam’s Christmas list (not sure which at this point). So many variables so much intrigue, not enough truth yet.

If Ubiquiti were still a private company, most of this might never have come out. Even if it did, a few million here and there for lawyers and settlements and it would be over. Unfortunately, a lot of investment groups have now sunk millions of dollars into what they thought was the next golden boy from the Apple tree — Robert Pera. Now they find out that the Ubiquiti fruit might have been grown with the help of outlawed fertilizer.

Even as we discuss this, the stock is still going down. The driving force now is the investment community that sounds as stupid as they are paranoid. I watched NBC’s brilliant analysis and would like to point out two things:

(1) Ubiquiti front loads by booking sales to distributors instead of sales to end users. They used Cisco as the comparison which is only appropriate since Robert said he wanted to be the next Cisco. However, this was incredibly stupid because they clearly don’t understand that Ubiquiti doesn’t floor tens of millions of dollars of equipment with distributors the way Cisco does. In addition, there isn’t enough inventory of needed products to supply a WISP setting up summer camp with 20 cabins with any distributor half the time. When Ubiquiti actually starts meeting demand, and I’m hoping that day comes before my retirement, then you can use this information as a decision point. Most of the products go in the front door and out the back door in 48 hours because they simply can’t meet demand for key products. I just had to order AirRouters from some Latvian supplier through eBay and that my friends, is pathetic. Most companies would kill for that kind of product demand problem. What I can’t figure out is why are the investment houses and analysts taking their eyes off the sales/profit numbers which clearly are excellent?

(2) An increase in accounts receivable: The fact they can’t deliver products to the end users means more orders and nobody is paying until equipment starts showing up. Not much there to concern me unless the next NS2M doesn’t get to my office because Santa is the deliveryman.

Here is the reality of starting a company on a shoestring. You make some hard decisions that you may not be comfortable with to keep the company afloat. I’m not saying that Robert shouldn’t have sold product to Iran to stay in business and I don’t even his level of involvement at this time. I’m certainly not defending it if he did. However, if it is true, I think Ubiquiti got off easily for $1.5 million dollars. However, if it had been up to me, I would have handled it differently and it all would have been legal.

Thanks to our pathetic President needing some tough guy points politically, his administration basically told the world how Stuxnet and Flame were delivered to our enemies in Iran and elsewhere. If Robert were smart, he could have used his equipment to do something good for the United States in the same manner by tacking these viruses into the firmware. In fact, who is to say that isn’t what happened and they can’t talk about it? There are way too many unknowns in this situation for anyone to make a decision. I do know that both those viruses got into the country somehow and they were both successful. Instead of beating up on Ubiquiti and their stock, they might due a parade. I just don’t know at this point and until that happens, I’m reserving judgment.

The worst that could result from all this is that Robert Pera steps down from the company. The reality is that the methodologies that he used to make Ubiquiti successful today are well known. The product lines are fairly well defined and we know of several new products coming out. We also know the targets are Cisco and Juniper, and since Ubiquiti still isn’t even close to those product lines yet, we know where their R&D is going for the next few years. Now throw in a custom chipset that is being delivered in the first product within the next 30-45 days (Ben told me, I believe him, and that’s because he had never been wrong on those estimates) along with already announced products, and it’s evident that even if Robert weren’t running the company, his legacy is imbedded for the next several years.

The other part of that reality is that Ubiquiti can’t deliver enough products because sales are still growing at an amazing rate. This quarter might stink because they simply didn’t have enough stock, but that’s going to end very soon. The third quarter is probably going to be stellar not only from people purchasing new products that are now available, but from existing clients that will be upgrading to some of the new products to enhance current deployments.

Okay, enough about Ubiquiti and onto Cambium. Yawn. Not much to report except for the fire sale on the PMP 100 series equipment and some battleship is now using BATS systems coupled with PTP600 radios. Oh wait, I almost forgot about the 450. Actually, nothing to add to the last report that the PMP450 series was delayed until somewhere between August and December either. The quiet is kind of annoying actually. I’m sure that there is a lot of scrambling on the 450 right now to get it out because the natives are getting very restless. If the Titanium starts shipping before the 450, and it looks like that race is probably over, the 450 is going to have some serious catching up to do if people start using it first assuming the firmware isn’t on Beta 82. The lack of GPS on the early Titanium products though, means that the 450 with GPS will definitely win that particular race.

So if you are starting your WISP tomorrow, I wouldn’t change any decisions based on what is happening, but what has happened. I stand by which vendor I would use based on the type of deployment I were making. Except for Ubiquiti’s stock price being dictated by lots of people with lots of money and not one speck of knowledge about our industry and Ubiquiti’s role (if they really understood it, they would be investing like crazy and using their lobbyist to keep CAF and the FCC from screwing it up), in my opinion, nothing has changed. If you haven’t deployed Cambium but that’s the way you want to go, use the 430 or wait for the 450. Hopefully, they will actually give some type of updated delivery date. If they don’t by the time you need to make a decision, look to Ubiquiti. If you are planning on deploying Ubiquiti, budget enough money to have 6 months of supply on hand to make sure you don’t get caught in the next wave of Chinese New Year which is the excuse you use for not managing your supply chain properly. If you have a moral position on the shipments to Iran (and it’s not in dispute whether that happened, just whether the company knew about it), then wait for the truth or just buy Cambium.

At this point, my thumbs are really getting tired so I’m going to make this the shortest article I’ve written as opposed to my last one. This way it kind of balances out and I keeps my thumbs in shape to tear open, wait for it.

CHOCOLATE FILLED TWINKIEs. Oh yes, the perfect food has finally been created.

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About the author

Rory Conaway is president and CEO of Triad Wireless, an engineering and design firm in Phoenix. Triad Wireless specializes in unique RF data and network designs for municipalities, public safety and educational campuses. E-mail comments to rconaway at triadwireless.net. Rory writes regularly for MuniWireless.com.

About Rory Conaway

Rory Conaway has been in the IT and Wireless Industries for the past 25 years as an author and consultant. He currently operates a growing WISP operation in Southern Arizona. He consults with investors, manufacturers, and WISPs, and develops financial business models for startups. In addition to writing articles in industry publications such as Mission Critical Magazine, Mr. Conaway also writes the series “Tales from the Towers” that can be found on various such as www.triadwireless.net and www.muniwireless.com. He has also engineered several wireless designs such as S.P.I.R.I.T. and Guerilla Wireless as well as building integrated wireless and video surveillance for airport security, municipal and critical infrastructure, SCADA systems, and hotel/MDU deployments.

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