LONDON – Nasdaq-traded Chinese fabless chip company Spreadtrum Communications Inc. has been targeted by Muddy Waters LLC, a brokerage firm that has declared a short position in the company and published an open letter to the chairman. The company's share price lost about 34 percent by mid-session on Tuesday (June 28) but recovered much of the lost ground by the end of the day.
In the letter Muddy Waters analyst Carson Block raised nine points that question the management, business practices and financial details of the company since the departure of founder Ping Wu.
"We have identified a number of issues in SPRD’s filings, and we believe that there is a high risk of material misstatement in the reported financials since the time of Dr. Ping Wu’s resignation. Our concerns are gravest regarding 2010 and 2011 numbers," the letter says.
In its full year financial results for 2010 published on March 3,
Spreadtrum said that total revenue increased 229.6 percent from 2009 to
$346.3 million including $126.5 million in the final quarter. Spreadtrum
has said that forthe first quarter of 2011 the company's revenue was
$137.1million, exceeding the previously guided range of $130 million to
Ping Wu stood down as CEO in February 2009 being replaced by Leo Li, but continued as chairman until mid 2010.
Li now serves the company as chairman and CEO and hosted an analyst conference call on Wednesday (June 29) which responded to a number of the points raised in the Muddy Waters open letter.
Spreadtrum is included prominently in the EE Times 'China Fabless Profile' report, which includes details of the leading China fabless chip. If you are interested in receiving the report, contact firstname.lastname@example.org
I am interested in your take on the Muddy Waters open letter.
Three observations I can make that are derivative rather than primary.
One: which is included above is that Muddy Waters LLC declared a short position in Spreadtrum and so stood to be able to benefit from the changing share price.
Two: the market shrugged off its initial dismay and climbed back into Spreadtrum very quickly on Tuesday.
Third: the analysts that I heard on the conference call with chairman and CEO Leo Li on Wednesday all seemed appreciative of the firm's open-ness and satisfied with answers Li gave to their questions.
If you want a detailed analysis of the nine points that Carson Block made in the open letter; well that will take a bit more time.
Maybe it is something we can do in EE Times Confidential.
Peter, I downloaded the PDF and this is certainly a case of close and experienced analysis of reporting (or the lack thereof). I'd love to see more comments from EETimes on this other than just reposting the press release. Kind of like a product teardown but in this case a balance sheet teardown.