Is Montage Technology Still Fabless If It Is Fabricating Its Revenue
Our full 27 page report on Montage Technology Group Ltd. along with its two appendices can be found here.
Montage Technology Group Ltd. (NASDAQ:MONT) is a Chinese fabless (short for fabrication less) semiconductor company focused on the set top box chip market. We believe that Montage Technology Group Ltd. ( MONT ) is grossly overstating its revenue, and that MONT s actpatagonia better sweater full1ual revenue is significantly lower than MONT has reported to investors due to overwhelming evidence that MONT s largest distributor is nothing more than a shell company used to help fabricate MONT s financials. LQW Technology Company Limited ( LQW ), a Hong Kong entity which MONT claims accounted for 71% of its revenue in the first 9M of 2013 (up from 50% in 2012), is secretly 100% owned by Shanghai Montage Microelectronics Technology Co. Ltd. ( SMMT ), an undisclosed entity established by MONT and a MONT employee. Our evidence includes the following:
1) Chinese corporate filings showing that LQW (the distributor accounting for 71% of MONT s reported 2013 revenue) is owned by SMMT, an entity established by MONT and a senior MONT employee2) LQW filings and registration/passport information showing that one of the two directors of LQW provided a false residential address that actually belongs to Phoebe Su, the VP of Finance and Administration at MONT3) Photograpatagonia vagabunda vest reviewphic evidence from visiting the registered office of LQW showing that the office is actually nothing more than a small, 1,000 1,500 ft2 warehouse room. We visited on a recent weekday afternoon, and it was padlocked. A security guard working at the building stated that LQW had moved into its room a few months ago, but that he had never seen anyone from LQW entering or exiting the premises4) Documentation showing that the current registered office of SMMT doesn t even exist5) A recorded conversation with an officer/shareholder of SMMT where she denied selling set top box chips (MONT s bread anpatagonia black hole for saled butter), refused to meet in person, and insisted on conducting future correspondence through text messages rather than callsIntroductionLQW was founded by Anthony Ho (an ex employee of MONT CEO Howard Yang at Newave Semiconductor) in October 2011 (the exact same month MONT claims to have started doing business with it1), and 100% ownership of LQW was transferred over to SMMT on February 2, 2012 less than four months after it incorporated.2 SMMT was formed by MONT and a senior employee at MONT (Lei Larry Wu/). Wu and MONT s VP of Finance and Administration (Lin Phoebe Su) were appointed to the roles of general manager/executive director/legal representative and auditor of SMMT, respectively.3 Every single job posting for MONT that we came across that listed MONT s subsidiaries included SMMT as one of them.4 This includes the corporate description attached to jobs posted as recently as January 10, 2014.5 SMMT has had two registered offices, both of which were down/across the hall (same floor of the same building) from offices registered to MONT.6 Other sources, including a recordedpatagonia r4 fleece jacket men's review interview with an employee of MONT and published articles, refer to SMMT either as part of MONT or interchangeably with MONT.
As patagonia better sweater full2of today (February 6, 2014), the registered address of SMMT is Room 303 30, Building 33, 680 Guiping Rd., Shanghai.7 We tried to visit the purported office. Room 303 30 does not exist and SMMT had no office anywhere on the floor or in the building. Below is the building directory for the third floor of Building 33, 680 Guiping Rd., Shanghai:
There are only five separate offices located on the floor, none of which belong to SMMT and none of which are number 303 30. We also asked staff at other offices on the floor, and they claimed to have never heard of SMMT.
We alspatagonia better sweater full3o visited LQW. LQW s registered office is actually nothing more than a small warehouse room that we estimate to be between 1,000 and 1,500 square feet. We visited the registered address of LQW on a recent weekday afternoon, where we found LQW s door padlocked and did not see any employees. A security guard working at the building during the day said that LQW had moved into its room a few months ago, but that he had never seen anyone from LQW entering or exiting the premises. See below for pictures of the front entrance of the registered office of MONT s largest distributor:
Prior to MONT going public, ownership of SMMT was transferred from Larry Wu and MONT to two women, Zhu Yan (, received 60% of SMMT) and Chen Yueci (, received 40% of SMMT). SMMT also changed its legal representative from Larry Wu to Zhu Yan. Zhu Yan is also legal representative for a Shanghai subsidiary of a Hong Kong entity controlled by the parents of MONT President Stephen Tai. During a recorded phone call with Zhupatagonia better sweater full Yan on January 15, 2014, she claimed that she was not in the office and would not be working for the next few weeks since she was not feeling well and Chinese New Year (which was weeks away at the time of the call) was coming up. During the call, we inquired about obtaining price quotes for set top box chips (MONT s bread and butter), and Zhu Yan appeared to be uncomfortable. She claimed that she was not selling such products, stated that she only hrare patagonia large 19016 special forces mars slingshot jacket alpha greenad a small relationship with MONT (a strange comment for the legal representative and 60% owomens patagonia suede multicolor trail walking shoes size 10 new no boxwner of the parent company of LQW, MONT s largest distributor), and insisted that we continue future correspondence through text messages rather than calls. We believe that Zhu Yan is a front for MONT.
Following its acquisition of LQW, SMMT appointed two directors at LQW: Chen Yueci () and Zhu Dexiu (). We found that LQW s Hong Kong filings include a false Shanghai mailing address for Zhu Dexiu. The address listed in LQW s corporate filings for LQW director Zhu Dexiu actually belongs to Phoebe Su the VP of Finance and Administration at MONT!8 According to her passport and registration record, Zhu Dexiu doesn t even live in Shanghai she lives in Anhui. We believe Zhu Dexiu is also a front for MONT.
Though MONT failed to disclose this in its prospectus, SMMT was accused by SARFT (a Chinese government agency) in March 2010 of selling illegal chips with receivers set to allow the owner to receive free signals from Chinese satellites, who would otherwise have to pay monthly fees for cable.9,10 The satellite signals were intended for rural locations that were too remote to access television signals via cable, however, many set top boxes were being illepatagonia discount code epsongally sold to urban residents.
Based on the evidence we have uncovered, we believe MONT is producing significantly less revenue than it claims and is likely not profitable. We are shocked that investors have purchased MONT equity without forcing the company to address the fact that the vast majority of MONT s reported revenue is coming from a recently formed entity with no public website and no discernible business relationships with any entities besides MONT.
Background of SMMTMONT claims in its S 1 filing that LQW made up 50% of its 2012 revenue and 71% of its revenue in the 9 months ending September 30, 2013. This is how the relationship is portrayed by MONT:
However, as we will show, LQW is owned by SMMT. SMMT, in turn, was established by one of MONT s Shanghai subsidiaries and a MONT employee. See below:
(click to enlarge)
Below is the document for SMMT showing its initial capital structure:
(click to enlarge)
MONT eventually changed the ownership of SMMT to two women, Chen Yueci () and Zhu Yan (), with Zhu Yan appointed as legal representative. We believe that these two women are shills, and the intent of the ownership change was to try to make it seem as though SMMT is not related to MONT. Zhu Yan is also the registered legal representative of Yunduan Technology (Shanghai) Co., Ltd. ((), Yunduan Shanghai ), which is a subsidiary of Yunduan Media Company Ltd. ( Yunduan HK ), a Hong Kong based entity that lists Stephen Tai s (the president of MONT) parents as its only directors. See below for a visual representation of the relationships between the parties and MONT:
(click to enlarge)
There are a couple other items worth noting. First, LQW, Montage Semiconductor Hong Kong Company Ltd., Montage Technology Hong Kong Co. Ltd., Montage Technology Co. Ltd., and Yunduan Media Company Ltd. Mok Co. Mok Co., and online sources indicate that it is a very small practice (
Second, many of the registered addresses for the entities listed above were either identical or within the same hall:
SMMT s original registered address was:Room 402, 4th floor, Building 32, 680 Guipingpatagonia guide jacket brands Road, ShanghaiMontage Technology (Shanghai) Co., Ltd. has used the address:
Room 406A, 4th floor, Building 32, 680 Guiping Road, ShanghaiYunduan Technology (Shanghai) Co., Ltd. has the exact same address:
Room 406A, 4th floor, Building 32, 680 Guiping Road, Shanghai2. SMMT later changed its registered address to:
Room 303 30, Building 33, 680patagonia guide jacket nike Guiping Road, Shanghai, ChinaThis happened around thpatagonia better sweater full0e same time that Montage Semiconductor (Shanghai) Co., Ltd. changed its address to:
Room 303 27, Building 33, 680 Guiping Road, Shanghai, ChinaNote that the picture in the Introduction to this report shows that neither of those addresses exist anyways.
3. Yunduan Media Company Ltd. has the following registered address in Hong Kong:
Room 8, 4th Floor, King Commercial Building, Nos. 2 4 Chatham Court, Kowloon, HKMontage Technology Co. Ltd., Montage Technology Hong Kong Co. Ltd., and Montage Semiconductor Hong Kong Co. Ltd. also used the exact same room as a registered address:
Room 8, 4th Floor, King Commercial Building, Nos. 2 4 Chatham Court, Kowloon, HKLQW was Acquired by SMMT Less than Four Months After IncorporatingLQW was incorporated by Yat Hing Anthony Ho in Hong Kong on October 20, 2011. LQW has no public website, and we were unable to find any mention of other business relationships it may have. Ltd. acquired the single share of LQW (which represented a 100% interest) from Anthony Ho on February 2, 2012. See below for the relevant excerpt from the Hong Kong Annual Return filed by LQW with the Hong Kong Cpatagonia guide pants 95%ompanies Registry in October 2012:
refers to SMMT despite what the English translation says. The characters are pronounced as lanqi as indicated in the translation shown in excerpt shown above, but actually translate to montage in English! For example, if you look at the emblem on the top left corner of the MONT corporate website with the language set to Chinese, it shows the following logo:
