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  • Why I Just Made Montage Technology Group My Largest Short Position [View article]
    Jtech, we didn't pay anyone on the ground in China for anything. we'd much rather be long stocks than short them. not saying we aren't subject to confirmation bias from time to time like every other human on the planet, but in this case, nobody had an incentive to lie to us. what the people on the ground said is the same thing that the numbers from the chip distributors and the set top box sellers say, with a little more color. for example, we learned that MONT was selling their HD chips for $3, not $6, from a source on the ground. MONT is what it is.
    Jun 12 01:38 PM | Likes Like |Link to Comment
  • Why I Just Made Montage Technology Group My Largest Short Position [View article]
    Zhang, the available evidence strongly indicates that the illegal chip sales are 90%+ of the set top box chip revenue and 70%+ of the company's entire revenue (i.e. the entirety of LQW's sales).

    If only 5% of the revenue is black market, then why do so few distributors carry MONT chips, why are their so few low-end set top boxes for sale with MONT chips in them, why do none of the companies that MONT claims as a competitor consider MONT to be a competitor, and why do folks in China's legal set top box market think they are such a small player?

    If China really thinks that paying 10-15x forward revenue for a memory buffer developer is in their national security interest, then they should go for it. It is puzzling as to why anyone would pay that much for MONT, though; such a high price tag seems more likely to be due to some sort of under the table deal.
    Jun 12 01:33 PM | 2 Likes Like |Link to Comment
  • Why I Just Made Montage Technology Group My Largest Short Position [View article]
    Thank you for the compliment, Michael, but it is not fair to say that Gravity got it wrong. We would not have even been looking at this company were it not for Gravity doing their phenomenal work on the nature of LQW. We thought outright invented revenue was the most likely explanation for a long time; it is easy to find people knowledgeable about the legal set top box industry who know that Montage has a very small presence there; it is much harder to find people willing to speak about the black market. We didn't discover the illegal chips; someone else brought it to our attention. Only in retrospect does it all make sense.
    Jun 12 01:22 PM | 2 Likes Like |Link to Comment
  • China Orders Montage Technology To Cease Production And Sale [View article]
    have you read the merger agreement?
    Jun 12 01:16 PM | Likes Like |Link to Comment
  • Why I Just Made Montage Technology Group My Largest Short Position [View article]
    and here is some Chinese for you to read:

    http://bit.ly/1osww8H

    This article explains perfectly well why so few of MONT's set top box chips actually appear on the market--MONT's set-top box business is mostly black market banned chips.

    If the government of China thinks MONT is so great, why did they just order the company on April 29 to stop making illegal set top box chips?

    What the experts on the ground in China have told us is that MONT sells vastly fewer chips (in the legal market) that ALi or other competitors, that MONT had to dramatically reduce pricing because nobody was buying their chips, and that MONT can't possibly be making money selling HD chips at $3 a pop.

    To understand MONT, all one needs to do is ask the people in the Chinese STB industry, and to use common sense. If memory buffers have 65% GMs, and legal STB chips have 35% GMs, how the heck does a company with almost all of its revenue from STB have 58% gross margins? Illegal chips have a very high gross margin, because they let you get satellite TV for free. When did MONT's GMs go through the roof? The same year that LQW started exclusively selling "the product," (i.e. the banned chips), which was pretty much right after China banned all of the illegal chips in 2010. Instead of ceasing production, it looks pretty clear that MONT just enjoyed its newly found near-monopoly in black market chips.

    PDSTI buying MONT in the interests of national security makes as much sense as the state of New York's pension fund buying a tobacco smuggling operation in the interests of national security.

    I don't know if this merger goes through or not, but I do know that 90%+ of MONT's claimed chip production doesn't seem to appear anywhere in the supply chain, that MONT's gross margins are inconsistent with the business they claim to be in, that MONT established an entity called LQW that distributes 70% of the company's revenue with no clear business purpose (other than selling illegal chips), and that the government of China recently ordered MONT to stop selling illegal chips. And I also know that nearly 6 million shares changed hands today, so more than a quarter of the outstanding shares were sold. What we don't know is how many shares management sold, because they aren't required to file a form 4.
    Jun 12 01:01 AM | 2 Likes Like |Link to Comment
  • Why I Just Made Montage Technology Group My Largest Short Position [View article]
    Paulo, SARFT is obviously aware of MONT's shenanigans. PDSTI is aware as well, but has chosen to pursue this deal in spite of that. This seems most likely a case of the individual motives of influential people not aligning well with the common good. The influential people will either get their way or they will not. PDSTI is playing a dangerous game with state money.

    I can sleep well here. The worst that will happen to us is that we lost money. There are officers and directors of MONT who need to worry about criminal liability for the securities laws they have broken, and the folks at PDSTI could, worse case scenario for them, end up like the folks who put melamine in infant formula. I'm always amazed that people who already have a comfortable-enough life are willing to risk so much to make a few more bucks or help out a "friend" who has made poor choices.
    Jun 11 02:12 PM | 1 Like Like |Link to Comment
  • China Orders Montage Technology To Cease Production And Sale [View article]
    RP, I'd say it's better than 50/50 that this deal closes, now that a definitive offer has been accepted. On the other hand, with the stock near $22.00, there's less than $1 of downside for a short position, vs. double-digits of upside, so today is a perfectly timely entry point for a short.

    Montage has been a bad trade for us thus far, and the odds are more likely than not that it will finish that way, but the risk/reward (dollars weighted by probabilities) is such at this point that we will keep our short position open.

    When we have stumbled badly in a trade, it seems government involvement is often a part of that stumble. We were long Fannie and Freddy preferreds at 7 back in 2008, thinking the government couldn't slam small banks by letting them fail (wrong), and we were in the Citi long preferred / short common arb when the company and the SEC dragged their heels for months before a registration statement was made effective, causing a terrible short squeeze. Such is the risk one takes sometimes.

    We are fortunate to be in a business where being right 53-54% of the time makes one a hero.
    Jun 11 09:33 AM | 2 Likes Like |Link to Comment
  • Despite Some Long-Term Overhangs, Risk-Reward Is Exceedingly Positive With Tonix [View article]
    Nice article. Your $62 per share scenario is pretty much our base case. We know there are risks along the way (how odd is it that the company has had zero clinical trials of this formulation so far, and the IP is more of a concern for us than the possibility of a failed clinical trial?), but we think it gets to the finish line for fibromyalgia.
    Jun 10 10:43 AM | 1 Like Like |Link to Comment
  • 4 Reasons For The Success Of The Montage Technology Bid [View article]
    Yes, this! Option B. And the case that MONT knows exactly who its illegal chips are being sold to is easy to make, as the company has repeatedly publicly said that it knows who all of its end customers are, and that LQW just exists for financing. If up to 10 million units of illegal chips per month are being sold, it isn't to Larry and Moe's set top box shop in a garage somewhere, it is to entities of significant size in China, for whom MONT is likely providing engineering and software support as well.

    It's extremely likely that you are exactly right on with your statement "70% of MONT revenue becomes non recurring with an enforcement action." Now, either "the fix is in" (i.e. a state-owned entity is going to buy a company which likely only makes money selling illegal products), or else the fix is not in, a serious enforcement action will come, and meanwhile MONT trades for something like 11x its legal (i.e. likely to be there for the forseeable future) revenues.

    The bull case for MONT is that a bunch of cronies decided to make chips illegal, but allow one company to keep making them, and once that company completely dominated the market for illegal chips, they would buy it and loot it's lucrative cash flow from illegal chips, protected from enforcement under the auspices of being a state owned entity. As in "If the President [or state, in this case] does it, it isn't illegal." At least if the transaction closes, we all understand the nature of the scam now.
    Jun 6 09:57 AM | 1 Like Like |Link to Comment
  • 4 Reasons For The Success Of The Montage Technology Bid [View article]
    Well, since the chips in question have been banned for sale since 2010, and there is now a four-year moratorium on their production, that sounds pretty illegal to me. It's not like it depends on what the meaning of "is" is.
    Jun 4 09:05 AM | 1 Like Like |Link to Comment
  • 4 Reasons For The Success Of The Montage Technology Bid [View article]
    Thanks. Looks like Sep. 30 may be our new favorite day of the year.
    Jun 4 09:02 AM | Likes Like |Link to Comment
  • 4 Reasons For The Success Of The Montage Technology Bid [View article]
    I wish we could take credit for finding that article; it was sent to me by a helpful fellow in China.
    Jun 4 09:00 AM | Likes Like |Link to Comment
  • 4 Reasons For The Success Of The Montage Technology Bid [View article]
    No problem. Just call Ross Seymore or Quinn Bolton so they can tell you the review is complete and investors can now go back to valuing MONT on its "fundamentals." Speaking of hear no evil and see no evil, that reminds me of speak no evil... you might want to shoot an e-mail to lsievers@sheltongroup.com and see what MONT's external IR has to say about the company's "plan." If you actually get a reply, we'd love to hear it.
    Jun 3 01:58 PM | 1 Like Like |Link to Comment
  • 4 Reasons For The Success Of The Montage Technology Bid [View article]
    For those who are slow at picking up on your sarcasm, of course it warrants an 8-K. Just one more reason for plaintiff's attorneys to take all of the company's cash, one more reason for the auditors to resign, one more reason for the company to get delisted, and one more reason for SEC enforcement action.
    Jun 3 11:02 AM | 1 Like Like |Link to Comment
  • 4 Reasons For The Success Of The Montage Technology Bid [View article]
    Very interesting article from the Chinese business press:

    http://bit.ly/1osww8H

    According to the article, SARFT again sanctioned MONT for selling banned chips, and MONT is selling tens of millions of them on the black market.

    Perhaps LQW really does exist to sell banned chips rather than to manufacture revenue. At any rate, if SARFT did sanction the company again, and the company failed to disclose that, then add that to the list of things that this company's officers and directors are personally liable for.

    How much of a multiple are investors willing to put on a business that is either invented or illegal and could cease at any moment? This stock is headed for the single digits very soon, delisting or not.

    If PDSTI pays 3x revs for a company where 70% of the revs are either invented or from illegal sales, in today's climate in China, there will be no saving them. It's hard to imagine they will be that careless with state money or their own lives.
    Jun 3 10:42 AM | 1 Like Like |Link to Comment
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