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Donald Rudow

 
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  • NQ Mobile: Behind Smoke And Mirrors Lies The Truth, Part 2 [View article]
    What is Toro's opinion on the delay of the audited financials?
    Jun 27, 2014. 10:40 AM | Likes Like |Link to Comment
  • Accretive Capital Partners Urges Immediate Dutch Auction Tender Offer And Eventual Sale Of Actions Semiconductor Co., Ltd. [View article]
    This is a well articulated article. Since I have concluded that their strategy has failed, I sold my position. The operating business is worthless. It's a matter of preserving the capital while enduring annual operating losses of 4-5% annually. The fact that this has gone on for so long forces me to conclude that here are incentives in place that continue to support decisions that do not benefit shareholders, and I don't know the details, so continuing to hold this risk is not attractive to me.
    May 27, 2014. 01:38 PM | 1 Like Like |Link to Comment
  • Actions Semiconductor's (ACTS) CEO Zhenyu Zhou On Q1 2014 Results - Earnings Call Transcript [View article]
    Good luck to you. It would be nice to see this company generate profits from operations, but that is not happening so why continue staying in business?

    For me, the asset turnover ratio following the aggressive price strategy says everything I need to know. A lower price does lower margins but if it also increases your return on assets that is a good decision. That only happens if you are turning your inventory over more frequently which implies you are turning your assets over more frequently as well. ACTS has lower margins and a lower turnover ratio. The R&D burns through roughly 7-8% of the assets each year and operating profit is consistently negative. This has been going on for years now. I'm calling what has been, as being what will continue to be, without a complete rethinking of their product strategy. The results of their R&D are not good enough. They should liquidate, but I don't see that ever happening. I'll continue to watch this from the sideline. This may hit new all-time lows and become a value play once again. At that time I will reconsider, but only if there is some change in management. Otherwise, I think this is a value trap, and it is worth more as a quasi-Chinese investment trust than it is as a semiconductor company; and given the management are tech-guys and not money-guys, this is a problem.
    May 16, 2014. 10:31 AM | Likes Like |Link to Comment
  • Actions Semiconductor Reports First Quarter 2014 Results [View article]
    The Income Statement proves the assets being utilized to generate non-operating income is a better use for the assets. This is a shut-down signal that seems to be confirmed with the strategic failure we have experienced. So any assets utilized in these activities are simply better allocations. If they can continue to borrow at an annualized 2% and earn 6% they should do that all day long. It is far better than spending cash in R&D for operations yielding declining revenues and operating losses.

    There is a bothersome account on the balance sheet, though. Related party loans receivables are a concern. Is this a future write-down?

    I honestly think they should liquidate the business before they burn through the assets. A few investments that go sour during the next economic contraction could suddenly deplete a significant amount of equity on the balance sheet. Getting these Chinese companies to do anything like that is remote, I think, due to capital constraint issues and the general perspective on their end concerning the relationship between shareholders and management.

    Another concern is their accounting firm. Without a resolution between the US and China concerning access to the auditing papers they will be forced to utilize an even (potentially) less transparent Chinese accounting firm that is insulated from US sanctions.

    There is always a risk of fraud, though, so your concerns are certainly valid. Even absent fraud, ACTS has several major issues to work through. I am glad I am out of this position with a respectable gain, although I am very disappointed that it was nowhere near it could have been if they had a productive R&D along with a well executed and sound strategy in place.
    May 8, 2014. 02:56 PM | Likes Like |Link to Comment
  • Actions Semiconductor's (ACTS) CEO Zhenyu Zhou On Q1 2014 Results - Earnings Call Transcript [View article]
    I have finished liquidating my position with this company too. Their strategy has failed. I don't have any confidence they can compete with the current strategy, and I don't think they honestly think they can either. Zhenyu does not sound confident about the future, himself. They cannot compete in the oem market which is an area they probably have the best opportunity to succeed within.

    The result of lowering price to try and generate more revenues has yielded two disappointing outcomes. Negative operating margins and a falling asset turnover ratio. This spells strategic failure for a company that has decided to try and increase revenues by lowering the selling price. They are taking a beating from the competition and I don't expect that to change in the second half of the year.

    The R&D should have yielded results by now. It burns through 7%-8% of the assets annually since 2011.
    May 7, 2014. 12:43 PM | Likes Like |Link to Comment
  • Deswell Industries: A 1-Foot Hurdle Investors Can Step Over [View article]
    I'll throw my unsolicited comments in here...

    Firstly, the rmb has been appreciating against the US$ and the Euro for several years now. This has made their products more expensive for export to the regions denominated in those particular currencies. Regardless of their trade balance levels, an appreciating yuan has a negative effect on the level; making it lower than it would be in the absence of yuan appreciation.

    Labor costs have been increasing and there may be uncertainty over when the CCP will ease up on their policies designed to transform the consumption portion of gdp into an increasingly higher and important component for the future. A 'strong yuan' policy supports that endeavor (putting downward pricing pressure on imports). Will China's monetary policy change fundamentally with a higher default rate in loans? The credit issues are probably temporary, i.e. a short run problem, so I doubt that a strong yuan policy will change over the long run.

    A new CEO, I expect, will put his own stamp on the strategy going forward. The past few years have been low on risky capital investments. Perhaps the new guy brings with him a new strategy. If they are going to pursue an export oriented approach involving regions that are almost certainly trying to devalue their currencies to grow the company, this may require capital investments outside of China to get and keep a competitive edge for an extended period of time.

    I would like to see a strategy going forward that addresses the currency issues at work. China is not the cheapest manufacturing location anymore and the policy trends of China and its traditional trading partners cannot be ignored if the company prefers to avoid headwinds.
    Feb 25, 2014. 03:41 PM | 1 Like Like |Link to Comment
  • Gushan Environmental Energy: Marginal Analysis Necessary to Judge Diversification [View article]
    I did not agree to it. The buyout terms the board agreed to were far below the equity value of the company, and a good portion of the total capacity was new, with only a couple of years of depreciation incurred. Shareholders got a bad deal on the buyout.
    Feb 21, 2014. 11:06 AM | Likes Like |Link to Comment
  • Gushan Environmental Energy: Marginal Analysis Necessary to Judge Diversification [View article]
    Thank you for the link. I am not surprised they have re-listed on another exchange, albeit without the biodiesel business apparently. I'm not planning on entrusting my capital with Yu Jianqui anytime soon.
    Feb 21, 2014. 09:56 AM | Likes Like |Link to Comment
  • If You Believe In Yidatong (NQ's Largest Purported Revenue Source), You'll Believe In Santa Claus [View article]
    All China VIEs are prone to moral hazard problems. It is unavoidable due to the incentives that arise as an owner of the VIE versus the incentives those same owners face as shareholders entitled to excess benefits provided through the contractual agreements.

    There exist 'x' owners of the VIE and 'y' owners of the company that owns the VIE contracts. If the 'x' owners of the VIE are part of the 'y' owners of the company that owns the VIE contracts (and x<y), The benefits to the VIE owners of a $ or rmb within the VIE is greater than the benefits of a $ or rmb to the VIE owners within the company that is contractually entitled to the benefits. So there is an incentive to capture these benefits within the VIE as owners through various means we are familiar with. The assets funneled out of the VIE are generally much greater in magnitude than the benefits lost as shareholders, because x<y, so the VIE owners have an opportunity to be net gainers. These incentives exist regardless of how honest and upstanding the VIE owners are as executives in charge of the contractual relationship.

    This does not even address the ability of these contracts to be supported in a Chinese provincial court, which is another issue.

    I explained this in an article published on SA.
    Nov 7, 2013. 11:48 AM | 1 Like Like |Link to Comment
  • If You Believe In Yidatong (NQ's Largest Purported Revenue Source), You'll Believe In Santa Claus [View article]
    Great work. This kind of thorough investigation into Yidatong is necessary. It's not just a revenue issue here. The role this company may play in 'laundering' equity and credit financing from off shore into the VIE as reported, and subsequently out to other parties through related parties transactions the VIE conducts with its suppliers and customers seem to be a central issue (as is always the case with these structures). I think the cash balance, whether it exists or not, is less important than achieving transparency on Yidatong.

    Once the assets are transferred to the VIE they are out of the reach of shareholders, regardless of fraud accusations. It represents a vault, to some degree, safe from foreign investors up to this point. The capital controls are only part of the problem in my opinion.
    Nov 6, 2013. 03:52 PM | 2 Likes Like |Link to Comment
  • NQ Mobile: A Neutral Observer's Take [View article]
    Nice review of current events.

    Problems for me concerning this stock. (1) It is essentially nothing more than an investment in a VIE. These organizational structures are prone to problems involving moral hazard, which I have written about previously here on SA. (2) DSO of ~5 months with no Level 1 cash seems inconsistent with the statement that operations fund all their cash flow needs. (3) The Yidatong relationship has too much uncertainty surrounding it. If it generates all that revenue for NQ, why is it not a completely independent company that is distinct from Xu Rong's other company? Co-mingling of assets and records are a risk. (4) Exactly why is all that cash sitting there as Level 2, earning less than it should be as a non-cash, non-short term investment asset base, according to recent quarterly filings? Operating yields on non-cash eq, non-short term investment assets are an implied 4%, 7% and 4% for the past three quarters. Not making use of the assets within its operations cuts the operating earnings yield on its assets in half. Is this bad management, a temporary issue, or indicative of the true nature concerning the intent of acquiring that cash in the first place from the markets?
    Nov 5, 2013. 03:16 PM | Likes Like |Link to Comment
  • NQ Mobile: Behind Smoke And Mirrors Lies The Truth, Part 1 [View article]
    Foreign currency, government debts, and publicly traded equities are also level I assets according to the unique definitions for assets provided by FAS 157.
    Oct 29, 2013. 04:58 PM | 1 Like Like |Link to Comment
  • Muddy Waters Initiates Coverage on NQ Mobile Inc. [View article]
    Block was on an interview with Bloomberg this morning. They have already been speaking with NQ, under another name according to him. So this has already happened, even if it wasn't during the cc. MW has already forwarded their information to the SEC. They fully expect NQ to follow the same path as Sino-Forest, according to Block this morning.
    Oct 25, 2013. 11:32 AM | Likes Like |Link to Comment
  • Muddy Waters Initiates Coverage on NQ Mobile Inc. [View article]
    A 'Level II' classification for a bank balance is absurd, quite frankly. Cash, sitting anywhere as cash, should not be classified as Level II assets. PWC basically states they did not confirm the cash balance, if 'Level II' is their claim in the annual report. I didn't read it, and I've only just begun paying attention to this, but as an investor that sends a huge red flag. We've seen bogus cash statements coming out of China all too often the past 3 years.
    Oct 25, 2013. 10:13 AM | 3 Likes Like |Link to Comment
  • NQ Mobile: NQ Live Is A Game Changer [View article]
    Great story, if only it were true...
    Oct 24, 2013. 01:40 PM | 1 Like Like |Link to Comment
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