The value of small cap stock for Ubiquiti Networks Inc. (NASDAQ:UBNT) plummeted on Friday after the company announced its sales were badly hurt by the introduction of fake wireless equipment into the market.
According to Reuters, both UBS Investment Research and Wedbush Securities Inc. downgraded the stock after the announcement, which further pushed the company's shares lower. Ubiquiti announced that it was seeing a group of "very resourceful" former distributors that have been able to use the company's intellectual property in China.
The group has become so successful that it has established manufacturing facilities to produce Ubiquiti's products in legal sales markets, leading customers to believe the fake products are the real thing.
"We clearly underestimated the magnitude of the company's challenges as it relates to the prevalence of counterfeit products in the channel and concerns regarding Ubiquiti's distribution model," Wedbush analyst Sanjit Singh told analysts in a note.
The company stated it will take two quarters to resolve the counterfeit problems.
As of 3:24 pm on August 10, Ubiquiti shares were down 42.7 percent to $8.60.