Vimicro's Latest PR On A Contract Win Is Misleading

On September 30th, Vimicro (VIMC) announced that its joint venture, Zhongtianxin, has won a contract to provide SVAC-compliant video surveillance cameras and system to the Traffic Police Detachment of Taiyuan for RMB76 million, or USD12.4 million approximately.

A couple statements made in this PR might be misleading to the casual observer. First, note that Zhongtianxin is a JV that is owned 51% by VIMC and 49% by Shanxi Guoxin Investment Co., a government-owned investment company in the province. So VIMC will only receive half of the revenues, or $6.4M, and with a 30% gross margin, it only comes out to $1.8M in gross profit for VIMC.

In the PR, VIMC's Chairman and CEO, Dr. John Deng, states: "As the only proven provider of SVAC technology and solutions in the marketplace, Vimicro will continue to leverage its first-mover advantages to capitalize on the megatrend of SVAC national standard adoption by the government, to further establish itself as a leading player in China's video surveillance market."

To claim that VIMC is "a leading player in China's video surveillance market" is laughable. The following are VIMC's main competitors in China. These are all pure play companies that manufacture and sell video surveillance cameras solely in China.

Disclosure:

White Diamond Research and/or clients are short shares of VIMC, and benefit from the stock's decline. To read the full bearish report of VIMC, please go to whitediamondresearch.com, or here on Seeking Alpha Instablog.