Muddy Water Discloses Short Position in Spreadtrum, Shares Dive

Shares of Spreadtrum Communications Inc. (SPRD) continue to nosedive in midday trading, taking a nearly 33 percent hit to $8.68. Weakness attributed to research firm Muddy Waters — famous for writing critical notes about China-based companies — who have apparently written an unfavorable open letter to SPRD Chairman addressing concerns about “high risk of material misstatement in the reported financials” of the China-based chip maker.

“Muddy Waters, LLC [MW] has begun researching Spreadtrum, Communications Inc…and we have taken a short position in it,” says in its letter MW. “We have identified a number of issues in SPRD’s filings, and we believe that there is a high risk of material misstatement in the reported financials. Our concerns are gravest regarding 2010 and 2011 numbers.”  The letter concludes with 15 questions, which can be read below (h/t BI).

SPRD currently trades at a trailing P/E of 5.30, a forward multiple of 3.89 and a P/E to Growth ratio of 0.54. Volume has exploded with more than 7.6 million shares already trading hands compared to a daily average volume of 1.8 million.

The day’s trading range for the ticker has been between $8.68 and $13.39 per share. Currently short SPRD interest stands at over 5 million shares vs float of 34.5 million.

MW_SPRD_OpenLetter_06282011

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About Ron Haruni 1064 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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