Bottom line: The rumored departure of LeEco’s mobile chief is likely to be followed by the official closure of its smartphone division and sale of its Coolpad stake by the end of October.
As we approach the first anniversary of the crisis that has seen the rapid demise of LeEco (Shenzhen: 300104), the latest headlines are hinting at the imminent unraveling of the former video superstar’s smartphone business. The headlines I’m referring to say the CEO of LeEco’s mobile division, who has the very un-Chinese looking name of Abulikemu Abulimiti, has left the company.
Like many other things involving LeEco these days, there’s no official confirmation from the company on whether the mobile division chief has really left. Instead, the reports are quoting company insiders, but adding that it’s a bit unclear whether he has actually left or just resigned. That pretty much reflects the state of chaos at LeEco these days, where it’s quite difficult to confirm what exactly is happening inside the company anymore.
The company is clearly one that’s in transition, though what lies the end of that transition remains to be seen. The company’s new controlling stockholder, Sunac China Holdings, has already commandeered LeEco’s listed unit and installed its own people, pushing out founder and former CEO Jia Yueting in the process. The next move is likely to be a relatively quick review of the company’s various businesses, followed by a decision on which ones can be salvaged, which should be sold and which should be closed.
This latest news, if it’s true, certainly doesn’t bode too well for LeEco’s smartphone business, which in the view of many, myself included, is the most likely to be closed first. There’s not much more to the reports beyond what I’ve said already, namely that the CEO of the mobile division has resigned and there’s a bit of confusion about whether he’s already left or may be leaving. (Chinese article)
But the bottom line is that it really doesn’t matter if he’s still there or already gone. The reports do point out that Abulikemu Abulimiti’s resignation would mark the departure of Jia Yueting’s last lieutenant at the company, and thus isn’t too surprising. I would probably concur with that view, though I would quickly add that his departure probably has added significance since the smartphone business is showing rapid signs of meltdown.
Past Glory Days?
Even in its heyday, which is already probably an overstated word, LeEco’s smartphone division wasn’t much to write about. I did probably see one or two people using LeEco phones at the height of its popularity, but those days have long past. The only thing you read about now in that regard are the unpaid bills that LeEco has left with its phone suppliers, and also the fact that the company has basically abandoned its after-sales service for the phone business.
None of those is surprising developments, and are really exactly what one would expect to see for a business that’s soon going to be discontinued. LeEco jumped on the smartphone bandwagon quite late, which is never a good sign. Jia Yueting said the business was part of his vision for creating an ecosystem of products and services centered on LeEco’s core entertainment business that would get delivered over TVs, phones and through cars, among other things.
The idea wasn’t such a bad one, though it was hardly original. It looked like an attempt to copy Apple (Nasdaq: AAPL), which has hardly been too successful in hardware outside its smartphone business. The only problem is that LeEco didn’t have nearly the resources that Apple did, and borrowed heavily to finance its rapid move into smartphones, along with a host of other products and services, that ended up getting it into its current mess.
All of that brings us back to this latest executive departure, and if it means we’re likely to see an imminent closure of the smartphone business. I would say the answer is “yes”, and would expect to see a formal announcement of a discontinuance of that product line by the end of October at latest.
I would also expect to see LeEco formally sell its large stake in dying smartphone maker Coolpad (HKEx: 2369) around the same time, though it may have difficulty finding a buyer for that. Coolpad’s shares have been suspended since April, at which time it was worth just shy of $500 million. Since then there’s been a steady stream of bad news for that company, including many of its banks trying to collect their loans early. Accordingly, I suspect that LeEco’s stake is probably now worth perhaps just $50 million or so, or perhaps even less.