Bottom line: OnePlus and Smartisan are 2 brands that could be most at risk for closure or acquisition in a looming smartphone shakeup that will intensify next year and claim at least 2-3 mid-sized and smaller players.
Less than 2 weeks after he talked about a looming shakeup in China’s overheated smartphone sector, OnePlus co-founder Carl Pei is having to explain layoffs at his company, and also fend off rumors of a takeover bid. At the same time, more signs of Pei’s predicted shakeup are coming from Smartisan, another newer smartphone play, whose manufacturing partner for its new model has reportedly gone bankrupt.
Both OnePlus and Smartisan fit the profile of the kind of company that Pei said would be most at risk in the coming shakeup. Each is relatively young, and both are pure smartphone plays without any other operating history. That means they have few other resources to fall back on as their profits evaporate in the unending price wars gripping China’s smartphone market.
We’ll begin with OnePlus, whose Pei noted in his interview a couple of weeks ago that around 90 percent of the profits in the smartphone space were being gobbled up by the high-end Apple (Nasdaq: AAPL). (previous post) Pei was careful not to talk about his own company’s current situation, even though it seemed obvious that many of the woes he was describing applied to OnePlus.
Now media are saying OnePlus has denied any plans for a merger with Oppo, a rumor that was inspired by a recent change in Oppo’s registered name. (Chinese article) It’s probably significant that the denial is coming from someone in OnePlus’ PR department and not Pei or another high-level official. Such low-level people are famous for denying developments even when they are really happening, and my years of experience reporting in China has taught me such a denial is really the western equivalent of a “no comment”.
The spokesman also expressed surprise at other rumors of layoffs in OnePlus’ product development department. He confirmed some layoffs, but said they numbered no more than 10 and were mostly related to the company’s slowing domestic sales. I suspect that we’re not getting the full story here, and that OnePlus could indeed be in deeper trouble than it is admitting as the shakeout that Pei predicted intensifies.
Next there’s Smartisan, a brand that was trying to position itself as a more upscale choice but which hasn’t really differentiated itself from all the other cheap models flooding the market. The latest media reports say that a factory in the southern boomtown of Shenzhen had been certified to make Smartisan’s upcoming T2 model on November 13, only to now go bankrupt. (Chinese article)
The reports note that the bankruptcy of the factory, whose Chinese name is Shenzhen Zhongtianxin Electronics, are based on a blog post that no one seems to have confirmed by actually visiting the factory. But the blog post that sparked the talk says the factory’s owner has disappeared, leaving more than 4,000 workers unemployed.
The report notes that Zhongtianxin supplies some of the industry’s top players, including Samsung (Seoul: 005930), Huawei, ZTE (HKEx: 763; Shenzhen: 000063) and Coolpad (HKEx: 2369). If the report is correct, the timing of this bankruptcy looks quite bad for Smartisan, which had scheduled an event on December 29 to formally unveil the T2.
Zhongtianxin would become the latest bankruptcy of a growing number of smartphone component makers and manufacturers, who are feeling intense pressure from the brands that are their main customers. Reports of bankruptcy for at least 3 major component suppliers, all in southern Guangdong province, surfaced in the month of October. (previous post) This is the first report I’ve seen of an actual smartphone manufacturer going bankrupt, which means the pressure is creeping up the food chain and is likely to hit some of the actual brands in the next few months.