SMARTPHONES: Smartisan Value Dives, LeEco Sales Sputter

Bottom line: Smartisan’s plummeting value and big losses point to a possible sale or closure of the company by year-end, while LeEco’s weak smartphone sales reflect the market’s overheated condition.

Smartisan value gets hammered

Separate stories from 2 of China’s decidedly second-tier smartphone brands highlight ongoing stress in the overheated sector, even though a major casualty has yet to emerge. But that could change soon, with word that the asset value of high-brow brand Smartisan has plummeted over the last year, as disclosed in a new filing by one of its investors. Meantime, online video superstar LeEco (Shenzhen: 300104) has disclosed sales figures that look quite weak for its own smartphone business, which it launched more than a year ago with big hopes.

I’ve previously predicted we would see one or two major casualties from China’s crowded smartphone sector this year, though we have yet to see any big names close or get purchased. But there are still 3 months left in 2016, so perhaps we’ll see one or two mid-tier players finally decide to call it quits.

One of the most likely candidates to make that decision is Smartisan, whose main claim to fame is its founder, Luo Yonghao, better known as China’s most famous English teacher. Luo launched his brand 2 years ago at the height of China’s smartphone frenzy, and was hoping to parlay his intellectual background into a trendy new brand targeted at image conscious consumers.

But the company failed to ever find a major following in a crowded field that includes dozens of similar models, and Luo sold off some of his shares in June to raise cash to keep Smartisan afloat. (previous post) Now another small investor is looking to dump its stake as well, but what’s drawing all the attention are financials included in a public filing announcing the intent to sell.

According to media reports, Smartisan’s net asset value stood at a modest 296 million yuan ($44 million) at the end of June, a figure that was disclosed in the filing stating the investor’s intent to sell its 1.13 percent of the company. That would be a huge drop from the company’s asset value of 825 million yuan just 6 months earlier at the end of last year, showing the company has lost about two-thirds of its value over that period.

Big Losses

The filing also says that Smartisan lost 462 million yuan in 2015, its first full year of operation, followed by a 192 million yuan loss in the first half of this year. None of the figures look too encouraging, and reports in August hinted that a sale of the company could be coming. So perhaps this latest stake sale augers a major shakeup, which could see Smartisan either merged with a larger rival or closed outright soon.

Such a fate seems far less likely for LeEco, which entered the smartphone space relatively late but has far more cash to support its business for the next few years. Despite lofty hopes for the business, LeEco disclosed at an event this week that it has sold a relatively modest 17 million smartphones after entering the business with big hopes in the first half of last year. (English article; Chinese article)

LeEco disclosed the figure at an event to launch its latest model, and didn’t provide much explanation for the relatively weak figure. LeEco said just last month that it is aiming to sell 50-60 million smartphones this year and 100 million in 2017, which makes this newest sales figure look unusually weak.

Part of the problem is LeEco’s charismatic founder Jia Yueting, who speaks in hyperbole and has built up huge and quite unrealistic expectations for his company. By comparison, this more realistic sales figure is coming from a lower-ranking executive who is clearly more grounded in reality. But the bottom line seems to be that LeEco is also feeling the pressure of overheated competition in China’s smartphone market, which is still sorely in need of major consolidation.

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