Fresh blow to China's troubled tech giant LeEco

By Leo KelionTecnology desk editor

h21 November 2016

 
• From the 

Image copyrightCOOLPAD

Image captionThe Cool1 Dual smartphone is a collaboration between Coolpad and LeEco

The Chinese smartphone-maker Coolpad has unexpectedly warned of a sales slump, causing its shares to fall by nearly 10%.

It blamed tougher economic conditions and "fierce competition in the domestic smartphone market" for its troubles.

The news is a fresh blow to its biggest shareholder LeEco, which had recently increased its stake in the business.

Earlier this month, one of LeEco's co-founders warned of its own financial problems following a push into the US.

Partnership phone

Coolpad's stock dropped to a four-year low after it announced that sales had fallen by 43% over the first 10 months of 2016. It now expects to post a £3bn Hong Kong dollar ($386.8m; £313.2m) loss for its financial year as a whole.

LeEco became the firm's biggest shareholder in June, when it raised its stake in the company to 28.9%.

The two companies subsequently teamed up to release the metal-cased Cool1 Dual smartphone in August.

But the device struggled against rival handsets from other Chinese tech firms including Huawei, Oppo and Vivo.

"Chinese manufacturers used to be able to rely on their home market to give them unprecedented scale," commented Ben Wood from the tech consultancy CCS Insight.

"However, this year the Chinese market has plateaued and we are starting to see some of the casualties as a result."

Image copyrightREUTERS

Image captionLeEco hosted a glitzy launch event in California in October

American ambitions

The latest development casts a further cloud over LeEco after a period in which it pursued rapid growth.

In June, the privately-owned company bought 49 acres (19.8 hectares) of land from Yahoo in Santa Clara, California for a reported $250m.

In July, it revealed it was buying the US TV-maker Vizio for $2bn.

Then last month, the Beijing-based company held a high-profile launch event in San Francisco, where it announced it was to start selling a wide range of own-brand products in the US.

These include a range of 4K TVs, two smartphones, a virtual reality headset, a set-top box with its own streaming TV platform and an Android-enabled smart bicycle. It also planned for its concept car to drive itself on to the stage, but the vehicle was damaged en route to the event.

Image copyrightAP

Image captionLeEco had hoped to show off its self-driving LeSEE Pro concept at its San Francisco event

"LeEco has outsize ambitions," noted the Recode tech news site at the time.

"The company literally describes itself as Apple, Netflix, Amazon and Tesla all rolled into one."

But on 7 November, Bloomberg revealed that LeEco's co-founder Jia Yueting had written to its 10,000-plus workers warning that its finances had come under pressure.

"We blindly sped ahead and our cash demand ballooned," the internal memo said.

"We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited."

Image copyrightGETTY IMAGES

Image captionYueting Jia cut his salary after acknowledging financial pressures

Mr Yueting added that he was reducing his salary to 1 yuan ($0.14; 11p) and would now pursue a slower growth plan.

Eleven days later, Faraday Future confirmed that it had halted work on a huge factory in Las Vegas due to build a second vehicle bankrolled by LeEco.

"We are acknowledging that there has been a temporary work stop at the site," a spokesman told the Las Vegas Review Journal.

Image copyrightAP

Image captionFaraday Future has stopped work on its $1bn factory

"Part of the re-evaluation and refocusing of our efforts on producing the car were a result of the restructuring and re-evaluation of finances from Jia.

"Faraday Future and LeEco operate as strategic partners, but the finances of the two companies are completely separate."

Rerouted plans

Faraday Future had caused a stir earlier in the year when it unveiled a futuristic concept electric car at the CES tech show and claimed it would bring a separate design to market by 2018.

Image copyrightGETTY IMAGES

Image captionFaraday Future said the FFZERO1 vehicle unveiled at CES represented "an amplified expression" of its plans for a production vehicle

It had promised to show off the production vehicle at this January's CES.

It is unclear whether this is still planned.

"It would appear to be the case that LeEco has overstretched itself in multiple areas," said Mr Wood.

"Our bet is that it will now have to retrench and perhaps one of those investments will have to be sacrificed."