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Chinese Mobile phone startup rumored to shut down despite massive cash injection
Luo Yonghao, the founder and CEO of Smartisan  Photo: TMTPOST
 
Smartisan, China’s high-profile mobile phone startup founded by Luo Yonghao, known as an Internet celebrity and marketing genius, is rumored to dissolve its Chengdu headquarters, which reportedly received an investment of 600 million yuan from a local state-owned company one year ago.

Although Smartisan denied the news immediately, explaining it was merely “assembling technical staff based in Beijing, Shenzhen and Chengdu”, state-backed newspaper Securities Times reported the tech startup just did a mass layoff, leaving its Chengdu headquarters almost deserted.

A whistleblower recently revealed on social media that the Chengdu company of Beijing-based Smartisan will be shut down while a sizeable layoff was underway. The Securities Times visited the office covering a full floor of around 2,000 square meters, only to find a few employees stationed there, with most of the tables left idle.

The Securities Times also learned from the staff of the company’s state-owned investor, Chengdu Dongfang Guangyi Investment Co., that Smartisan had laid off around 100 employees and moved its core R&D team to Beijing, without notifying the investor.

Dongfang Guangyi Investment’s decision to invest heavily into the unprofitable tech startup had initially ignited heated discussion locally in Chengdu. After announcing last August that it had agreed to invest 600 million yuan into Smartisan, the management of Dongfang Guangyi Investment told Chinese media that they believed the smartphone producer was seriously undervalued and so the deal would be a good bargain.

After the deal, Smartisan reportedly moved its administrative, accounting, legal, HR, supply chain, customer service, R&D and design departments originally based in Beijing and Shenzhen to Chengdu.

Now, only one year after the grand relocation, rumors about disbandment of the spacious Chengdu office have once again put the controversial financing transaction under spotlight, with some analysts arguing state-owned entities should make investments through fund platforms, instead of in their own names in a bid to lower risks.

Dongfang Guangyi Investment, established in 2003 with a registered capital of 650 million yuan, is known to be under the jurisdiction of a district government in Chengdu. Although the initial funding of state-owned companies comes from government finance, the investment preference of governments and state-owned businesses is known to be quite different. Local governments in China tend to invest into public sectors like roadway, water, electricity and power, while for state-owned companies, they need to make sure their expenditure is well-grounded and profitable.

Luo Yonghao, 47, Smartisan’s Apple-bashing CEO, has nearly 15 million followers on microblog site Sina Weibo, the South China Morning Post reported previously. Luo founded Smartisan in 2012 with 8 million yuan as initial capital.

Just five months ago, Luo’s popularity had transformed the niche brand’s annual product launches into successful “variety shows” that generated 4.8 million yuan in ticket sales. However, the brand’s long-awaited flagship products—TNT Work Station and R1 phone—released at the Bird’s Nest Stadium in Beijing, were not as well-received as the event itself.

Since its establishment in 2012, Smartisan had been struggling with capital crunch. Luo always wanted to bring something different to the country’s smartphone market, while from the beginning to 2016, the company remained in the red. Rumors about its’ coming bankruptcy or being acquired made headlines several times. In 2015, Smartisan lost 462 million yuan and in 2016, it lost another 427 million yuan.

The year 2017 marks a year of revival for Smartisan. On one hand, JD.com, China’s e-commerce giant provided smaller brands including Smartisan good sales channels backed by busy network traffic, in a bid to battle its competitor Alibaba. On the other hand, Smartisan gained 1 billion yuan in funding among which Dongfang Guangyi Investment contributed a large part. The injection of 600 million yuan by the state-owned investor to purchase nearly 19 percent stake no wonder offered the tech startup a lifeline.

Based on open data, Smartisan gained a total of over 1.7 billion yuan in funding in its four years’ operation.

Li Rui, an analyst with Nordwave Research, told the Securities Times, the overall market environment in the smartphone sector has deteriorated in China. Although the top five major brands — Huawei, Xiaomi, Oppo, Vivo and Apple — continue to take a big chunk of the market with scale advantage, smaller players like Smartisan are facing deteriorating survival environment.

“The top five brands have occupied nearly 80 percent of the market, while innovations brought by Smartisan failed to give its sales a solid boost. In this backdrop, the brand has got no say in upstream supply chain,” Li Rui said.

Based on the Q1 report of Sunrise Big Data, among the top 25 sellers in China, Smartisan ranked 20th with a sales volume of 570,000 units, while brands taking the top three places respectively sold out 36, 25, and 23 million units. 

 


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