Gionee, a little-known smartphone maker in China, is on the verge of bankruptcy, and if media reports are to be believed, the chairman’s gambling habit may have played a role in pushing the company toward bankruptcy.
Gionee chairman admits to gambling
The Chinese-language website Jiemian claimed recently that Gionee Chairman and founder Liu Lirong lost more than 10 billion yuan ($1.4 billion) while gambling at a Hong Kong-listed casino in Saipan. Earlier this year, a Chinese court reportedly froze the founder’s 41.4% stake in the company due to his unpaid gambling debts.
Although Liu admits he lost money gambling, he says the amount is actually only about 1 billion yuan ($144 million).
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“I did participate in gambling in Saipan, but how could I possibly lose that much [10 billion yuan]? If it is true, shares of Imperial Pacific [the casino owner] should have surged,” he told the Securities Times.
Further, the Securities Times claims the Chinese company is unable to pay its suppliers and is working on a deal with them. On Nov. 20, several of Gionee’s suppliers reportedly filed for bankruptcy restructuring with the Shenzhen Intermediate People’s Court.
Liu denies claims that he misappropriated Gionee’s cash to gamble, but he also said he might have borrowed the funds from the company. Further, the chairman admitted that the company’s total debt now stood at 17 billion yuan, including 10 billion yuan to banks, 5 billion yuan to suppliers and 2 billion yuan to advertising agencies.
He also denied that the company’s financial troubles are mainly due to his gambling. Liu revealed that the company had been operating at a loss since 2013, losing about 100 million yuan per month between 2013 and 2015. In the last two years, the loss increased to about 200 million yuan, he added. The company reportedly slashed its workforce in half in April. Gionee’s aggressive marketing strategy has also reportedly contributed to its financial woes.
Gionee is a brand with massive potential
Gionee may not be a popular brand in the West, but in Asia — particularly in China and India — it had a major presence. Liu founded the company in 2002. In 2016, the company shipped about 40 million handsets, thanks to its focus on cost-effective handsets complemented by celebrity-driven ad campaigns.
In China, Gionee was behind Apple in sixth place in terms of handset sales last year. The Chinese smartphone maker grabbed a 4.6% share in the selfie-focused smartphone category, which includes phones with a selfie camera above 8 MP, in India in the first quarter 2017, according to data from Counterpoint Research. The company was also listed among the top five growing brands in the mid-segment market in the same period.
In April, Gionee even revealed plans to make a massive investment in India to further increase its market share there.
“In 2018, we are looking to be among top five smartphones brands in India. We will increase marketing spend this year by approximately 30% compared to investment made last year,” a Gionee executive told PTI earlier.
Although the company’s sales dropped last year following growing competition from other Chinese brands like Huawei, Oppo and Vivo, it still launched eight new models at a product event in November 2017.
The product event was Liu’s last public appearance. At the event, he revealed that Gionee was the first smartphone brand to equip all its new handsets with full 18:9 aspect ratio displays. Gionee was even rumored to be planning an initial public offering with a valuation of 100 billion yuan ($14.42 billion), but then things started falling apart.
Tough time for smaller players
Gionee is not the only Chinese maker struggling to stay alive in the cutthroat smartphone market. Shipments from smartphone makers outside of the top six have dropped significantly, signalling difficult times for companies like Meitu, whose hardware business has now been taken over Xiaomi.
Smartphone assembler FIH Mobile was also hit by the downtrend in the Chinese smartphone market. FIH, a subsidiary of Hon Hai Precision Industry, serves customers like Huawei and Xiaomi.
LeEco is another Chinese company which has succumbed to a pile-up of debt. The company, which shifted from being a video streaming platform to a multifaceted conglomerate, once aimed to take on companies like Apple and Netflix. LeEco founder Jia Yueting even resisted a call from regulators to return to China. He is reportedly working on the group’s electric car-making efforts in California.