LeEco, Inc., a Chinese technology conglomerate that produces various products such as smartphones, streaming video, and electric cars has missed its projected 2016 sales in the US and is planning to scale back its operations there.
It will eliminate 175 jobs out of its total staff of 300 people. Currently, their US operations only sell TVs, smartphones, and some accessories.
Earlier this week, LeEco also announced that it was abandoning its quest to purchase US TV maker Vizio Inc. for $2 billion. The reason cited for the decision was regulatory hurdles. Instead, the two companies will look to collaborate. The two companies, in a joint statement said, “Under the new agreement, LeEco and VIZIO will continue to explore opportunities to incorporate the Le app and content within the VIZIO connected CE platform, and engage in a collaborative partnership to leverage LeEco’s EUI (Ecosystem User Interface) platform, along with the brand’s exclusive content and distribution channels, to bring VIZIO products to the China market.”
The regulatory hurdles include the Chinese government restriction of overseas investments and acquisitions to control the sum of money flowing out the Chinese economy. One of the tycoons of China was unable to purchase the producer of the Golden Globes.
Others are skeptical that regulatory hurdles are the reason for LeEco’s backing out of the Vizio deal. Paul Haswell, a partner at international law firm Pinsent Masons, said, “I’m not sure I buy LeEco’s story. LeEco has a history of securing considerable funding without any difficulty in China even as a number of its companies seem to have problems paying staff and suppliers. Its acquisition of Vizio was unlikely to have been investigated or blocked by a regulator…even in the current US political climate. So I have to conclude LeEco is facing challenges that have forced the company to curtail its US ambitions.”
Also, LeEco’s CEO, Jia Yueting, has lowered his annual salary in acknowledgment that LeEco is now low on cash.
In the past months, LeEco has faced diseconomies of scale. Its various businesses were growing too fast. In a staff letter, Jia Yueting said that the company was facing a “big company disease.”
Kitty Fok, managing director at IDC China, said, “This is not the first that a Chinese company has had to abandon an acquisition, either because of capital controls or foreign government policy. With the financial challenges faced by LeEco since last year, refocusing in China to build products and strengthen its business strategy is the right thing to do for the company.”
Last month, LeEco got a $2.2 billion financing from investors that includes Sunac China Holdings Ltd., a property developer. The financing went to Leshi Zhikin which is LeEco’s smart internet TV subsidiary and Le Vision Pictures, its film production subsidiary.
For the first quarter of this year, Leshi Internet Information & Technology Corp Beijing, a listed unit of LeEco forecasted their first quarter profit for this year to be between 103 million to 132 million yuan.