Crumbling, It Is

The Empire Won't Strike Back

It's time to jettison the parts that don't fit.
David Paul Morris/Bloomberg

You have to admire Jia Yueting's tenacity.

At the same time as he told a smattering of shareholders last week that parts of his LeEco empire are now in worse shape then when its cash crisis became public in October, he had the audacity to follow up with another bout of optimism:

I believe LeEco can succeed in all of its seven divisions. Everyone will gradually see the big moves we have planned.

When a Chinese state bank starts to call in loans, though, it's time to curb the enthusiasm.

A China Merchants Bank Co. branch successfully petitioned the Shanghai People's Court to freeze 1.24 billion yuan ($182 million) of assets belong to LeEco, Jia and his wife, Xinhua News Agency reported, citing a court document. LeEco declined to comment when contacted by Bloomberg News.

Jia has taken his company, employees and shareholders on a wild emotional ride from "don't worry" to "it's worse than we thought." 

Going Nowhere

Shares in Leshi Internet Information & Technology Corp. haven't traded since April

Source: Bloomberg

Now he needs to rein in his ambitious ego and make the decisions necessary to preserve at least some of his business and protect remaining stakeholders. First step is abandoning the notion that the LeEco empire -- anchored by Shenzhen-listed LeShi Internet Information & Technology Corp. -- can sustain seven divisions.

Once he's internalized that, Jia will need to halt some hobby-horse projects and sell off others that could have value to someone else.

LeEco's unlisted businesses have deteriorated over the past year, David Ramli and Gao Yuan of Bloomberg News reported last week, citing a copy of Jia's comments at the shareholder meeting. Cars and smartphones were key culprits in the cash squeeze, he was cited as saying.

Clearly, they both have to go.

LeEco has no business being in cars. In April 2016 the company unveiled LeSEE, its first concept vehicle, and followed up with LeSEE Pro in October. Both were designed to showcase "the first mobility system on wheels."

Let's remember that Jia is also backing Faraday & Future Inc., a Los Angeles-based Tesla wannabe. The revenue model for its car business isn't clear, and even Baidu Inc. is spending millions to develop technology in this realm without enunciating how it aims to make money. 

Smartphones Are Tough

LeEco sells handsets. So do dozens of others. Few make profits amid slowing global sales

Source: Bloomberg Intelligence, IDC

Then there's phones. The list of global smartphone makers churning out decent models is extremely long. The list of those making decent money is extremely short. LeEco is on only one of those lists. Enough said.

Do Deals

LeTV has an agreement to deliver smart ads and install its TV operating system onto TCL sets, making its own TV hardware redundant

Source: Bloomberg Intelligence

Televisions also need to be reassessed. With its founding in streaming content, there is some logic behind the company selling hardware. But LeEco needs to consider the customer's perspective: Is there any reason why a streaming video consumer needs to buy a TV from LeEco? If Jia can't prove an affirmative answer, he should dump the business (even if it's currently profitable).

Jia did well with LeTV -- often described as the Netflix of China -- and that alone proves he has the chops to see an opportunity and build a company. But right now he has a business to save, not an empire to build.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Tim Culpan in Taipei at

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