We reported last week that China-based LeEco was having financial problems pursuing its ambitious expansion plans (See “LeEco Runs Short of Cash & Slows ‘Reckless’ Spending“). This week, Reuters reports that it has received $600 million of new financial commitments from 10 Chinese companies. It will receive the initial $300 million over the next two weeks. LeEco had said last week it faced a severe cash crunch caused by expanding too quickly in both products and markets – “got overstretched in our global strategy,” according to founder Jia Yueting.
LeEco is known as the Netflix of China but is also producing smartphones, spent $2 billion acquiring Vizio, of the US’ three biggest makers of TVs. At its US debut as LeEco, it showed, in addition to smartphones and TVs, electric cars, headphones and a connected bicycle. Its announced plans were to hire 12,000 people in Silicon Valley and hired key former executives from Samsung and Qualcomm.
The three markets that LeEco seems to be focused on – OTT, smartphones and TV sets – are very, very competitive and face shrinking margins. Vizio has fared well in selling TVs but has never published its margins. Samsung and LG are the two companies that dominate the US TV market but the Chinese companies keep trying. Apple, Samsung and Huawei are the powerhouses in smartphones –in products, technology and ecosystems. The OTT market is getting very busy especially now that Hulu has strengthened its offerings and traditional pay TV companies such as Dish and DirecTV have entered the broadband-delivered TV market with low-priced bundles – that also have very low margins. The DirecTV Now service reportedly has only a 1% to 2% margin much, much lower that what pay TV services and their shareholders expect.