What Problems Can Endless Rumors Around Smartisan's Acquisition Reflect About The Chinese Smartphone Market?

Why is it that there's never short of rumors around Smartisan? What's the remaining value of Smartisan? What can we tell from these endless rumors? What Smartisan means to the Chinese smartphone market?

(Chinese Version)

Overnight, rumor has it again that Smartisan Technology is to be acquired.

At first, a financial report about Smartisan was revealed to public. Later on, Coolpad’s CEO Liu Jiangfeng revealed in an interview that many parties were competing to invest in Smartisan (Click here to read a related article). However, his words are misunderstood as evidence that Smartisan is to be sold to Xiaomi.

Smartisan soon denied the rumor, saying that it’s all make-believe. Smartisan’s CEO Luo Yonghao also posted a piece of Weibo and said: “All these rumors are not true.”

As a matter of fact, nobody can tell if Smartisan is to be sold based on existing information.

Rumors about Smartisan aren't well-grounded

Above all, there’s no direct relationship between financial report and a startup’s capitalization. We can only tell from financial report if revenue performance is good or not, not if capitalization or investment are rising or not.

According to IPO prospectus from Baotuan Ventures, a Chengdu-based subsidiary of Tap4Fun, Smartisan Technology lost 462 million RMB (over $63.8 million) in total in 2015, and 192 million ($27.8 million) in the first half of 2016 (unaudited result). At the same time, Smartisan Technology’s total asset also shrank a great deal, from 825 million RMB (around $123.7 million) near the end of 2015 to 296 million RMB (around $44.3 million) as of June, 30th, a decrease of around 500 million RMB (around $75.0 million).

Baotuan invested 30 million RMB (around $5 million) into Smartisan Technology on March, 16th, 2015 at a valuation of 2.11 billion RMB (over $316 million), and thus acquired 1.13 per cent stake of the company. All these figures are, for sure, true. Yet, we can only tell from them that Smartisan lost 528 million RMB (around$79.3 million) in the first half of 2016 and still had a cash flow of 296 million RMB (around $44.3 million) in its pocket.

However, we can’t draw from these figures that Smartisan investors’ investment is declining. Baotuan invested 30 million RMB (around $5 million) into Smartisan Technology on March, 16th, 2015 at a valuation of 2.11 billion RMB (over $316 million) and thus acquired 1.13 per cent stake of the company. So we can only tell that Smartisan’s valuation reached 2.11 billion RMB at that time, and nothing else.

To wrap up, we only get to know Smartisan’s revenue performance, but are still unclear about its valuation.

Besides, if Smartisan is to roll out new products in October, then a cash flow of 296 million RMB (around $44.4 million) is certainly not enough.

As a matter of fact, we learn from the investment circle that Smartisan raised another round of financing this July led by some Chinese tech giants.

In addition, we can tell from Mr. Luo’s Sina Weibo updatings that Smartisan is to hold a new product release conference on October, 17th and release Smartisan T3. If so, then Smartisan must have raised enough money. Otherwise, it won't be able to even manufactuer Smartisan T3.

What’s Smartisan’s remaining value?

What about Coolpad’s CEO Liu Jiangfeng’s interview, then?

“Many people want to invest in Smartisan, like Alibaba, LeTV, even Xiaomi, but nobody can tell which company will get the opportunity at last,” Mr. Liu revealed in the interview.

However, what Mr. Liu is talking about is actually that there’s still value behind Smartisan. However, some media misunderstood it as proof for Smartisan’s acquisition by Xiaomi.

Smartisan soon denied such rumor. Smartisan’s CTO Qian Chen even reposted related reports and commented:

It seems that Mr. Liu know more about Smartisan than us… How can an outsider know the business secret of another company? How can someone reveals it to the public even if he or she knows anything?

Yet, if you read Mr. Liu’s words carefully, you might find that he only reveals that many parties are trying to “invest in” Smartisan, not “acquire” it.

“I find that all these rumors often start from people inside the industry chain, not Smartisan’s investors. However, how could people inside the industry chain know about a company’s business secret such as investment status, let alone acquisition information? As a matter of fact, people inside the industry chain, at best, could only know who’s the contractor or what’s the total shipment volume,” an insider who’s familiar with Smartisan’s investors commented to Sina Tech.

Yet, we can still tell from these rounds of rumors and discussion about its possible acquisition that there’s still some value in Smartisan.

Although Mr. Luo and his Smartisan have been through lots of obstacles since its foundation, and Smartisan’s sales performance also fails to live up to its own expectation, Smartisan is still quite unique in the Chinese smartphone industry for its UI and product design.

When smartphones’ appearance is increasingly becoming identical, Smartisan’s smartphones look quite unique in terms of their software application and operating system design. Besides, Smartisan has a very good reputation among users. All these are exactly what other major Chinese smartphone makers are lacking in. This may explain why people care so much about investment and acquisition information about Smartisan and why there’s never short of rumors about Smartisan.

In addition, although Smartisan’s sales performance look not well, Smartisan still holds lots of talents in design and engineering. They constitute Smartisan’s intangible asset, and are the foundation of Smartisan’s rising valuation. After all, without these talents, how could a former English teacher develop a smartphone (Smartisan T1) that won iF Industrie Forum Design Award. In fact, Smartisan is the only Chinese smartphone maker that has won the award.

In a word, there’s still value in Smartisan.

Endless rumors around Smartisan might reflect the problems in the Chinese smartphone market

We can also tell from the endless rumors about Smartisan that competition in the Chinese smartphone market is upgrading.

Since the beginning of this year, rumors have started to spread that Smartisan is to be acquired by Alibaba, LeTV and later on Xiaomi.

All these rumors seem to convey the message that passion and love is not enough for make a great smartphone, and that Smartisan has to yield to the reality and look for a buyer.

Besides, some analysts proved their point by saying that acquiring Smartisan might benefit the buyer. For example, Alibaba could expand Alicloud OS, LeTV could enter mid and high-end smartphone market, Xiaomi could upgrade its target consumers level through acquiring Smartisan. There are even analysts who suggest that Huawei should also consider acquiring Smartisan, so that it could learn from Smartisan and say farewell to its old operating system, which is known for its bad user experience.

We can tell from all these analyses that the Chinese smartphone market is encountering two major obstacles.

On the one hand, the Chinese smartphone market is so homogenized and thus in dire need of innovation. Since the market became saturated in 2015, all major Chinese smartphone makers have been looking for new innovation points to boost their growth. However, since the technology gap between them is so narrow, there are few smartphones that look quite new for users.

On the other hand, competition and consumption habit are all upgrading. In the past, low price rules in the market. However, as smartphones have already been so widespread in China, lots of users have begun to look beyond price. In fact, all major smartphone makers are figuring out ways to tell a good story. Among them, Xiaomi is a very typical example. The company, founded just five years ago, used to be known for its high quality-price ratio. However, it has started to attach less and less attention on this point.

That is to say, Smartisan still has value because it coincidentally meets the trend for differentiation and innovation as it has been looking for them since 2012.

Time is running out for Smartisan

Although there’s still value in Smartisan, time is running out.

Smartisan T1 failed because it still lacked experience; Smartisan T2 failed because it came out in the wrong time and there was something wrong with the contractor. But will Smartisan T3 still be a failure, or will it help Smartisan seize the opportunity and really make a difference on the market?

Consumers are the key to Smartisan’s success. When Smartisan was established, many consumers began to pay attention to Smartisan because of Luo Yonghao’s personal charm. However, the awkward thing is that successful in commercial sense.

In addition, as Smartisan has already become five yeas old, users’ curiosity into it is actually declining. The first bunch of users who began to notice Smartisan might be hardcore users, yet as time goes on, its hardcore fans have already been diluted a great deal.

“Hardcore fans who were drawn to Smartisan due to Mr. Luo are being diluted day after day. Although Mr. Luo has already got a couple million fans, few of them know who Mr. Luo was before he started Smartisan. At the same time, there are less and less voice showing firm support for Mr. Luo and Smartisan. The majority of people pay attention to Smartisan just for fun,” a previous hardcore fan of Mr. Luo told Sina Tech.

The hardcore fan bought Smartisan T1 due to his trust in Mr. Luo and wish to support him. However, as time goes on, he became less and less inclined to support him anymore. According to him, his Smartisan T1 became so fraught with problems last year that he’d bought an iPhone and had, again, become a supporter for iPhone.

“Are you still looking forward to Smartisan T3? Will you buy it?” We asked him.

“Maybe, but I will not be as passionate as I was when Smartisan T1 came out. Still, I will have to see exactly how Smartisan T3 look like and what functions it has to decide,” the previous hardcore fan told TMTpost.

Mr. Luo and Smartisan might also have become aware that time is running out. This May, Mr. Luo told Sina Tech in an email interview that he was going to do something big, and that as the Chinese smartphone market was becoming increasingly homogenized, it was time for Smartisan to do something different.

As a matter of fact, Smartisan, indeed, are making some efforts to achieve this goal, especially by recruiting high-level talents. At first, Smartisan poached Wu Dezhou and his team from Huawei’s Honor series team. Later on, it found Miao Ying, former vice president of Sina Weibo, and put him in charge of marketing. In addition, we found, after some research, that Smartisan also found an expert in the supply chain to help it manage the supply chain.

Smartisan recently announced that a new product release conference was to be held on October, 17th. For sure, these newly-released products, probably including Smartisan T3, will have a huge influence on Smartisan. Will Smartisan really make something big after so long a while? Or is it just having some problems in some areas? It seems that only time can tell.

“We’ve already started mass-manufacturing the new smartphone in Shenzhen. I myself is also in Shenzhen right now. As long as everything is well-dealt with, I shall go back to prepare for the keynote speech… I assure you I am ready to tell you some really big news. I know you must all be desperate to know more details. Yet, trust me, I am more desperate than you,” Mr. Luo said in a latest piece of post on his Sina Weibo account.

…………………………………………………………………………………………………

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[The article is published and edited with authorization from the author @Sina Tech please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.

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