SMARTPHONES: LeEco Names Coolpad CEO, Eyes China Smartphone Crown

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Bottom line: LeEco and Coolpad could see a brief surge in smartphone sales due to strong promotional efforts, but will rapidly fade when consumers realize its models are the same as many other products on the market.

Coolpad gets new CEO

Just a day after the release of new data showing the surging Oppo was close to stealing China’s smartphone crown from a stumbling Huawei, sector newcomer and online video superstar LeEco (Shenzhen: 300104) is talking up new sales targets that imply it believes it can win the title as soon as next year. That’s quite big talk for a company that only entered the smartphone business last year and has never finished among the top 5 vendors for China. But LeEco CEO Jia Yueting has never been afraid of making such bold predictions, following a Chinese tradition that has seen similar big talk come from most of the nation’s other major smartphone makers.

I said just yesterday that China’s smartphone crown has become a dubious honor, since most companies that have earned the distinction have sputtered not long afterwards due intense competition and ultra-fast product cycles. (previous post) Companies that have followed that trajectory include Samsung (Seoul: 005930), Xiaomi and Apple (Nasdaq: AAPL), and now current leader Huawei looks set for a similar fate due to a rising challenge from the homegrown Oppo.

If LeEco has its way, it will soon supplant Oppo to become China’s’ biggest player. We should qualify that statement slightly, since the 50-60 million smartphones the company is targeting this year and 100 million for 2017 includes both LeEco and Coopad (HKEx: 2369) brand phones. That’s because LeEco became Coolpad’s largest stakeholder in June, after boosting its 11 percent of the struggling Hong Kong-listed company to the current 29 percent.

Following LeEco’s takeover, the company last week tossed out Coolpad’s chairman and CEO and installed Jia as new chairman. Now LeEco, formerly known as LeTV, has appointed Liu Jiangfeng as Coolpad’s official turnaround man, giving him the CEO position. (Chinese article) LeEco announced the appointment at an event to roll out the first new LeEco smartphone model since Jia took control of Coolpad.

Strong Credentials

Liu actually has quite strong credentials, coming to Coolpad from China market leader Huawei, where he was head of the company’s Honor sub-brand. Honor has been an important part of Huawei’s overall growth story, and its positioning as an independent brand means that Liu has experience in such brand building.

In this case, Liu’s job will be both brand building and also brand re-building. That’s because LeEco is a completely new brand with little recognition since its launch last year. But Coolpad is a much older name, and was one of China’s early leaders in the smartphone space before losing its edge over the last 2 years.

Liu and Jia will certainly have their work cut out for them, especially in meeting their ambitious sales targets. No China targets were given for the 2016 and 2017 goals, but it’s probably fair to say that China should account for at least 80 percent of those totals. That would translate to 40-48 million smartphone sales in China this year, and 80 million next year.

By comparison, total smartphone sales in China now number about 400 million annually. That would mean LeEco and Coolpad would need to get at least 10 percent of the market this year and 20 percent next year to meet their targets. By comparison, market leader Huawei had just 17.2 percent of the market in the second quarter, and even the fifth largest player, Apple had just 7.8 percent.

I’ve previously predicted that LeEco is a disaster waiting to happen, and one of the first places we could see such a collapse is in smartphones. One of the company’s biggest handicaps will be product development, since Coolpad was traditionally a maker of cheap smartphones that look and function like most other models on the market. There’s no reason it can’t gradually accumulate experience to make higher-end models to differentiate itself from the crowd. But such a process takes time, and many others in the market are also trying to make a similar transition.

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