Suntech CEO Resigns, Haier Hits Jingdong 尚德电力CEO辞职 海尔停止与京东合作
I don’t like to write too much about the same topics in a single week, but I can’t really ignore separate breaking developments at solar cell pioneer Suntech (NYSE: STP) and in the e-commerce space that could be critical for the future of each. In the former case, Suntech has just announced the resignation as CEO of Shi Zhengrong, the company’s founder who was once lauded as a visionary when Suntech became China’s first publicly listed solar panel maker in 2005. (company announcement) In the latter case, leading Chinese home appliance maker Haier has announced it is severing its relationship with Jingdong Mall, also known as 360Buy, as the temperature continues to rise in a rapidly escalating price war that has broken out this week with rivals Suning (Shenzhen:002024), Gome (HKEx: 493) and others. (English article)
Let’s start with Suntech, which looks like a case of a company rapidly unraveling and heading into a death spiral following its disclosure 2 weeks ago that it may have been the victim of a $600 million fraud. The company has just announced that its CFO David King will take over the CEO spot from Shi Zhengrong, although Shi will remain as executive chairman. Suntech shareholders were unimpressed by the news, bidding down the stock by 5 percent to just above the $1 level.
I’ve had a chance to learn a bit more about Suntech’s crisis over the last 24 hours, and it appears that the bigger issue beyond the fraud is the company’s relationship with GSF, a firm Suntech helped to establish to build solar power plants using Suntech-supplied panels. I won’t go into too much detail, but the key issue seems to be that Suntech treated GSF as an independent customer in its accounting records, even though it the pair had a very close financial relationship.
My knowledge of the situation is obviously very limited, but this looks like exactly the kind of questionable accounting practices that have sparked a confidence crisis in US-listed China stocks that has now dragged on for a year and a half. As more details of the Suntech case come out, I wouldn’t be surprised at all to see the US securities regulator launch an investigation into the company’s accounting and for Suntech’s shares to eventually be delisted.
From Suntech, let’s move on to the e-commerce price wars, which have rapidly escalated over the past week in a verbal battle coming from Jingdong Mall founder Liu Qiangdong and executives from Suning, including accusations of unfair business practices and vows to undercut each others’ prices.
Suning seems to have claimed a new victory in the wars by convincing its longtime supplier Haier, China’s best known home appliance maker, to sever its relationship with Jingdong Mall. Haier said it made its decision due to Jingdong Mall’s excessive price cuts; but I have little doubt that Suning and probably Gome, which both operate major chains of appliance stores and have long-established relationships with Haier, were probably a major force behind Haier’s decision.
Look for the current war of words to continue for at least the next week or 2 before it finally subsides, at which time Haier will probably quietly resumes its supply relationship with JingdoIng Mall. But over the longer term, I fully expect the battle for dominance of China’s e-commerce space to continue for at least the next year.
Bottom line: The resignation of Suntech’s CEO is unlikely to stop its downward spiral, while a new home electronics price war in the e-commerce space is likely to continue for another 1-2 weeks.
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