Did CEO's Billion-Dollar Gambling Loss Led to Gionee Declaring Bankruptcy?

The Chinese smartphone manufacturer fails to pay nearly $3 billion to 648 creditors, reports say

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Chinese smartphone maker Gionee has been going through some tough times for a while now, and the company has finally filed for bankruptcy.

According to reports, the Chinese court in Shenzhen has accepted the Shenzhen-based smartphone maker's application for liquidation. It is said to owe 20.2 billion Chinese Yuan (nearly $3 billion) to 648 creditors, including banks, suppliers and agencies.

Money issues

The news comes a month after a report in The South China Morning Post that said the company's founder, chairman and chief executive officer Liu Lirong may have used company assets to gamble at a Hong Kong-listed casino in Saipan.

While responding to earlier reports that gambling loss of 10 billion yuan (US$1.44 billion) had resulted in Gionee's fall, Liu admitted, in an interview with Securities Times in Hong Kong, that he did participate in gambling in Saipan, "but how could I possibly lose that much (10 billion yuan)? If it is true, shares of Imperial Pacific (the casino owner) should have surged." He added the company had been losing money since the start of 2013, with average losses of no less than 100 million yuan per month between 2013 and 2015, and the monthly loss further widened to no less than 200 million yuan in the past two years, reports The South China Morning Post.

The downfall

The fall of Gionee, which secured the sixth spot behind Apple for handset sales in China last year, started in 2016, with devices seeing a drop in quality and an unexplainable spike in price. It did, however, sell about 40 million handsets that year. By the year 2017, the situation got worse as pressure from market leaders, Vivo, Huawei and Oppo, increased. They offered more attractive phones at the price points Gionee used to compete in.

The Shenzhen company, however, still managed to launch eight, full-screen Android smartphone models during a product event in November 2017. But it began facing problems when suppliers halted component sales after failing to receive payments for months. It also had to reduce its workforce by 50 per cent owing to financial woes stemming from an expensive marketing campaign. In a course of three years, the company has spent a combined 9 billion yuan (US$1.4 billion) in marketing and investments.

Recently, Gionee had hired consultants to streamline and restructure the company in a bid to strengthen itself.

According to an October report by research agency Counterpoint, four brands—Huawei Technologies, Oppo, Vivo and Xiaomi—dominate sales of smartphones in China, owning a combined 78 per cent market share in the third quarter.

Market share

Founded in 2002 in Shenzhen, Guagdong, Gionee was among the initial brands that offered selfie-centric phones and had a good market share in China and was among the prominent players in Taiwan, Bangladesh, Algeria, the Philippines, Nigeria, Vietnam, Myanmar, Nepal, and Thailand, especially in India where it challenged established brands like Nokia and Samsung. In the subcontinent, the brand claims to have retail presence in over 42,000 stores and has 600 exclusive service centres.