Coolpad vs Qihoo: Who did the stabbing first?

July 06, 2015 15:35
LeTV founder Jia Yueting (left photo) and Zhou Hongyi (right) have a complicated relationship with smartphone maker Coolpad. Photo: HKEJ

Things are getting quite interesting in the smartphone arena.

Coolpad Group (02369.HK), maker of Halo and ivvi smartphones, stands accused as a two-timer.

Last month, Coolpad unveiled a new shareholder in LeTV, one of the main competitors of Qihoo 360, the US-listed internet firm which has been working with the Shenzhen-based smartphone maker.

The Coolpad-LeTV deal caught analysts and investors by surprise.

But to Qihoo chief executive Zhou Hongyi, it was an act of betrayal.

On his WeChat account, Zhou wrote: “Whoever stabbed me in the back and tried to screw me, my principle is that I will definitely fxxk back”.

Zhou's anger is understandable.

With Coolpad in bed with LeTV, they will be sharing secrets including those Qihoo doesn't want its rival to know.

Investors are unsure about Coolpad’s future. The counter has lost more than 40 percent since the deal was announced.

In December, Qihoo paid US$410 million for a 45 percent stake in Coolpad's e-commerce subsidiary to develop smartphone brands Halo and Qiku.

Qihoo recently increased its stake in Coolpad E-Commerce to 49.5 percent.

Halo is a low-end line developed by Coolpad while Qiku is Qihoo's first smartphone brand.

That partnership has now unraveled for all intents and purposes.

It all began when Zhou reportedly wanted to focus on Qiku and jettison Halo from its promotional campaigns.

He slashed the retail price of Halo smartphones to clear inventory and make room for Qiku's expansion, according to technology news site

Qihoo's move upset Coolpad, driving the latter into the arms of LetTV little more than six months after its union with Qihoo.

Unlike Qihoo, which has a substantial  investment in a Coolpad unit, LeTV has a direct 18 percent stake in Coolpad.

That makes LeTV the second largest shareholder of Coolpad, outstripped only by founder Guo Deying.

Some analysts say Guo might sell Coolpad to LeTV for two reasons.

One, it's rare for a mainland tech firm to substantially invest in another for the sole purpose of developing the business together.

In most cases, tech companies opt for strategic deals given that they could have sharply different cultures and valuations.

And two, LeTV bought the stake directly from Coolpad's largest shareholder.

It's quite odd that the LeTV investment did not go to new shares in Coolpad but to Guo in the form of profit. 

In fact, the deal gives LeTV a significant say in a company that has established mobile phone research and development, manufacturing, and sales channels for across China.

It's clearly aimed at strengthening and expanding LeTV’s domestic smartphone business.

Also, LetTV might be interested in Coolpad's 5,000 mobile-related patents, more than its competitor Xiaomi.

Last week, Jiang Chao, vice president and the chief financial officer of Coolpad, said Qiku and LeTV may be in direct competition in smartphone sales anytime soon.

Coolpad, Qihoo and LeTV have five smartphone brands between them but there are no plans to integrate them, Jiang was quoted as saying by the Hong Kong Economic Journal.

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EJ Insight writer