A leaked chat sparked a war of words between Xiaomi and LeEco and indicated a broken capital chain

A screenshot allegedly showing Xiaomi CEO Lei Jun speaking about LeEco’s financial difficulties went public on Monday, leading to a fight of words between the two tech giants – both of whom seem to have been losing some of their former glory of late.

A war of words sparked by a photo

“Some suppliers told me that LeEco now is shouldering a debt of over RMB 15 billion (USD 2.2 billion). I suppose some of the suppliers will sue them soon,” said one person in screenshot who appears as Lei Jun. “If there were less people around who mess things up, we can all properly focus on our own businesses.”

flame war 2
Shots fired: “some of the suppliers will sue them soon.” (Image from Weibo)

LeEco defended themselves, saying that it is low to say such things, and that if Xiaomi’s idea of “black technology” – aka advanced technology – is simply the smearing of its competitors, then Xiaomi does indeed have many of these “black technologies” up its sleeve.

LeEco returns fire with the quip that Xiaomi’s “advanced technology” consists of smearing its competitors.

LeEco also stabbed at Xiaomi’s unhealed wounds, saying that Xiaomi has been defeated in the smartphone market, and that even Mi TV won’t last long.

Xiaomi responded, saying that the chatting history on the screenshot is a forgery. In addition, Xiaomi urged LeEco to “please quit using base means to divert the public attention from the huge debt that LeEco owes to its supply chain.”

Is LeEco really stuck in a huge pile of debt?

According to the Business Channel of China Central Television (CCTV) on Monday, the share price of the listed LeEco plummeted 10.42% in three days since last Wednesday, with its valuation bearing a decrease of RMB nine billion.

So is it true that suppliers of LeEco are underpaid?

Although LeEco Jia Yueting admitted on Sunday in a corporate letter that the supply of Le Pro3 smartphones met some trouble due to insufficient technical support, the rumor that LeEco owes billions to suppliers does not seem to hold water: Chinese media STCN interviewed several LeEco suppliers who have confirmed that LeEco does not owe them any debt.

LeEco co-founder and VP Liu Hong told CCTV Business that, while the supply chain for smartphones does have pressure in terms of techincal support and and a lack of capital, LeEco smart TVs are doing very well, and that surely the stock price will go up after the fall.

Jia echoed Liu’s statement as he told Tencent Tech that the supply of smartphones encountered problems because they were sold in a way where third parties harvested the most profit. With the reforms announced by Jia on Sunday, the sales of smartphones will further integrate with LeEco’s wider ecosystem and perhaps turn the tables on LeEco’s situation.

Will LeEco solve their problems?

In building LeEco’s seven sub-ecosystems, the steps the company took were probably too big for their legs to manage: marching into the markets of the United States, India, Russia and the Asia-Pacific region at almost the same time may have burned through their resources too rapidly.

Establishing an entire ecosystem and gaining market share via burning a lot of cash are features of LeEco’s first stage of growth. Yet in the face of the problems caused by haste, Jia decided that, though six to nine months earlier than expected, LeEco must orient to its second stage right now, where management and profits are priorities.

According to Jia, the unlisted part of LeEco is now gathering the resources within its reach to tackle issues in the smartphone’s supply chain. Meanwhile, the company is looking for qualified financial consultants – something that LeEco used to lack – to help with decisions on making investments and securing funds.

Will LeEco overcome the crisis by entering its second stage of development earlier than planned? It’s time to prove the validity of the ecosystem that has broken boundary after boundary.

(Top Photo from Baidu Images)

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