What The Hell Is Going On At LeEco?

LeEco, the so-called "Netflix of China", was supposed to take the US tech scene by storm. Instead, its ambitious plans appear to be collapsing. Six months after a splashy US launch, Bloomberg reports that LeEco missed its 2016 US sales goals "by a wide margin" and that it is planning on cutting jobs.

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According to the report, the company is gearing up to cut about one third of its workforce in the United States:

The US unit is also making plans to eliminate about 175 jobs, which would shrink its staff in the country to about 300 people, said the person, who asked not to be named because the financial details aren't public.

Even worse, according to Bloomberg, the layoffs haven't happened yet because the company can't afford to pay severance:

LeEco has been planning to make another round of job cuts for several months, but the timing for the reduction depends on when the company can build up enough funds to pay for employee severance packages, the person said.

Cash flow has been an issue recently for LeEco. According to Bloomberg, employees who were supposed to be paid on March 31 didn't get paid until April 4.

Before its recent problems, LeEco had big plans to take on established American tech, media and automotive players with its low-cost, high-spec gadgetry and services. The company has been hugely successful in China, where its video service has 730 million monthly subscribers, and it sells millions of smartphones, TVs and other gadgets. At its US launch event in San Francisco back in October, LeEco made its pitch to American consumers and tech watchers. In conversations I had with executives leading up to the launch, the implication was clear: LeEco wanted in on the US market, and the company's Chinese owners will willing to spend the money it took to make headway.

Some six months later, it appears those plans haven't panned out. Yesterday, LeEco revealed that it was cancelling plans to buy hugely-popular budget TV brand Vizio. When the $US2 billion ($2.6 billion) planned acquisition was first announced back in July 2016, LeEco seemed to be looking at Vizio, which has an established presence in retailers such as Walmart, Costco and Best Buy, as its entryway to the US.

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Around that time, LeEco also hinted at huge domestic hiring plans to support its domestic expansion. Last June, the company spent $US250 million ($333 million) to buy 50 acres of land from Yahoo in the heart of Silicon Valley. The plan was that the new property would house up to 12,000 employees. The company has since dramatically scaled back its ambitions on the hiring front as well, and has been reportedly been purging employees and bleeding top talent.

The layoff plans Bloomberg reported yesterday would follow other job cuts previously reported by the Silicon Valley Business Journal. Hundreds of employees have reportedly been laid off in recent months, and the headcount in San Jose is now apparently just 50 per cent of what it was in August.

By law, under the WARN Act, LeEco would be required to file a report with the US Department of Labor in the event that it laid off more than 50 employees at a time. As of March 31 the company has not filed any notices with the Department of Labor or with the state of California. We've reached out to LeEco for comment on the reported layoffs, as well as its current headcount in San Jose.

High-profile hires have left the company too, including Todd Pendleton, a former marketing executive at Samsung, that LeEco poached last year. According to The Information, Pendleton left the company in early 2017, after less than a year. The Information also reported that a former Google patent attorney left the company at the end of last year.

Reviews for the company on Glassdoor are absolutely brutal, with current and former employees making claims of haphazard management, conflicts with Chinese executives, broken promises, and sudden and massive department-wide layoffs taking place just months after employees were brought on.

Oh, and remember the property LeEco bought from Yahoo last July? LeEco is now looking to sell that land.

So what the hell is going on? How can company that was seemingly so well-situated for success fall so quickly?

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