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Amid Cash Crunch, Chinese Billionaire Cuts Salary to 15 Cents

Amid Cash Crunch, Chinese Billionaire Cuts Salary to 15 Cents
In order to sustain a headlong rush into businesses from electric cars to smartphones, his technology empire is running out of cash, the billionaire chairman of China’s LeEco has admitted.
Company co-founder Jia Yueting pledged to move the company toward a more moderate phase of growth, slow LeEco’s madcap pace of expansion, and to slash his income to 1 yuan (15 cents), in a lengthy letter to employees after Jia Yueting apologized to shareholders.
A sprawling family of businesses that includes sports media, automobiles, smartphones and TVs is controlled by LeEco which is the umbrella holding company for these businesses. Placing bets on new ventures, from an electric car plant in Nevada to a $2 billion acquisition of California TV maker Vizio Inc., the company known for its LeTV streaming service has aggressively pursued funding.
“No company has had such an experience, a simultaneous time in ice and fire. We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited,” Jia wrote in a letter, obtained by the media, describing LeEco’s rise and subsequent issues.
Given the opacity surrounding investments by its various subsidiaries and a reliance on equity-backed loans, analysts have begun to question LeEco’s longer-term prospects. After Monday’s selloff, there was little change in shares in Leshi Internet Information & Technology Corp. and Coolpad Group Ltd., the two listed companies Jia chairs.
“The company spread itself too quickly. They have a big ambition to create an ecosystem for different devices, not only for phones and TVs and set-top boxes but for vehicles. They have a big ambition that is too big to swallow at this moment," said Sandy Shen, a research director with Gartner Inc.
A testy exchange with rival smartphone maker Xiaomi Corp. was prompted by Jia’s memo circulated widely on social media. According to a screengrab of his WeChat message account that LeEco posted,  Xiaomi co-founder Lei Jun called attention to the opacity surrounding LeEco’s outstanding debt. Jia’s company, which blasted Xiaomi and Lei for spreading rumors, was prompted to a sharp riposte. Asking Jia to focus on LeEco’s debt rather than distract the public, was the reply by one of Xiaomi’s official Weibo accounts, an hour later.
To lessen the company’s burden in his memo, some measures were highlighted by Jia. Apologizing to shareholders of Leshi in response to criticism that he hasn’t paid them enough attention, he added that LeEco will immediately begin cost-cutting programs, decrease subsidies for customers and focus on existing businesses instead of new ones.
“They definitely need to cut back quite a bit to sustain the cashflow. Their core business is still quite strong because they have a lot of good content,” Shen said.
Leshi Internet Information & Technology in 2004 was one of the first companies in China to stream TV shows and movies to paying subscribers and wwas founded by Jia who is a self-made billionaire who got his start working in IT at a local tax bureau. He entered the smart TV businesses in 2013 and the smartphone market in 2015.
Since the start of 2016, Leshi’s stock has plummeted by almost a third. Jia in September raised more than $1 billion from a consortium of Chinese investors to make an electronic concept car dubbed the LeSee. But saying it had already spent 10 billion yuan in early development, Jia singled out the car division for its profligacy in his memo.
 “Our fundraising ability isn’t strong. The scale of our external fundraising had trouble satisfying the demands of our rapid expansion,” Jia wrote.

Christopher J. Mitchell

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