The Chinese startup that debuted the “world’s first commercial foldable smartphone” in 2018 drew a different kind of attention in April when one of its directors, Liu Shuwei, issued a statement on social media simply titled “Rescue Royole.”
“I suggest that the government actively help Royole with its shortage of funds and help Royole bring in strategic investors,” Liu wrote.
The Shenzhen startup, founded like many of its peers in the 2010s, has joined the growing ranks of once-promising Chinese tech unicorns that have lost their way trying to reach their industry’s top tier.
Royole’s troubles are no secret. The company delayed payments to some executives last year, and employees recently were told to take three months’ vacation time, Chinese business newspaper The Economic Observer reports. Over two years, Royole shrunk its payroll by half to roughly 700 workers.
CEO Bill Liu, who studied electrical engineering at Tsinghua and Stanford universities, founded Royole in 2012. The company aggressively raised capital by touting itself as an innovator. Investors included a fund backed by the city of Shenzhen.
Royole spent RMB 6 billion to RMB 7 billion (USD 883 million to USD 1.03 billion) to build a panel factory that opened in 2018. That year’s foldable phone announcement put the company on the radar for many. Mass shipments of the device began the following year, beating out the reigning champion of the smartphone and panel industries, Samsung Electronics.
Royole attained a valuation of USD 6 billion in May 2020, according to research firm ITjuzi, putting the company in unicorn territory. At that point, Royole shared the same level of attention as drone maker DJI, a fellow Shenzhen unicorn valued at USD 22 billion.
But Royole’s equity story soon took a dark turn. At the end of 2020, Shanghai’s tech-focused Star market received an application from the startup for an initial public offering. The company sought to raise over RMB 14.4 billion, only to yank the application in February 2021.
Royole was unclear about the reason behind the reversal. But analysts said the company moved too soon to diversify itself while sales of its smartphone were still shaky.
Chinese deliveries of foldable smartphones are forecast to reach 13.8 million units in 2025, or 12 times the volume in 2020, analytics firm iResearch said. But another data firm, iiMedia Research, reports that 75% of consumers prefer foldables from Huawei Technologies while only 2% like Royole.
The panel market has also proven difficult to crack. Top Chinese panel makers BOE Technology Group and China Star Optoelectronics Technology have developed their own foldable screens. The pair enjoy strong supply relationships with Huawei and other device makers, leaving little room for startups to enter.
Royole has allocated investment into collaborations with Louis Vuitton and Airbus.
Royole “has gone too far in attempting to expand business areas, and they’re not growing fast enough,” said a trading company source in Shenzhen.
Earnings have suffered. The company reported a net loss of just over RMB 1 billion in 2019. For the first half of 2020, the red ink totaled RMB 960 million on operating revenue of around RMB 110 million.
Royole is not alone in its struggles to expand market share. Last year, more than 80 companies canceled plans to list on the Star market, twice the number of 2020.
This increase is attributed to the China Securities Regulatory Commission’s tighter scrutiny of businesses seeking IPOs in recent years, in the interest of safeguarding investors.
Just last month, XAG, a manufacturer of farm drones withdrew plans to list on the Star market. The company has struggled to expand its customer base as DJI dominates the global drone market. IPO filings show XAG had a net loss of RMB 85 million in the first half of 2021.
Voice recognition startup Unisound and Hesai Technology, which develops sensors for self-driving vehicles, both canceled their IPOs in 2021 in favor of raising additional capital from existing investors. Both companies operate in fields saturated with competition.