• Tue
  • Jul 29, 2014
  • Updated: 5:00pm
Corporate China
PUBLISHED : Wednesday, 08 January, 2014, 9:25am
UPDATED : Wednesday, 08 January, 2014, 9:26am

Weibo: Xiaomi's slip, Cloudary's Hou battles depression

BIO

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”
 

Fast-rising smartphone maker Xiaomi is known for its savvy marketing tactics, but the company has been on the defensive in the blogosphere this past week after a rare tactical blunder that saw it come under attack from disappointed fans. Meantime, the former CEO from the literature unit of online entertainment company Shanda was openly discussing his recent bout with depression on his microblog, following rampant speculation about the reasons for his abrupt departure from the company last month.

Xiaomi's charismatic founder Lei Jun is never at a loss for words on his microblog, constantly hyping his company's latest products and marveling at the tech world in general. But Lei was noticeably mum during a recent brouhaha surrounding Xiaomi's third generation smartphone, which has yet to go on sale but is now available for pre-orders on the company's website.

The brouhaha centers on the chip that Xiaomi will use in the third-generation model, which will presumably be called the MI3. The company had previously said the MI3 would contain a chip from global giant Qualcomm (Nasdaq: QCOM) that supported both 3G and upcoming 4G mobile service being offered by China Unicom (0762.HK; NYSE: CHU), China's second largest wireless carrier. But in an abrupt and unannounced change, the company switched to a chip that will only support 3G, even though China awarded 4G licenses just last month.

As an industry watcher, I can understand Xiaomi's decision. For technical reasons that are too long to explain here, Unicom is unlikely to offer 4G service until early 2015 at the soonest. By that time, Xiaomi is likely to be preparing for a launch of its fourth-generation model, which undoubtedly will include 4G capabilities. But including such capabilities in its upcoming third-generation MI3 would be largely superfluous, since 4G service won't be available on Unicom's network for at least another year.

Regardless of the reality, Xiaomi's quiet switch to the lower-performance Qualcomm chip had customers who pre-ordered the MI3 howling with protest over what looked like a cost-cutting move, and prompted Beijing regulators to investigate the matter. Qualcomm China-based vice president Shen Jin was quick to defend Xiaomi, pointing out the only difference between the two chips was that one supported 4G and the other one didn't.

The only Xiaomi executive to acknowledge the "chipgate" affair was media representative Wei Lai, who wondered aloud what all the concern was about. If Xiaomi were smart, it would be more open about the change and discuss it publicly from the highest levels of management. But Chinese companies have a lot to learn about crisis management, and Xiaomi's apparent attempts to cover up and downplay the switch could ultimately damage its "cool" reputation and end with the defection of some of its loyal fans.

Meantime, we're hearing more about the sudden departure of CEO Hou Xiaoqiang from Shanda's Cloudary online literature unit last month, which had sparked rampant speculation about the reasons behind the move. Cloudary has been plagued with problems over the last two years, including an abandoned IPO in 2012 and a mass defection of mid-level employees last year. Some had speculated that Hou's departure was engineered by Shanda Group founder Chen Tianqiao, who is notorious for clashing with heads of his various units.

While those theories may still be true, we're now learning from candid comments on Hou's microblog that he suffered from serious depression, which most likely was at least a partial factor behind his departure. In his posts, Hou describes how the year 2013 was like a "giant beast", and how his depression would cause him to start crying at even the slightest matters.  

Whether or not his departure will affect Cloudary's long-stalled IPO is another matter. Some may argue his departure could be good for the company, while others may say it will only create further disruptions. Either way, my sympathies go out to Hou, who may finally find some relief from his depression with his new retirement.

To read more commentaries from Doug Young, visit youngchinabiz.com

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