On the last day before the deadline for disclosure, Konka finally submitted its report "at the last whistle."

On August 31, 2024, Konka disclosed its semi-annual report for 2024, with a revenue of 5.413 billion yuan, a year-on-year decrease of 48.31%; the net profit attributable to the parent company was a loss of 1.088 billion yuan, compared to a loss of 193 million yuan in the same period of the previous year.

It is worth noting that on August 27, Konka also announced a personnel change notice. The chairman of the board, Liu Fengxi, resigned and did not hold any positions in the company or its subsidiaries after resigning; the former president, Zhou Bin, became the vice chairman of the group's board of directors and presided over the board's work; the former vice president, Cao Shiping, succeeded Zhou Bin as the group's president.

It is understood that Liu Fengxi is the current general manager of the parent company, Overseas Chinese Town Group, and both Zhou Bin and Cao Shiping have worked at Konka for more than twenty years and are thorough "Konka people."

Considering the performance, this high-level change at Konka may be related to the "Konka people's" dissatisfaction with the previous business strategy of the major shareholder, Overseas Chinese Town. After 2007, to avoid continuous losses and maintain its advantageous real estate business, Overseas Chinese Town allowed Konka to blindly diversify its development, ultimately leading to Konka's loss of its position in the home appliance industry and continued poor performance.

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Although "Konka people" like Zhou Bin and Cao Shiping have a deeper understanding of Konka's business model and the development trend of the home appliance industry, considering the increasingly fierce competition in China's home appliance market, it may be difficult for Konka to easily "turn red" next.

I. Once the king of Chinese color TVs, the cross-border bet on real estate missed the opportunity

Once upon a time, as the company that developed China's first high-definition digital TV, Konka was the undisputed "king of color TVs." Research data shows that from 2003 to 2007, Konka led the sales of China's color TV market for five consecutive years.

However, nowadays, in the TV industry, Konka is no longer as brave as it used to be. Data disclosed by Luotu Technology shows that in 2023, Konka's TV shipments fell by more than 20% year-on-year, ranking in the second echelon of China's TV market.

In contrast, brands like TCL and Skyworth, which were neck and neck with Konka in the TV field more than ten years ago, are still performing well. In 2023, TCL and Skyworth's TV shipments were 6.8 million and 6 million units, respectively, ranking third and fourth in China's TV market.Konka's marginalization in the television industry can be largely attributed to strategic misjudgments. It is widely known that around the year 2000, China's television industry was embroiled in a brutal price war. Konka actively catered to this trend by adopting a "price for volume" strategy.

Although the aforementioned strategy helped Konka win the market, it also reduced the company's profit margins. Financial reports indicate that from 2002 to 2007, Konka's net profit margin on sales hovered around 1%, significantly lower than the 5.27% in 1998.

If Konka were an independent company and its shareholders were well-versed in industry trends, they might have understood the long-term strategic value of Konka's "price for volume" approach. However, Konka's major shareholder, Overseas Chinese Town, which specializes in real estate, found it difficult to accept substantial losses from its subsidiaries. In 2001, due to a massive loss of 700 million yuan, Konka's founder, Chen Weirong, was forced to resign.

In order to escape the intense competition within the television industry and expand its profit margins, Konka, following the gaze of its major shareholder Overseas Chinese Town, set its sights on the real estate market. In 2007, Konka reviewed and passed the "Resolution on the Establishment of Konka Real Estate Development Investment Company to Engage in Real Estate Development and Investment Business," and subsequently actively carried out a series of real estate investments.

For example, Konka invested 1.7 billion yuan in the construction of a tourist resort in Kunshan, Jiangsu, and later in 2017, auctioned off its 70% stake in Shenzhen Kangqiao Jiacheng, obtaining 6.98 billion yuan in funds.

While Konka was actively expanding its real estate business, the Chinese television industry experienced successive waves of technological upgrades. First, around 2007, display technology shifted from traditional CRT to liquid crystal, and then, around 2012, internet television became the prevailing trend.

Due to its primary focus on real estate and slow response to cutting-edge technology, Konka missed two waves of technological upgrades, ultimately becoming a marginal player in the television industry.

II. Indiscriminate expansion into new businesses led to consecutive impairment charges for Konka.

Parallel to its real estate expansion, Konka's senior management also experienced continuous turmoil. Around 2015, there were 42 changes among Konka's directors, supervisors, and senior management personnel, including the resignation of six group management members, one chairman of the board, and one supervisor.

Due to the different interests of executives from various backgrounds, Konka's strategic orientation frequently changed. For instance, in 2014, seeing the continued strong sales of internet televisions, Liu Fengxi, then president of Konka, announced the "Easy Strategy," claiming to create China's first smart TV internet operation platform. In 2016, Konka again proclaimed the slogan of "software + hardware."In March 2017, Kangjia's newly appointed president, Zhou Bin, led the company to explore a path of diversified development, hoping to add "investment control + finance" elements, and also proposed the concept of "technology + industry + urbanization". In May 2018, at the 38th anniversary celebration of Kangjia Group, Zhou Bin announced the start of Kangjia's transformation path, proposing the strategic transformation and upgrading content of "one core positioning, two development main lines, three development strategies, and four business groups".

Financial reports show that Kangjia's main business has up to ten items at most, including not only main businesses such as multimedia and white appliances, but also diversified businesses such as mobile Internet, trade, and real estate, which are not closely related to the main business.

It can be said that in the past few years, due to the internal strife of the management, in order to meet the interests of different groups, Kangjia has been doing "addition", and finally became a "freak" that spans many vertical businesses.

The so-called professional expertise, referring to the experience of excellent technology companies such as Apple, Huawei, and Xiaomi, an outstanding company cannot make achievements in all fields, and can only focus on advantageous resources and continue to improve on the main track.

For example, at the beginning of 2024, Bloomberg reported that due to the difficulty of car manufacturing and the difficulty in achieving the ideal goal, Apple has given up on car manufacturing. In response, Li Xiang, CEO of Ideal Automobile, commented, "Strategically, if a new business can focus on one, it will never do two. In addition, choose the largest one and the one closest to its core advantages. It is likely not a good strategy to know the difficulty and move forward."

Facts have proved that too many and too complicated business lines have not only failed to promote Kangjia's performance, but also dragged it into the quagmire of losses.

For example, in 2017, Kangjia laid out a very risky external factoring business, hoping to create revenue by seizing the difference in accounts receivable of other companies.

Because it is not a professional financial institution, Kangjia has repeatedly stepped into pitfalls after carrying out external factoring business. For example, in March 2018, Kangjia Factoring accepted more than 65 million yuan of accounts receivable from China Communications First Navigation Bureau and held the company's bills of exchange, with a term of 1 year.

A year later, when the bill matured, China Communications First Navigation Bureau did not pay in time. Subsequently, Kangjia Factoring sued China Communications First Navigation Bureau. However, China Communications First Navigation Bureau reported to the public security organs on the grounds of counterfeit seals. Kangjia was dismissed by the court on the grounds of criminal before civil. In the end, Kangjia's accounts receivable from China Communications First Navigation Bureau were fully provided for bad debts at 100%.

In May 2024, when replying to the inquiry letter from Shenzhen Stock Exchange, Kangjia helplessly stated, "Affected by the external environment, business risks are gradually increasing, and external factoring business has appeared overdue payment matters. Therefore, the company stopped all external businesses of Kangjia Factoring at the end of 2018." It is understood that from 2019 to 2023, Kangjia Factoring business accumulated a total of 697 million yuan in impairment provisions.In fact, the external factoring business is just a slice of the issue, and Konica's other diversified businesses face similar problems. The impediment in the development of diversified businesses has brought significant impairment pressure to Konica.

Financial reports indicate that from 2019 to 2023, Konica respectively provided for impairments of 835 million yuan, 1.185 billion yuan, 1.75 billion yuan, 1.245 billion yuan, and 1.017 billion yuan, totaling 6.032 billion yuan. In contrast, during the same period, Konica's total net profit attributable to the parent company was only 513 million yuan.

It can be said that the massive impairment provisions resulting from the blind expansion of diversified businesses are the key triggers for Konica's entanglement in the quagmire of losses.

III. Returning to the main business, Konica is trapped in high debt ratios

In view of the impediment in the development of diversified businesses, in recent years, with the resignation of executives represented by Liu Fengxi from the Overseas Chinese Town system and the full control of "Konica people," Konica began to focus on core businesses.

In July 2023, Konica clearly defined the new strategic framework for future development as "one axis, two wheels, and three drivers," where "one axis" takes electronic technology as the main axis of development; "two wheels" take consumer electronics and semiconductors as the support for development; "three drivers" take "product drive, manufacturing drive, and international drive" as the main engines.

In short, Konica hopes to return to the main track of technology, focusing on the development of consumer electronics and semiconductor businesses, and no longer blindly deploying diversified businesses.

However, when looking at the financial reports, after focusing on the main business, Konica's consumer electronics and semiconductor businesses have not shown strong growth. In the first half of 2024, Konica's revenue from consumer electronics and semiconductor businesses was 4.754 billion yuan and 83 million yuan, respectively, down 0.39% and 95.93% year-on-year.

It is worth noting that in the first half of 2024, as downstream demand picked up, the performance of most consumer electronics companies increased synchronously. According to incomplete statistics, among the 87 companies in the A-share consumer electronics sector, 70 companies had year-on-year revenue growth.

Coincidentally, during the same period, the semiconductor industry also entered a recovery cycle. Data disclosed by the Semiconductor Industry Association shows that in Q2 2024, the cumulative sales of the global semiconductor industry reached 149.9 billion US dollars, a year-on-year increase of 18.3%. According to incomplete statistics, in the first half of 2024, among the 159 semiconductor companies listed on the Wind data Xinyuan Wan Guo classification, 117 companies had year-on-year revenue growth.The starkly different performance of Konka's consumer electronics and semiconductor businesses compared to the industry as a whole may be attributed to the company's high debt levels, which make it difficult to increase investment in research and development, resulting in limited competitiveness of its products.

Financial reports indicate that as of the end of June 2024, Konka's debt-to-asset ratio reached 86.45%, a year-on-year increase of 7.53 percentage points. At the same time, due to blind expansion in previous years, Konka is still facing significant challenges in the impairment of existing assets. In the first half of the year, Konka suffered losses of 180 million yuan due to changes in fair value, 163 million yuan due to credit impairment, and 92 million yuan due to asset impairment, totaling losses of 435 million yuan.

To alleviate financial pressure, Konka is vigorously controlling costs. The financial reports show that from 2022 to 2023 and the first half of 2024, Konka's R&D expenses were 544 million yuan, 498 million yuan, and 215 million yuan, respectively, with year-on-year decreases of 11.76%, 8.44%, and 9.28%. The expense ratio has been hovering around 3%.

In contrast, in the first half of 2024, Skyworth Digital, Hisense Visual Technology, and Changhong R&D expenses were 566 million yuan, 444 million yuan, and 227 million yuan, respectively, all of which were higher than Konka's investment in research and development.

Considering that Konka's consumer electronics and semiconductor businesses, which it is betting on, both require strong underlying technology to support their stable and long-term development, the continuous decline in Konka's R&D expenses also indicates that these businesses will find it difficult to achieve impressive performance in the fierce market competition.

From this perspective, the problems Konka has faced over the past decade have a strong continuity. After Chen Weirong left, Konka's top management has been in constant turmoil due to the TV business being mired in price wars. Frequent changes in top management, described as "you sing and I make an appearance," have led to Konka's strategic layout being very short-sighted on one hand, and on the other hand, needing to take into account different interests, leading to blind expansion of business lines.

All these factors have determined that in recent years, Konka has been facing increasing pressure to provide for impairments. Although at this stage, with the "Konka people" fully in control, Konka has begun to focus on the main track of technology, the accumulated impairment pressure from before has become too heavy to return, and it still weighs heavily on Konka, making it hard to breathe.