By XU Shiqi, LU Keyan

When Royole was trying to break Samsung’s monopoly in flexible displays, the results were good. In 2019, the company was valued at US$6 billion (40 billion yuan). Among its investors are the biggest names in the venture capital world. 

But now the money is fast running out. Salaries were late and only partially paid in September, and not paid at all in October. Suppliers and contractors are also unpaid. One of them, Shanghai Baoye Group, is owed 950 million yuan for building a factory that has been open since 2018. Set to produce 50 million units a year, the factory in question produced less than 50,000 units in the first half of 2020. 

CEO LIU Zihong acknowledged the difficulties in a meeting in November but promised another round of funding. In response to media inquiries, Royole said it was “operating as usual” and "employee sentiment is stable", and unpaid salaries "will be made up later." But some employees say they are very far from happy with the all-will-be-fine rhetoric and will take legal action if the situation continues. 

It is not the first sign of trouble at Royole. Employees benefits have dwindled since at least 2018 and year-end bonuses are often late, if paid at all. The problem is exacerbated by Royole’s inability to raise money in the stock market. It has filed for an IPO twice and failed twice.

In January 2020, Royole hoped to raise US$1 billion (6.5 billion yuan) in the US but withdrew its application, citing the pandemic. In December, it submitted a prospectus to Shanghai’s STAR Market, seeking to raise 14.4 billion yuan (US$2.2 billion), but suspended its application two months later. The explanation was that its ownership structure was not compliant with listing requirements ‒ too much of the company was owned by funds, essentially ‒  but the ownership structure would have been no obstacle as long as Royole disclosed everything properly. Today’s regulatory landscape has changed completely since the cancellation of the Ant Group IPO in November 2020.  

What actually happened, according to one insider who helped Royole with the IPO, was that Royole was among the 20 candidates randomly selected by the Securities Regulatory Commission for extra inspection, a policy instigated in January 2021. It was not just Royole that declined the inspection - many companies, including some not selected, stepped back, reckoning that it would hurt future IPO attempts if problems were found.

It didn’t help that sales figures in Royole’s prospectus were thought to be inflated, although the accusation was not pursued when the company withdrew the application.

The company does have some high-profile corporate clients, including Louis Vuitton and AirBus, but no new projects have been announced since 2019. Royole’s real problem is that it isn’t making money. In fact, it loses more money every year. Its technology does hold some promise to make flexible displays that are cheaper and more reliable than Samsung’s, even if Royole’s claim to be the first and only Chinese company to master the technology is overblown. A more fundamental issue is how to scale up. 

“Royole has slightly better R&D than most of its domestic competitors, but it’s absolutely the worst in terms of capacity, far worse than anyone else,” said a senior manager at a display screen manufacturer. “It’s one thing to come up with a prototype in a lab, and another to mass-produce it to meet demand.”

The former engineer is impressed by the state-of-the-art facility but puzzled at its capacity. “It didn’t seem capable of mass production,” he said.  

Royole is said to have offered double or even triple salaries to poach R&D talent from its competitors. “There are also options and warrants. It is a very attractive package,” an industry insider said. “The company genuinely wants to make good products, but Royole is too good at playing the capital game.”

The company has completed at least 13 funding rounds and is backed by half a dozen big names including Knight Capital and IDG Capital.  

Royole’s only retail store, which sold screen phones and tablets under the Royole brand, is closed. A distributor told Jiemian News she had ended her business relationship with Royole.

The best way out for Royole and its investors is probably to be acquired by another company, industry insiders said. But whoever takes it over has to stop the losses, perhaps even before actually making products.