GBA Brief

Why Gree’s semiconductor strategy has shareholders spitting

Gree Electric is one of the best-known home appliance brands in the Greater Bay Area. Dong Mingzhu, its veteran boss, wants to take the air-con maker in a new direction, although some of its shareholders need more convincing. 

Dong Mingzhu is a force of nature, known for her larger-than-life leadership of Zhuhai-based Gree, an air-conditioning giant. But like other bosses in the region, she wants to push harder, turning Gree into a next-generation manufacturer. 

Shareholders aren’t so sure. There has already been an unsuccessful effort to develop a smartphone brand, which ended up with unwanted handsets given away to employees. Then there was a diversion into the electric car industry, which was rebuffed by investors, forcing Dong to find other funding for Zhuhai Yinlong Electric, a battery maker. Now the plan is a push into integrated circuits (IC). China’s government is determined to wean its tech sector off its reliance on US semiconductors by developing its own producers, and Gree sees an opportunity to diversify into a hotspot sector.

The criticism is that Dong’s latest directive is another strand in a scattergun strategy. Gree says that it sees synergies between chip design and areas where it is already making advances, like smart household appliances that will be embedded into Internet of Things (IoT) networks. But the venture into smartphones was short-lived and the battery plan was mismanaged, so investors are right to question how the sideline in semiconductors is going to be different.

The costs of getting into the semiconductor sector can also be prohibitive. Previously, a substantial portion of Gree’s profits has been paid out to shareholders, making it an investor favourite. So shareholders were shocked when Gree announced that it was scrapping the dividend because it wants to plough the money into new investments like chipmaking. 

Its shares in Shenzhen plunged 9% on the day following the announcement and there were soon signs of backtracking on parts of the plan, following shareholder pressure. 

It probably doesn’t help that Dong’s buccaneering style has made enemies in some of the investor base, with Gree’s biggest shareholder, the Zhuhai branch of Sasac, the state-owned assets agency, attempting to force her out in 2016. But Dong’s supporters say she also deserves some credit. After all, she is talking about reinvesting profits in the kind of industrial upgrading that is being encouraged by policymakers. Her critics counter that Dong’s plans have to be plausible, however. Perhaps they would go along with her more happily if she picked areas where Gree has more of a pre-existing advantage.