Rouyu launches large-scale layoffs, employees receive discounted compensation or continue to "holiday"

May 21, 2022

Core Tip: According to a report by LatePost, it was exclusively informed that Royole, a flexible display manufacturer, started a round of layoffs this Wednesday. This is Royole's first large-scale layoff since it fell into a capital chain crisis.
According to a report by LatePost, it was exclusively informed that Royole, a flexible display manufacturer, started a round of layoffs on Wednesday. This is Royole's first large-scale layoff since it fell into a capital chain crisis.

Royole is a flexible display manufacturer established in 2012. It was founded by Liu Zihong, a Ph.D. in electrical engineering from Stanford University. It has raised nearly 10 billion yuan in equity plus debt, and its valuation once reached 50 billion yuan. Investors include Shenzhen Venture Capital, IDG Capital, Shanghai Pudong Development Bank, etc. Its core products include toB's supply of flexible screens to other companies, such as flexible name brands for large-scale conferences; and toC's foldable mobile phone FlexPai.

On May 18th, Rouyu HR began to inform some employees of the decision to lay off employees. All employees who received the notice must choose a termination compensation plan before this Friday: they can choose to take the basic salary (40% of the normal salary) xN (year of employment) The compensation will be paid within six months; or you can choose to get compensation at the end of the month, but the compensation will be 50% off. Employees can also choose not to leave their jobs, but they will continue to take a “holiday” until September or even longer this year, during which the company will pay a minimum salary of 2,360 yuan.

An on-the-job employee told LatePost that employees in marketing, sales, solution and product development platforms, and the smart mobile terminal business unit (mainly mobile phones) have all received notifications. The proportion of layoffs in each department is not yet clear, but the employee told LatePost that in the departments involved in layoffs, only a few old employees who have worked in Royole for more than 4 years have not been notified, and the proportion of layoffs in some departments exceeds 50%.

At the same time as the layoffs, Rouyu decided to increase the salary of employees in the "Advanced Technology R&D and Production Platform" (ATP) department. ATP is mainly responsible for the R&D and production of flexible screens, corresponding to its toB business of supplying flexible screens to other customers.

While laying off terminals and functional departments, while giving ATP a salary increase, Royole has been brewing for a year, but the implementation is not a decisive business transformation, that is, from the past with both toB and toC businesses, to being a pure toB screen manufacturer . The salary increase for ATP is to retain the core personnel of the toB product.

In May 2021, Zhao Hong, the former vice president of Lenovo Group, joined Rouyu Technology as COO. According to "LatePost", Zhao Hong tried to promote Rouyu to transform into a pure screen supplier and cut off the toC business.

Since then, this idea has been discussed on a small scale within the management, and Royole has also stepped up efforts to expand some toB customers, including the 600 million yuan repair screen order obtained by Zhao Hong. But until Zhao Hong left at the end of the year, the company's management did not officially announce the strategic change of the main toB. This may show that Rouyu executives are still hesitant to transform. Having both the toC business means more room for imagination, and if it is only a toB screen manufacturer, it is a typical intermediate link manufacturing enterprise. Take BOE, China's leading screen manufacturer, as an example. Its revenue last year was nearly 220 billion yuan, its profit was nearly 26 billion yuan, and its market value was only 148 billion yuan.

This hesitancy is also reflected in layoffs. According to "LatePost", in early April 2021, Rouyu's general manager's office revealed that Rouyu had less than 100 million yuan in cash left in the account at that time; in the same month, Rouyu began to default on wages, but has not started large-scale layoffs.

In December last year, in order to retain employees in the arrears of wages, Rouyu signed an option agreement with the current employees, and issued a new option of 4 yuan per share, equivalent to two months' salary, and promised that if the employees can continue to work in Rouyu. Yu has worked until the end of May this year. When he leaves, the company will repurchase this part of the option and pay it off within one year. However, if he leaves early, the option will be voided. Rouyu started layoffs before the option was redeemed, which was considered by many employees to avoid paying the option repurchase fee.

The OA system shows that Royole currently has less than 500 employees, and before the start of massive wage arrears in mid-2021, the number of Royole employees exceeds 1,800. Most of the employees chose to leave because they were owed wages. Although this method also reduces the manpower burden and avoids paying termination compensation, it has long-term negative effects on company morale, financing and external cooperation.

Rouyu only started to cut back office expenses this year, despite the sharp reduction in staff. According to "LatePost", in February this year, Royole's office in the United Headquarters Building in Nanshan District, Shenzhen shrank from two floors to one floor. By the end of this month, Royole will retire the Nanshan District headquarters and all employees will move to Longgang District. The Royole National Flexible Display Base in Pingdi works. In April this year, Royole resigned from the Beijing office in Wangjing. Although early termination of the lease may result in liquidated damages, in operation, it can generally be avoided by looking for the next tenant. Rouyu did not cut off unnecessary office space expenses earlier.

Even now by laying off other departments and raising the salary of the core screen-related departments, it is still difficult for Royole to do a good job in the toB transformation after "reducing the burden".

Royole's fully flexible display production line has been under construction since November 2016. The project is divided into two phases with a total investment of about 11 billion yuan. In June 2018, the first phase of the production line was lit up and put into operation. However, the Rouyu production line is seriously vacant. The prospectus shows that from 2018 to the first half of 2020, the capacity utilization rate was 15.1%, 31.2% and 5.3% respectively, and a total of less than 18,000 flexible screens were produced in three years. Having production capacity without customers is a major crux of Rouyu's predicament.

Under the circumstance of tight funds, it is a rational decision to survive without a broken arm, but in the current situation of Royole, it may not be enough to keep the core R&D personnel of the screen by raising their salary. When employees consider whether to continue to stay in a company, in addition to the income they receive, they also value the future and hope, especially in difficult times. This is what the current Rouyu lacks.