Andy Rubin’s Essential Products Is Said to Consider Sale

Essential Products, a startup co-founded by Android creator Andy Rubin that launched last year to great fanfare, is considering selling itself and has cancelled development of a new smartphone, according to people familiar with the matter.

The startup has hired Credit Suisse Group AG to advise on a potential sale and has received interest from at least one suitor, the people said. Essential is now actively shopping itself to potential suitors, one of the people said. The startup, part of Rubin’s incubator Playground Global, has raised about $300 million (roughly Rs. 2,000 crores) from several investors, including Amazon.com, Tencent Holdings, and Redpoint Ventures. It was valued at $900 million to $1 billion (roughly Rs. 6,800 crores) about a year ago, according to an analysis by Equidate, which runs a market for private company stock.

Essential has also received investments from Hon Hai Precision Industry, also know as Foxconn, the company’s manufacturing partner for its smartphone introduced last year. Sprint Corp., which has been seeking a popular flagship phone, launched a significant marketing campaign for Essential’s device when it was introduced. The startup has spent more than $100 million (roughly Rs. 677 crores) on developing its first products, about a third of the money it raised to build the company, the people said.

Current discussions are focused on a sale of the entire company, including its patent portfolio, hardware products like the original smartphone, an upcoming smart home device and a camera attachment for the phone, said the people, who asked not to be identified because the talks are private. Essential’s engineering talent, which includes those hired from Apple and Alphabet’s Google, would likely be part of a deal. The company hasn’t yet made a final decision on a sale, the people said.

An Essential spokeswoman on Thursday declined to comment about the company’s future. A spokesman for Credit Suisse didn’t immediately respond to a request for comment.

Rubin, 55, who has been developing phones for almost 20 years, formed Palo Alto, California-based Playground after leaving Google in 2014. Last November, he took a short leave of absence amid reports about workplace misconduct at his previous employer.

Rubin responded with a post on Twitter. “We always have multiple products in development at the same time and we embrace cancelling some in favour of the ones we think will be bigger hits,” he tweeted. “We are putting all of our efforts towards our future, game-changing products, which include mobile and home products.”

The original Essential Phone launched last August after a several-week delay. It debuted with a cutting edge look that beat Apple’s iPhone X to market with a nearly all-screen front. It also has a unique ceramic casing and its Android software is nearly identical to the stock version running on Google’s Pixel phones, giving it another unique sales proposition.

The company had been working on a new model, but has since canceled development of the device. It has shifted engineers and other resources to an upcoming smart-home product, which is on track for release by next year, the people said.

Essential could decide to go back into the phone business and has explored hiring a manufacturer other than Foxconn to develop a device with the Essential brand. This would take Essential out of the difficult development process, but still give them a presence in the smartphone market.

The original phone immediately struggled as buyers complained about poor camera capabilities, issues with the touchscreen and problems making phone calls. It also didn’t sell well. The phone’s initial price was $699, the same as an iPhone viewed as a competitor. At that price, the company sold as few as 20,000 units across its website and third-party distribution partners, one of the people said. Last October, Essential lowered the price by $200, which boosted sales. The company has sold at least 150,000 to date, according to the person familiar with the company.

Over the course of its first year, Essential has also faced turmoil in its employee ranks. It has lost dozens of hardware and software engineers as well as top executives. Brian Wallace, the original vice president of marketing, left just weeks after the company started. Earlier this year, Joe Tate, head of hardware engineering, also departed.

© 2018 Bloomberg LP

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