Fuhu Files for Bankruptcy Amid Fight With Foxconn
Fuhu Inc. is blaming contract manufacturer Foxconn Technology for late delivery of tablets that damaged its 2014 holiday sales and precipitated financial woes that led to Fuhu’s Monday bankruptcy filing. PHOTO: PICHI CHUANG/REUTERS
Before it filed for bankruptcy Monday, Fuhu Inc. won recognition as a fast-growing rising star, with a line of colorful Nabi tablets designed to usher children safely into the online world of entertainment and learning.
The children’s technology company topped Inc. Magazine’s fastest-growing private company in America list two years running, in 2013 and 2014. Forbes Magazine named Fuhu the most promising company in America in 2014.
Tuesday, Fuhu will be before a bankruptcy judge, low on cash and inventory, and poised to sell its assets swiftly to Mattel Inc., or a higher bidder in a chapter 11 competition.
Fuhu blames the world’s largest contract manufacturer, Foxconn Technology Group, formally called Hon Hai Precision Industry Co., for late delivery of its tablets that damaged its 2014 holiday sales.
Foxconn declined to comment, citing “a strict company policy of not commenting on any matters related to current or potential customers, or any of their products.”
How Foxconn allegedly stole Christmas from Fuhu is laid out in court papers, with Fuhu claiming it didn’t have enough tablets to sell for the holiday season in 2014, due to late delivery by Foxconn, the Taiwan-based contract manufacturer that is Apple’s main iPhone assembler.
This year isn’t looking good, either, court papers said. Sometime after the end of September, Foxconn, which is also an investor in Fuhu, shut off the supply of Nabi-branded tablets, leaving Fuhu struggling to fill the orders that came in this year from big-box retailers, court papers say.
Foxconn has been “aggressively” pursuing payment from the smaller company, court papers say. Fuhu managed to get 35,000 tablets during negotiations, which it promptly sold to retailers.
The tablet maker says Foxconn shut off communications with it in October, and Fuhu turned to its top lender, an affiliate of Tennenbaum Capital Partners. Tennenbaum declared the loan in default and exercised certain remedies, leaving Fuhu short of cash and with no inventory to stay in operation.
The bankruptcy filing marks a dramatic reversal for Fuhu, a pioneer in the children’s technology business that chalked up revenue of more than $195 million in 2013. The company has sold more than four million children’s tablets under the Nabi brand, through outlets including Target, Best Buy, Costco Wholesale, Toys R’ Us and Wal-Mart,but is facing increasing competition for the under-10 set from the Amazon Fire Kids Edition, LeapFrog’s Epic and others.
Mattel lent Fuhu, based in El Segundo, Calif., money last week to fund the bankruptcy proceeding pending the expected sale. Documents concerning the tentative deal put a price of $9.5 million on Fuhu’s assets, but offer the certainty of a buyer that will be able to close a transaction swiftly, court papers say.
Mattel couldn’t immediately be reached for comment. Tennenbaum declined to comment.
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