Tough week for hardware companies

In about a week, iRobot, Luminar and Rad Power Bikes filed for bankruptcy.

They’re very different companies — they sell Roombas, lidar, and e-bikes, respectively — but as Sean O’Kane, Rebecca Bellan, and I discussed on the Equity podcast episode, they’ve faced similar challenges, including pricing pressures, big deals that fell through, and a failure to establish themselves beyond the products that made them successful in the first place.

You can read an edited preview of our conversation below, with Sean providing an overview of each filing, Rebecca pondering whether she owns a Roomba, and me speculating on what the popular narratives about these bankruptcies are leaving out.

Sean: Rad Power is big for an e-bike company, but small, I think, in most people’s minds, as this is still a bit niche. They were established a long time ago and became popular even before the pandemic, and they were really considered a leader in the industry, in terms of the quality of bikes they make, really good branding and marketing, and trying to connect with customers – something that’s really hard to find in the e-bike world, where most of them are just like the alphabet companies on Amazon.

They were riding this pandemic wave high as micromobility really took off, and people were really rethinking how they were getting around, not going to the office so much. And we see this in bankruptcies. It only shows revenue three years ago, but they were making over $100 million in revenue in 2023 — like $123 million, I think it’s down to about $100 [million] last year, and through bankruptcy this year, it was only around $63 million, so it’s clearly coming off a pretty big high. They have quite a diverse range of products but never really found a way to establish themselves there.

And I think you could say similar things about these other two companies. Luminar is another company that was founded in the early 2010s, came out of stealth in 2017, and their mission was basically to take lidar sensors, which at the time were very expensive and large and really only used in, like, defense applications and aerospace. 2017 was sort of the first big publicity round for autonomous vehicles. They wanted to implement these sensors, make them more affordable for this use case. This helped them to do some deals, mainly with Volvo, and then some other deals with Mercedes Benz and some other players. But they were very focused on it, and that was one of the reasons they completed the filing this week as well.

And then iRobot [was] the most well-known of these three companies — many people listening probably even have a Roomba at home or something similar. It’s just another one of those cases where iRobot became synonymous with a certain thing, and then the developments in the technology that make that product move so fast that they end up in a situation where they’re looking for a way out. And we all saw that, they were trying to get acquired by Amazon, and that deal was blocked by the FTC and so here we are.

They are very different companies, but they all faced similar problems. Do any of you own a Roomba?

Rebecca: No, I don’t have a Roomba. These scare me, but I bought my mom a Rad Power bike years ago and she loves it. But now, you know, not only did they have this bankruptcy thing, but they also had the battery problem – they couldn’t do their recalls because they were, like, “If we have to recall these bikes, we’re going to go bankrupt.” But they go bankrupt anyway!

I’m curious about the pricing thing and how much that affected everyone’s results. You hear a lot on social media, pro-merger people, how some FTC blocks [mergers] leads to the bankruptcy of the companies or their acquisition by a Chinese rather than an American one.

Sean: iRobot represents, to me, the kind of global macro trade problem, could you ever build that company here in the United States with a local supply chain in the last 15 years? Probably not. And so it makes sense that they’re so dependent on China – which, let’s be real, probably led to the ability for these other companies to come along and basically copy what they were doing.

This reminds me of Trump 1 when he put tariffs on Chinese imports and we saw a bunch of startups like Boosted Boards and others in the micromobility space get hammered. So they are contributing factors, for sure. The battery recall with Rad Power was definitely, I think, a bigger dagger in the end, but the pricing put them on an uneven footing that made it harder for them to respond to things like that.

Anthony: Many times when a company fails, there [are] larger structural issues, and then there is perhaps a more immediate proximate issue. And particularly in the case of iRobot, I think a lot of former executives and even outside commentators point to that deal with Amazon that was reached a few years ago – it looked like the EU wasn’t going to let it go through, and there’s this sense of, “Okay, so by blocking that deal, you basically put the dagger in their heart that ultimately killed the company.”

This narrative also perhaps ignores the fact that there were other things that made them want to acquire in the first place.