Internet security provider Qihoo 360 Technology Co said Tuesday that it will withdraw investment from a joint venture with smartphone maker Coolpad Group, after its rival Leshi Internet Information and Technology became the second-largest shareholder of Coolpad.
Qihoo has demanded that Coolpad purchase Qihoo's 49.5 percent stake in Coolpad E-Commerce Inc for $1.485 billion, equal to twice its fair market value, because Coolpad breached its non-compete obligations under their agreement, Qihoo said in a statement on Tuesday.
Coolpad Group's shares were suspended from trading in Hong Kong on Tuesday due to the issue.
The company's market capitalization is less than $1 billion.
The joint venture was only launched in December 2014, when Qihoo bought a 45 percent stake for $409 million.
In May, Qihoo increased its stake in Coolpad E-Commerce to 49.5 percent. The rest is owned by Coolpad Group.
But within weeks, Coolpad Group launched a partnership with Leshi.
Leshi bought an 18.5 percent stake in Coolpad Group from its Chairman Guo Deying on June 29, becoming the second-largest shareholder.
"Coolpad Group's decision to cooperate with our rival has breached its non-compete obligations," Qihoo CEO Zhou Hongyi said in a letter to the joint venture's employees on Tuesday.
The dispute underscores the fierce competition in China's smartphone sector.
Qihoo's alliance with Coolpad represented part of its efforts to step into the smartphone sector.
Coolpad accounted for 7.1 percent of China's smartphone market as of the end of the second quarter, ranking No.7 by shipments after such prominent handset producers such as rising upstart Xiaomi Inc, telecommunications equipment maker Huawei Technologies Co and Apple Inc, according to data from Guangzhou-based market consultancy iiMedia Research.
The joint venture released a new smartphone brand named Qiku just in August with the aim of becoming one of the top three smartphone makers in China.
Leshi is also a newcomer with big ambitions in the smartphone sector. It launched its Letv smartphone brand in April and had sold 1 million handsets as of August 11, according to media reports.
The joint venture said in a statement Tuesday that the dispute between its shareholders will not affect its services to Qiku users. Leshi declined to comment on the issue on Tuesday.
