A tough week for hardware companies

In just over a week, iRobot, Luminar, and Rad Power Bikes all filed for bankruptcy.

Although the two companies are very different companies that sell Roomba, Rider, and electric bikes, they faced similar challenges, including tariff pressures, failed big deals, and an inability to establish themselves beyond their initial successful products, as Sean O'Kane, Rebecca Beran, and I discussed on an episode of the Equity podcast.

You can read an edited preview of our conversation below. Sean provides an overview of each filing, Rebecca gives her opinion on whether or not she has a Roomba, and I speculate about what the common narrative about these bankruptcies leaves out.

Sean: Rad Power is big as an electric bike company, but it's still a bit of a niche company, so I think it's small in most people's minds. They were founded a long time ago, were popular even before the pandemic, and were actually considered leaders in the industry in terms of the quality of the bikes they were making, pretty good branding and marketing, and how they tried to connect with their customers. In the world of electric bikes, it's really hard to find that most bikes are like Amazon's alphabet soup company.

Micromobility has really taken off, riding the wave of the pandemic as people started commuting less to the office and seriously rethinking the way they get around. And that can be seen in the bankruptcy filing. Although the revenue only shows three years ago, it was generating well over $100 million in revenue in 2023. I think it was $123 million, and it dropped to about $100 million last year. And through this year's bankruptcy, it only generated about $63 million in revenue. So it's clearly coming down from quite a high. We have a pretty diverse product lineup, but we just haven't found a way to get a foothold there.

I believe the same can be said about the other two companies. Luminar is another company founded in the early 2010s that came out of stealth in 2017. Its mission was basically to take LIDAR sensors, which at the time were very expensive and large and were really only used in defense applications, aerospace, and so on. 2017 was like the first big hype cycle for self-driving cars. They wanted to adapt these sensors to make them more affordable for their use cases. Thanks to that, we were able to get some contracts, especially with Volvo, and then some with Mercedes-Benz and some other companies. But they're very focused on it, and that was one of the reasons they ended up closing the application this week as well.

And the best known of these three companies was iRobot. Many of you listening probably have a Roomba or something similar at home. This is one of those situations where iRobot becomes synonymous with a certain thing and then the technology that builds that product advances so quickly that they find themselves in a situation where they're looking for an exit. And we all saw this, they were about to be acquired by Amazon, the deal was blocked by the FTC, and here we are.

These are completely different companies, but all encountered similar problems. Do you have a Roomba?

Rebecca: No, I don't have a Roomba. I was very surprised, but I bought my mom a Rad Power bike years ago and she loves it. But, you know, not only did they have this bankruptcy problem, but they also had a battery problem. They couldn't do a recall because “If we had to recall these bikes, we would go bankrupt.'' But either way, you'll go bankrupt!

I'm interested in the tariff issue and how much this has affected everyone's bottom line. On social media, you'll often hear pro-merger people talk about how blocking certain (mergers) by the FTC could cause companies to go bankrupt or be acquired by Chinese companies instead of American ones.

Sean: To me, iRobot is like a macro global trade issue. Could we have built this company here in the US with a local supply chain in the last 15 years? Probably not. So it's no surprise that they have become so heavily dependent on China. This probably led to the ability for other companies to come along and essentially copy what they were doing.

That reminds me of when President Trump imposed tariffs on imports from China, and we saw Boosted Boards and many other micromobility startups hurt. So they are certainly contributing factors. I think Rad Power's battery recall was definitely a bigger dagger in the end, but the tariff issue put them on an unequal position and made it harder for them to respond to such issues.

Anthony: When companies fail, there are often larger structural issues and potentially even more immediate problems. And especially in the case of iRobot, I think a lot of former executives and even outside commentators are pointing to this Amazon deal that was done a few years ago. It's almost as if the EU isn't going to pass this deal, and there's a sense of, “Well, by blocking this deal, you're putting a dagger in their heart that's going to end up destroying the company.''

That story may also ignore the fact that there was something else that made them want to acquire it in the first place.