HTC may remain profitable with Beats exit

HTC may remain profitable with Beats exit

Summary: Analysts say the Taiwanese smartphone maker may remain profitable in 2013 after it announced plans last week to sell its remaining shares in Beats Electronics for US$265 million.

TOPICS: Smartphones, HTC

HTC may have announced plans to relinquish its shares in U.S. high-end headphones maker, Beats Electronics, but analysts say the sale could help the Taiwan smartphone maker stay profitable in 2013.

HTC will sell its remaining 24.84 percent stake back to Beats for US$265 million.

HTC last week said it would sell its remaining 24.84 percent stake in Beats back to the headphones maker for US$265 million. According to its statement to the Taiwan Stock Exchange dated September 27, Beats will buy back the remaining stake held in it by HTC. It will repay a US$150 million loan back to HTC in the transaction which is expected to be completed in the fourth quarter of this year. 

HTC, which stressed that Beats will remain an important partner, said the stake sale was expected to generate about NT$2.52 billion (US$85.4 million) in pretax profit.  The Taiwanese company in 2011 bought a 51 percent stake in the high-end headphones maker for US$300 million dollars, but sold half of it back in November 2012 for US$150 million.

According to a report Saturday by Taiwan's state-run Central News Agency, analysts remained positive on HTC's performance in 2013. MaterLink Securities' analyst Tom Tang said in the report: "HTC is struggling amid fiercer than ever competition in the global smartphone market. The gains from the sale of the Beats stake is expected to strengthen HTC's bottomline and help the smartphone vendor remain profitable this year."

Citing Merrill Lynch's analysis, though, the report noted that even with the benefits from the Beats deal, HTC faced challenges from unsatisfactory sale of the HTC One and intensifying market competition.

In addition, the recent departure of its design team may affect the introduction of the company's new products. The HTC designers in late-August were arrested by the Taipei District Court for allegedly leaking trade secrets. However, the management said the case was unlikely to impacts its operations

Topics: Smartphones, HTC

Chiu Yu-Tzu

About Chiu Yu-Tzu

Based in Taipei, Chiu Yu-Tzu has been a journalist covering Asia's tech hardware hub Taiwan since mid-1990s. Currently, she contributes news reports about policies, technology industry, R&D updates, among others, to New York-based IEEE Spectrum, Washington D.C.-based Bloomberg BNA, and other media outlets.

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  • Seems internal problems at HTC parallel issues at BB

    Another "Titanic" going down by the head. They struck an iceberg and are sinking.
  • Profitability

    Great, now all they've got to do is sell their Beats holdings every year and they've got an assured path to long-term profitability!
  • HTC needs to move away from Android

    HTC should invest heavily in Windows Phone.

    This is what happens in the Android environment, where you ascribe zero value to software. First, there is the commodization of hardware leading to thin margins in this market; then unlike with the PC ecosystem, you are unable to differentiate using software, because the ecosystem you are in, ascribes virtually no value to software / services. This is the path, the pied piper, Google, has been leading everyone. Google is the great devaluator of IP. People just don't get when you eliminate IP as a source of income in the horizontal computer industry, there is nothing else around you you can use to make appreciable amounts of money. Your only recourse is to use scale of operations, and that is why Samsung is able to make appreciable money, and Google is able to make appreciable money from ads - specifically on tablets. In the Android ecosystem, only the really big guys like Samsung, Google, and the telecoms, are able to appreciable make money.

    Regulators need to take a look at Google and other large companies pushing free Open Source Software into markets, in ways that eliminate competition. Android was almost definitely introduced into the mobile market to eliminate Windows Mobile; and it took out Palm, Blackberry, Nokia; and could take out HTC. If companies do what Google is doing, and manage of overwhelm the economic viability of proprietary software in various markets, they are going to kill off (or severely negatively impact) most companies which depend on proprietary software as their key differentiator in those markets.

    Now it is important to realize that proprietary is what allows all companies to make money. The heart of Google's operations is its highly proprietary search algorithms and linked ad services. If Google's highly prized IP was Open Sourced by a competitor, and aggressively distributed, Google would be no more within 2 years. If a biotech company's highly prized patents and research were open sourced, it too would be out of business within a short period. Even Red Had: if its highly proprietary services that it uses to make money was made available to everyone, it too would be out of business in short order. OSS fanboys can run off their mouths as much as they like about the 'righteousness' of OSS, but the fact of the matter is that proprietary technologies, assets, and processes, are what make companies money, because they are what differentiates the companies' products and services. Therefore if monopolies and large companies introduce and continually support IP in markets which cause competitors' IP and general IP in the market to become greatly devalued, I believe they should be found guilty of antitrust law.

    Some might point to the horse and buggy industry giving way to the automobile industry, as to why Google introducing Android into the mobile market should be seen as fine. The thing is, introducing automobiles did not render all proprietary IP and services in the transportation industry severely devalued; it simply led to the accruing of value around different proprietary IP and services. When Google, IBM and others push Android, Linux and other OSS into various software markets, they make it virtually impossible for small competitors to regroup around other comparable IP, because of the severe devaluing effect their actions have on all IP within the market. This is why small to medium sized software companies have virtually no chance to successfully build products and make appreciable money in the server and client operating system markets, the Office software market, etc. Further, the devaluing effect of OSS spills over into adjacent markets, which is why relatively few Android developers make money in the Android market.
    P. Douglas
    • It's Richard Stallman's evil twin from a parallel universe!

      I'm bored, so I'll have some fun with this...

      1.) Going all-in with Windows Phone is a losing proposition - Nokia couldn't make it popular, and neither will HTC.
      2.) HTC, if you remember, made virtually all of the Windows Mobile phones up until WP7 came out. There must be a reason they didn't keep riding the Microsoft train, because the HD2 was about the best WinMo phone released.
      3.) Hardware makers can indeed differentiate in hardware to make their phones stand out. The problem is that there is relatively little differentiation that can happen when the design team is consistently shooting for "rectangle with rounded corners and as few buttons as possible". Remember the Touch Pro2? Still the absolute best mobile keyboard, ever. Know the Galaxy Note? It's got a stylus that's quite popular. Know the Lumia 1020? Its claim to fame is its camera. While I question the quality of a 41MP image that comes from a sensor as small as that one and a plastic lens, it's still the hardware that's doing the heavy lifting. Know the Razr Maxx? Its selling point is the fact that it has a built-in extended battery. Phone makers CAN differentiate for reasons other than software. That doesn't mean that they are.
      4.) Why isn't Meego or WebOS an option here? Both are open source, but only Google has the one to get singled out? If you want to get technical, WebOS would prove your point even more - it's not an OS being used by much of anyone, but it did have its fans, but the problem was the useless plastic hardware it was exclusively loaded on. HTC could have a WebOS or MeeGo based phone and differentiate itself, just like you said.
      5.) On the heels of #4, Meego is OSS, so why isn't it a threat? Either Meego is a threat as well because it's open source, or open source isn't a threat to horizontal computing.

      Really, what would be particularly awesome would be for HTC to bring the desktop OS paradigm to mobile devices. What is the technical reason that a person can't buy a tablet and let them decide which OS works best for them? There's no technological limitation preventing a Surface from running Android or Meego, or a Galaxy Tab from running Windows RT. The aforementioned HTC HD2 runs Windows Mobile 6.5, Windows Phone 7, Android (more versions than virtually any other handset), Meego, Ubuntu, and Firefox OS...courtesy of developers and modders doing this in their spare time. Is it seriously impossible for this kind of functionality to exist above-board? I think those issues are utterly political.

      • To add to your comment, since I'm bored too.

        The other thing that the original poster failed to resolve. Windows phone has limited value to hardware because Microsoft puts so many restrictions to the platforms (it has gotten better since WP7) in terms of processors, screen sizes, etc.

        And....Windows controls the software so you get almost the same experience from phone to phone. Each OEM is given certain tiles that they can implement (of which the carrier must also share). That's why companies like HTC had to create a "hub" to get around such restrictions.

        Google has actually been INCREASING value to their OS by letting hardware manufacturers CUSTOMIZE their software which provides differentiation. M/S continues to live the Apple 1984 TV commercial everyday.
        • Windows Phone has more potential than Android to make money for ODMs

          Nokia manages to do a fantastic job differentiating through hardware and software on the WP platform. Nokia simply adds to and extends the experience from the stock experience, rather than change the experience radically. This has worked out very well.

          The problem is that if you do a lot of software enhancements to stock Android, the market does not recognize your changes as worthy of paying extra, so a lot of that work gives a manufacturer limited value. Therefore extra R&D effort around Android handsets, give manufacturers less bang for the buck.
          P. Douglas
      • Beam me up Scotty!

        I resent your characterization of me! I'm the good twin! The Stallman from this world is the evil one! Now I need to transmit my coordinates to Scotty, so that he can beam my back aboard the Enterprise.

        1) Actually Nokia phones are becoming more and more popular. In Europe's five biggest markets, Windows Phone's market share almost doubled over the course of a year, to become 9.1%. WP is also showing strong growth in other places around the world.

        2) Things are different now in light of the fact that it is virtually hopeless that HTC will regain anywhere near its peak position from several years ago, and the fact that Windows Phone is actually taking off. Also similar to the Apple ecosystem, players have a much better chance making money around proprietary software which is ascribed value, than around OSS where the cost of most IP is free.

        3) It is true that you can do quite a bit of differentiation using hardware. But as you can see for yourself, when you take a look at the Android market, that is not enough. (It is certainly not helping HTC now.) ODMs need whole integrated experiences, and you can in fact ascribe a lot of value to integrated systems through software, than through hardware alone - particularly in an environment where software has value. In fact much of what makes the Lumia 1020 a fantastic phone, is its integrated camera and other software which complements the hardware.

        4) According to European law, a company which has a monopoly in one market, cannot use funds gained from its monopoly to enter new markets, and eliminate competition. This describes Google and not the organizations around WebOS and Meego. Google uses funds from its search / ad business, to fund the development and distribution of Android, which eliminates competition in the mobile smartphone market. Also Google makes very little money from Android on smartphones, and when you factor in Motorola, it probably loses money from Android on smartphones. So Google is using its search / ad monopoly to wipe out competition in a market it likely makes no money.

        5) I'm not against OSS per say. In fact I'm all for businesses incorporating OSS into their proprietary products, and selling their products at value where it makes sense. What I'm against is mega corporations pushing 'structures' into different neighborhoods having no value, which drives down the value of the neighborhood.
        P. Douglas
        • Good points

          You have a lot of interesting points, Perhaps its because of Microsofts early and continuing efforts to take market share from Google they strike back.
          I think Mircrosoft have continued to lose money in the phone business. After all the software pricing does not match the rest of the product line. We benefit as these two giants fight and today there is nothing wrong with Windows products but we still remember a period where we paid a lot for software when Google was a just beginning. I stopped paying for clicks a long time ago as Google took off and charged more. Perhaps I should try Bing more as the underdog has changed.
          Bit unfair perhaps not to bring Apple into the argument considering the late Steve Jobs paid app, business model is still doing quite well. Never mind the Chinese brands which are putting out some nice bits of kit.
  • As an owner

    of the HTC One, I can honestly say that Beats is the least valuable part of the phone. Who cares...
    • Beats Me?

      Having being the happy owner of a Desire, but knowing the tacky look and bad reviews of Beats products, it actually put me completely of buying a second HTC. Be careful on which products you link up with.