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Google deal expected to affect HTC smartphone R&D capability

2017/09/23 14:55:18

Taipei, Sept. 23 (CNA) A deal for Taiwan-based HTC Corp. (宏達電) to sell part of its smartphone assets to U.S. tech giant Google Inc. is expected to affect the Taiwanese firm's research and development capability, according to Taipei-based advisory firm TrendForce Corp.

"This deal therefore suggests that HTC will eventually withdraw from the smartphone market on account of years of weak performances," after it is set to cut about 70 percent of its R&D resources through the disposal to Google, the advisory firm said in a research report.

The report hit the market after HTC and Google announced on Thursday that they have signed an agreement for the Taiwanese firm to sell its smartphone ODM assets to the search engine for US$1.1 billion, a deal that will also allow the U.S. buyer to receive a non-exclusive license for HTC intellectual property.

HTC has built good business ties with Google over the years. The Taiwanese firm started to roll out Google's Pixel and Pixel XL smartphone models on a contract production basis last year.

The assets sold to Google include a development team that is responsible for making smartphones for Google on a contract manufacturing basis. After the deal, which is scheduled to be completed in early 2018, about 2,000 HTC engineers will work for Google.

While the Taiwanese firm has emphasized that it will continue to develop smartphones under the brand of HTC, TrendForce said that the number of smartphones rolled out by the firm is expected to fall to 1 million units in 2018 from an estimated 4 million units for 2017.

"Other than a flagship device carrying Qualcomm's Snapdragon 845 (processor), HTC right now does not appear to have other smartphones lined up as next year's offerings," TrendForce said.

Investors, however, reacted to the deal positively amid hopes that the large fund injection will improve the operations of the money-losing HTC.

On Friday, HTC shares rose 10 percent, the maximum daily increase, on the Taiwan Stock Exchange, where the weighted index ended down 1.22 percent, due largely to selling in large cap high tech stocks in the Apple Inc. supply chain.

In the second quarter of this year, HTC posted NT$1.95 billion (US$64.57 million) in net loss, with a loss per share of NT$2.37, marking the ninth consecutive quarter in which the company had incurred losses, at a time when the Taiwanese firm was faced with stiff competition not only in the high-end smartphone segment but also in the low to mid-range market.

To reduce the impact resulting from escalating competition in the global smartphone market, HTC has entered the virtual reality business by launching the first VR headset -- the Vive -- in 2015. The device went on sale in April 2016.

TrendForce agreed that HTC will get a boost from Google's fund injection to ease its loss incurring situation and the Taiwanese firm is expected to use the money for further development in its VR business.

In the meantime, HTC and Google could forge closer business ties and both sides are expected to work together in VR and even the augmented reality business in the future, TrendForce said.

IDC, a U.S.-based market advisory firm, said that HTC's VR headset targets enterprise users as the device carries a relatively high price tag which commands a higher profit margin.

(By Jeffrey Wu and Frances Huang)