Feature Article

September 27, 2013

HTC Sells Back Remaining Beats Electronics Stake

Roughly two years ago, in August 2011, HTC acquired a majority stake in Beats Electronics, the popular headphone manufacturer founded by music producer Jimmy Iovine and rapper Dr. Dre, for a little over $300 million. Now, the Taiwanese smartphone maker is selling back what remains of its stake for $265 million.

In a purely monetary sense, HTC came out ahead since, in July 2012, it sold back half of its 50.1 percent interest for $150 million. With the sale of its remaining 24.84 percent set to close in the fourth quarter, HTC stands to make roughly $100 million in pre-tax profit from its two-year venture. On top of this, Beats Electronics will also repay a $150 million promissory note, with accrued interest.

However, the decision to sell its interest in Beats is a telling one for HTC — which is struggling now more than ever in a smartphone space that has become increasingly dominated by Apple and Samsung — is a telling one. According to analyst Jean-Louis Lafayeedney of JI Asia in Hong Kong, this demonstrates how badly HTC needs cash in the bank.

“Investors have been asking HTC to shed assets and get cash back to help them regain profitability,” he told Bloomberg.

Indeed, shares of HTC reached an almost eight-year low this month one what may be its first quarterly loss in four years. This is despite the overwhelming critical praise the company has received for its handsets, most notably this year’s HTC One. But this isn’t a unique story; just ask Panasonic, which dropped out of the consumer smartphone game earlier this week.

It’s unfortunate that HTC is now forced to give up one of its unique selling points, Beats Audio, just to keep investors happy. Then again, if top-tier industrial design and craftsmanship can’t help HTC’s smartphones, it’s unlikely that Beats Audio rendering will.

Edited by Rachel Ramsey

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