Taiwanese smartphone maker HTC Corp’s shares fell as much as 4 percent on Monday after the sale of half of its holding in audio technology firm Beats Electronics back to Beats’ founders raised concern over its strategy.<\/p>\n
HTC bought 50.1 percent of Beats Electronics, which was founded by U.S. rapper and music producer Dr. Dre and Beats’ current CEO Jimmy Iovine, for $309 million in August last year, as part of its efforts to differentiate its phones and enhance branding amid rising competition.<\/p>\n
But it said in a weekend statement that it sold 25 percent back to Beats’ founders for $150 million. It will continue to work closely with the maker of high-end headphones and speakers.<\/p>\n
“We find HTC’s announcement of cutting back its investment in Beats puzzling,” said Morgan Stanley in a research report, adding that the structure of the whole deal from acquisition to disposal does not make much strategic and financial sense to HTC shareholders without disclosure of more details.<\/p>\n
“Reducing its holding to 25.57 percent signals HTC’s separation from Beats’ operations. Possibly it implies that there was not much synergy between the two companies from the beginning.”<\/p>\n
HTC will remain Beats’ largest shareholder with 25.1 percent, with Beats’ founders holding the remainder. It will hold a 25.57 percent voting right. Some models in its latest One series of phones use Beats audio technology.<\/p>\n
The share sale “provides Beats with more flexibility for global expansion while maintaining HTC’s major stake and commercial exclusivity in mobile,” HTC’s statement said.<\/p>\n
By 0212 GMT, shares of HTC has lost 3.83 percent, versus broader market’s 2.11 percent fall.<\/p>\n
Fierce competition from Samsung’s Galaxy phones could be pushing HTC towards a more conservative operation and centralized business, according to KBC Concord Asset Management Investment and Research Manager Henry Chen.<\/p>\n
In a separate statement, HTC said it had agreed to lend Beats T$6.74 billion ($224.85 million) for one year with an interest rate of LIBOR+1.5 percent to LIBOR+7.5 percent.<\/p>\n
HTC’s profit more than halved in the second quarter, with the company struggling to regain market share lost to Samsung and Apple Inc.<\/p>\n
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