HTC, the Taiwan based maker of smartphones and mobile devices had its shares fall up to 4% today and this happened all of a sudden after the founders of Beats Electronics, its audio technology firm, came up with concern regarding the strategy of half of its total holdings. Beats Electronics, a music company having its origin by founders Dr Dre, US rapper/music producer and Jimmy Iovine, Beats’ CEO and HTC purchased about 50.1% of Beats Electronics for a price of about $309 million last year in the month of August.
HTC carried out this huge purchase in order to accompany its struggle to bring differences to its phones as well as to improve its branding in the midst of highly competitive market. But the company in a statement recently reported saying that it had sold back 25% to the founders of Beats’ for a price of about $150 million. However, HTC will carry on its workouts with this manufacturer of high-end speakers and headphones. In a research report, Morgan Stanley said “We find HTC’s announcement of cutting back its investment in Beats puzzling,” he added “Reducing its holding to 25.57% signals HTC’s separation from Beats’ operations. Possibly it implies that there was not much synergy between the two companies from the beginning.”
He said that this whole contract from achievement to removal has nothing to do with strategy and has no financial sense to the investors of HTC. The largest shareholder of Beats Electronics will always be HTC having about 25.1% and the founders of the Beats’ have the rest in their accounts. The company is likely to have a voting right of about 25.57% and as a matter of fact, some devices in its new One series of smartphones make use of Beats audio technology. HTC in a statement regarding the share sale said “provides Beats with more flexibility for global expansion while maintaining HTC’s major stake and commercial exclusivity in mobile.”
HTC is about to go through a violent competition from the Galaxy smartphones of Samsung and this will force HTC to to operate traditionally. According to another statement, HTC wrote that it had made agreements to lend T$6.74 billion which is about $224.85 million Beats for one year along with an interest rate of about LIBOR+1.5% to LIBOR+7.5%. The profits of HTC was reduced to more than half in the second quarter when the company had to put a lot of efforts to regain the market share which it had lost to Apple and Samsung.