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Breakingviews - HTC tethers itself to a new virtual reality
September 21, 2017 / 6:26 AM / a month ago

Breakingviews - HTC tethers itself to a new virtual reality

HONG KONG (Reuters Breakingviews) - HTC is embracing an alternative reality. The ailing Taiwanese group is offloading part of its handset unit to Google for $1.1 billion. This will free up HTC to focus more on its risky but promising virtual reality business, where it is winning market share. Deeper ties with the U.S. giant might also help fend off rivals like Sony and Facebook.

A woman tries HTC smartphone "U11" at its store, in Taipei, Taiwan August 1, 2017. REUTERS/Tyrone Siu

As part of the deal, HTC will move a team of 2,000 staff over to its Mountain View partner. A leaner workforce will help; Bernstein analyst David Dai estimates that cutting half of HTC’s 11,000 or so employees could trim operating expenses by a third - enough to bring the cash-burning smartphone business close to break-even. So even a small reduction could bring much-needed relief. As of June, net cash at HTC had dwindled to NT$23 billion ($762 million), from NT$42 billion a year earlier.

The transferred division had already been developing Google’s Pixel-brand handsets. This will give the American tech titan full control over making and selling its own-brand smartphone as it steps up investment in hardware production. HTC will continue to make its own models to compete with the likes of Apple, Samsung and Chinese rivals, but this business looks increasingly peripheral. HTC’s global smartphone market share was just 0.9 percent last year, compared to a peak of almost 9 percent in 2011, according to IDC.

Prioritising VR will be bold, but sensible. The $2 billion global market, which includes augmented reality, is still in its infancy, but HTC’s Vive headsets have established an early lead over Facebook’s Oculus in the premium segment. That lead is nothing to take for granted; Facebook is already responding by lowering prices for its Rift headset. Rivals like Sony are well-positioned to compete for market share too, with their own apps and games. A powerful ally like Alphabet, which is also pushing into VR software, could prove invaluable.

The Vive unit may account for half of HTC’s total revenue by 2019, reckons Dai. The risk, of course, is that global VR market doesn’t take off.

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