Shares of Taiwan-based smartphone brand HTC Corp (宏達電) yesterday saw a sharp rise to outperform the broader market after the Investment Commission last week approved a deal in which the company would hand part of its smartphone assets to Alphabet Inc’s Google, people involved in the deal said.
The deal is expected to lead HTC to book more than NT$30 billion (US$999.8 million) in profits in the first quarter of next year, a move that could improve the loss-incurring manufacturer’s bottom line significantly for next year, the people said.
More importantly, the massive proceeds are expected to boost liquidity for HTC, which is expected to use the funds to further develop its virtual reality (VR) operations, aimed at reducing the effects of escalating competition in the global smartphone market, they added.
HTC shares rose 5.95 percent to close at NT$73 with 26.4 million shares changing hands on the Taiwan Stock Exchange, where the weighted index was up 0.14 percent to end at 10,506.52 points.
“The news of the approval for the deal with Google prompted investors to chase HTC shares soon after the local equity market opened,” KGI Securities Co (凱基證券) analyst Phil Chu said. “It seems that many investors have high hopes that the deal will boost HTC’s profitability next year.”
The commission on Friday announced that it had approved an application in which HTC would sell its smartphone original design manufacturer assets to Google for US$1.1 billion.
The transaction is expected to be completed in the first quarter of next year, with HTC to book the earnings next year. Foreign institutional investors have estimated that the sale would boost HTC’s earnings per share by about NT$40 for next year.
“HTC incurred a net loss in the third quarter of this year for the 10th consecutive quarter,” Chu said. “The funds from the deal with Google are likely to strengthen HTC’s bottom line.”
HTC’s loss per share for the third quarter grew from NT$2.37 in the second quarter to NT$3.8, marking the 10th straight quarter for which the company had reported a net loss.
“In addition, the money is expected to be used in VR development, which HTC envisions could help it climb out of the doldrums of the global smartphone market, where it is facing stiff competition in both high and low-end models,” Chu said.
The Vive is one of HTC’s gambits to diversify away from its core smartphone market and create new revenue streams so that it can turn around its money-losing business.
Jointly developed by HTC and US video game supplier Valve, the Vive was unveiled at the Mobile World Congress show in March 2015 and went on sale worldwide in April last year.
Investor sentiment also received a boost from an HTC announcement last week that its Vive Focus, a standalone VR headset unveiled in Beijing in the middle of last month, has become a hit in the Chinese VR market, Chu said, adding that the new device has helped HTC secure about NT$4.5 billion in orders from China.
“HTC shares are riding the wave of positive news in recent sessions,” Chu said. “I expect that the stock could move higher ahead of the nearest strong technical resistance level of about NT$78.”
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