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Shedding Pixel to Google, HTC to focus on virtual reality

Smartphone maker says will still develop own-brand handsets

Rick Osterloh, Google hardware executive, shakes hand with HTC CEO Cher Wang at a news conference to announce that Google will acquire HTC's Pixel smartphone division.   © Reuters

TAIPEI -- Embattled smartphone maker HTC plans to bolster its finances by selling its contract manufacturing division to Google and developing its virtual reality business. 

"We will continue to develop 'Vive' as virtual reality is a revolutionary technology, of which I am very looking forward to," said HTC co-Founder Cher Wang at a press conference at its headquarters on Thursday. 

"We will continue to beef up efforts and investment in this area since it could be widely applied to sectors including learning, entertainment and medical in future," she said. HTC last year made a foray into the high-end VR business by launching the HTC Vive headset, whose shipments totaled over 190,000 units in the first quarter. Rival products on the market include Facebook's Oculus VR and Sony Interactive Entertainment's PlayStation VR. 

HTC launched its Vive virtual reality goggles in 2016.   © Reuters

The struggling smartphone maker said in a filing to the Taiwan Stock Exchange that it would suspend trade of its stock on Thursday, reviving long-time speculation that it could sell part of its business to its partner Alphabet Inc., which owns Google. 

The speculation was proven right on Thursday when HTC and Google jointly announced that HTC would sell its division that makes the Pixel smartphone to Google for $1.1 billion in cash. Google will receive a non-exclusive license for HTC's intellectual property, and take over 2,000-plus research and development staff from HTC. That HTC division had started to work with Google to produce the internet giant's own-branded smartphone Pixel two years ago. 

Both Google and HTC executives said that HTC would not lay off staff. The deal is expected to close early 2018, after which Google will send staff "an offer letter," said Google's Senior Vice President of Hardware Rick Osterloh. 

The move is expected to reinforce Google's software and hardware development so that it could rival Apple, which had been thriving on a similar vertical integration business model. 

It is becoming increasingly important that artificial intelligence, virtual reality, augmented reality and other new features and services which have been adopted mainly in luxury smartphones and hardware devices are developed simultaneously.

HTC said the new funds injected into the company would allow it to turn around its finances and dedicate resources to its VR and own-brand smartphone businesses. 

"We will continue to develop our own brand smartphone business. But we are streamlining the number of models being launched and aggressively developing flagship handsets [to win back market share]," said HTC Chief Finance Officer Peter Shen.

He said the remaining 2,000-plus engineers at HTC after the deal could now work on "innovations and creations" in those areas. 

According to Jeff Pu, an analyst at Yuanta Investment Consulting in Taipei, the Google deal is a timely move to stop HTC from bleeding cash. 

"It's a burden for the money-losing HTC to offer paychecks to more than 4,000 engineers every month," he said, expecting HTC to turn a profit in 2018 after the transaction is sealed. 

HTC is to resume trading on Friday. 

HTC last month posted a net loss of some $67 million for the second quarter -- its ninth consecutive quarter in the red.

The Taiwanese company was founded in 1997 and began as a contract manufacturer. In 2002, it won a deal with Microsoft to make Windows-based phones and quickly became one of the top producers globally. It also made the first Android phone in 2008.

However, a series of missteps including the mismanagement of supply chain, the failure to retain senior executives, and fierce competition from rising Chinese rivals gradually undermined the company's overall performance. 

Its worldwide smartphone market share dropped to 0.9% in 2016 from a peak of 8.8% in 2011. Its share price plunged to NT$69.3 on Wednesday, from a record NT$1,300 ($43.1) in April 2011. 

Another analyst said that HTC shares may "surge" when it resumes trade on Friday, as investors embrace the move to salvage the Taiwanese brand. 

Nikkei staff writers Kensaku Ihara and Debby Wu contributed to this report

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