HTC sells back part of stake in Beats

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Headset manufacturer fails to make right noises

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23 July 2012 | 0

HTC has sold back about half its majority stake in Beats Electronics, signaling according to analysts that its investment in the US headphones provider may have fallen short of its expectations.

The Taiwanese phone maker said in a Taiwan Stock Exchange filing on Sunday that by selling back the stake, it would retain about 25% ownership of Beats, with the remainder about 75% stake back in the hands of Beats.

It said in an e-mail that the deal would "provide Beats with more flexibility for global expansion," but also continue to give HTC exclusivity in using Beats’ audio products in mobile devices. "HTC and Beats will continue to work closely, including a joint global marketing campaign later this year," the company added.

HTC announced its investment of about $300 million in Beats last August, as part of a move to improve the audio on its smartphones. Beats is a company rap artist Dr. Dre helped found, and sells higher end headphones. The company is selling back its part of the stake for $150 million.

Following the deal, HTC began bundling Beats headphones with certain smartphones, while also integrating Beats audio technology into the devices.

While HTC said the deal helped create progress in sound innovation, and brand awareness, the partnership between the two companies likely didn’t work out, said Teck Zhung Wong, an analyst with research firm IDC.

"I think Beats wants to get back control of their fate, and indeed, HTC is thinking about changing their phone strategy," he said.

Integrating Beats technology into the smartphones added an additional selling point for HTC’s phones. But the partnership was not enough to improve HTC’s competitiveness against other rival smartphone providers.

"Other handsets vendors are focusing more on content and services. I think this is a little more important than just equipment," Wong said. "Not everyone may have wanted that particular kind of headphone."

HTC has reported net profit declines for the last three quarters. The company has partly attributed this to intense competition with Samsung and Apple. To add to its woes, HTC’s newest handset was delayed in the US earlier this year as a result of its patent battles with Apple.

IDG News Service

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