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10/05/2016
HTC - selling the family silver

HTC is selling the family silver to stay alive HTC reported dreadful Q1 16 results as EBIT losses ballooned to 32% of sales while revenues fell 36% YoY and NT$5.1bn (37% of sales) of cash from operations was burned. The company has continued to lose market share triggering the classic handset death spiral. This means that it has to continue cutting costs which results in its devices becoming less appealing thus denting market share again and so on.

HTC is selling the family silver to stay alive

HTC reported dreadful Q1 16 results as EBIT losses ballooned to 32% of sales while revenues fell 36% YoY and NT$5.1bn (37% of sales) of cash from operations was burned. The company has continued to lose market share triggering the classic handset death spiral. This means that it has to continue cutting costs which results in its devices becoming less appealing thus denting market share again and so on.

The market (and increasingly the company) has written off the handset business and is pinning all of its hopes on the Vive, HTC’s virtual reality (VR) product. This product has received good early reviews and its early move to support VR in a mobile environment and provide hand controllers puts it in a good position should this innovation take off. However, its competitors Facebook, Sony, Microsoft, Samsung and so on are also looking to sell their VR products and aim to integrate them into their existing platforms which already have millions of users. This is where HTC is at a disadvantage as when it comes to users, it will be almost starting from scratch (even though it will have some help through its association with Steam).

To make matters worse, HTC’s war chest is diminishing fast and it is quickly selling the family silver in order to support the substantial cash burn.

During Q1 16 HTC recognised cash gains of NT$2.1bn from selling fixed assets, NT$6.1bn from selling non-current financial investments and NT$1.4bn from selling current financial assets. This is how it managed to show an increase in cash and cash equivalents (compared to Q4 15) of NT$3.7bn.

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