HTC sells back half of stake in audio firm Beats

Taiwanese smartphone maker HTC Corp's shares fell as much as 4 per cent on Monday after the sale of half of its holding in audio technology firm Beats Electronics back to Beats' founders raised concern over its strategy.

HTC bought 50.1 per cent of Beats Electronics, which was founded by US rapper and music producer Dr. Dre and Beats' current CEO Jimmy Iovine, for $309 million in August last year, as part of its efforts to differentiate its phones and enhance branding amid rising competition.

But it said in a weekend statement that it sold 25 per cent back to Beats' founders for $150 million. It will continue to work closely with the maker of high-end headphones and speakers.

"We find HTC's announcement of cutting back its investment in Beats puzzling," said Morgan Stanley in a research report, adding that the structure of the whole deal from acquisition to disposal does not make much strategic and financial sense to HTC shareholders without disclosure of more details.

"Reducing its holding to 25.57 per cent signals HTC's separation from Beats' operations. Possibly it implies that there was not much synergy between the two companies from the beginning."

HTC will remain Beats' largest shareholder with 25.1 per cent, with Beats' founders holding the remainder. It will hold a 25.57 per cent voting right. Some models in its latest One series of phones use Beats audio technology.

The share sale "provides Beats with more flexibility for global expansion while maintaining HTC's major stake and commercial exclusivity in mobile," HTC's statement said.

By 0212 GMT, shares of HTC has lost 3.83 per cent, versus broader market's 2.11 per cent fall.

Fierce competition from Samsung's Galaxy phones could be pushing HTC towards a more conservative operation and centralized business, according to KBC Concord Asset Management Investment and Research Manager Henry Chen.

In a separate statement, HTC said it had agreed to lend Beats T$6.74 billion ($224.85 million) for one year with an interest rate of LIBOR+1.5 per cent to LIBOR+7.5 per cent.

HTC's profit more than halved in the second quarter, with the company struggling to regain market share lost to Samsung and Apple Inc.