Rumors Clash With Reality as HTC Tries to Spell Out Its Future

Photographer: Tomohiro Ohsumi/Bloomberg
What will the letters H-T-C ultimately stand for? 

It's been a busy few months for the Taiwanese smartphone maker.

Since Robert Downey Jr. was told to “Hold This Cat” back in August, HTC has gone on to have an historic quarter. That's not hyperbole, it really was historic.

In addition to the humdrum of unveiling, well, smartphones, HTC's also been toiling away at a few side projects.

Talks with Amazon.com about doing a handset for the online retailer's Prime members progressed during the period, with both sides staying mum on the project. The phone maker is also looking at doing a smartwatch, following on the heels of Samsung, Sony and Dick Tracy. HTC folks again chose to keep their lips sealed.

Somewhat less sealed was HTC's treasure chest of intellectual property and trade secrets. After complaints from the company, Taiwan authorities searched the offices and homes of some employees before detaining two R&D executives on the suspicion of leaking company secrets.

Low-key co-founder and Chairwoman Cher Wang came out of the shadows as well, doubling her days at the office and taking over more logistical work from CEO Peter Chou (who remains the boss, she said more than once). In an address to staff, she outlined customer service and consumer experience as an area the company needs to work on, while in an interview with Bloomberg Television, she said “HTC does have some problem of communication,” in terms of marketing its product design and technology.

Its PR situation didn't improve much either. Four months after HTC heralded her arrival, the “new” head of global PR, corporate and internal communications Lorain Wong quietly became the “ex” head of global PR, corporate and internal communications.

HTC's balance sheet does look set to improve after it unwound two of its biggest acquisitions of the past few years, selling off Saffron Digital and exiting from headphones maker Beats.

Meanwhile, Microsoft - the software company that got any kind of traction in mobile phones because HTC decided to devote much of its 16 years exclusively to their operating system - offered an olive branch (or perhaps a juicy carrot) soon after its long-awaited Nokia handset deal had other Windows handset makers annoyed. Microsoft basically said to HTC: How about you load Windows Phone on your Android handsets, and heck, we might even cut the license fee to zero (or very close to)?

None of that, though, is historic for HTC (although that last one is unusual for Microsoft), it's merely the ebb and flow of a modern tech company.

What's historic is that on Oct. 4, at a time and in a manner totally out of line with years of standard practice, HTC announced to the world its first loss on record.

We all know that losses happen in the corporate world. For some tech companies, losses seem to be the rule more than the exception.

To be fair, HTC still has more than $1.6 billion in cash (at the end of June) and minimal long-term debt, financial metrics that have been noticed by Jimmy Lai -- best known in Greater China as the founder of Next Media, and (not) known in the West as the man whose team created those Taiwanese Next Media Animation skits that have satirized the likes of Tiger Woods, Brett Favre and Justin Bieber. Lai, according to spokesman Mark Simon, has seen value in HTC's stock (down about 50 percent this year) and quietly built a stake of about 2 percent as a purely financial investment over the past few months. Lai isn't planning to get involved in management, says Simon, a fact that hasn't stopped speculation of how a Next Media-HTC tie-up might look.

In the smartphone business, though, history has shown that losses haven't tended to be followed by very happy tales. Motorola, Nokia and Blackberry are former handset titans whose earnings dipped below the waterline and have found, or are seeking, life preservers.

In the past few months, the rumors surrounding the future of HTC have poured forth. M&A seems to be the most likely escape route, with Lenovo and ZTE the names that get mentioned most. China Mobile, the world's largest mobile phone carrier, was also thrown into the mix as a possible suitor before HTC shot it down.

Another scenario posits that HTC could sell off its manufacturing operations to the likes of Foxconn (yes, that Foxconn) or Compal (which makes laptops and handsets), and outsource its manufacturing instead (note: Motorola, Nokia and BlackBerry were outsourcers long before they started posting losses).

M&A in Taiwan, however, is a giant hill to climb. Cross-border deals are rare and difficult to pull off, and hostile takeovers are unheard of.

Without the nod of Chairwoman Wang, who owns a significant minority, any deal is a non-starter.

And Wang is adamantly withholding any such nod. Speaking in the same Bloomberg Television interview, she argued that a visit to the “passionate” and “exuberant” employees of HTC would have you persuaded that “HTC should stand alone.”

So as this past quarter gets written up in the annals of HTC company history, today's investor conference call details the next quarter's financial outlook, and Downey prepares for the next installment of wacky TV commercials, it may just be that the words everyone wants to whisper when they hear the letters H-T-C is not Hot Tea Catapult or Humongous Tinfoil Catamaran, but something more germane: Help This Company.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.