HTC shares soar on Google deal approval; hopes of VR development

Taipei-Shares of Taiwan-based smartphone brand HTC Corp. moved sharply higher to outperform the broader market Monday after the Investment Commission issued a green light last week to a deal for the company to dispose of part of its smartphone assets to U.S. tech giant Google Inc., dealers said.

The deal is expected to lead HTC to book more than NT$30 billion (US$1 billion) in proceeds in the first quarter of next year, a move that could improve the loss-incurring manufacturer's bottom line significantly for 2018, the dealers said.

More importantly, the massive proceeds are expected to boost liquidity for HTC, which is expected to use the funds to further develop its virtual reality (VR) operations, aimed at reducing the impact from escalating competition in the global smartphone market, they added.

HTC shares rose 5.95 percent to close at NT$73.00 with 26.40 million shares changing hands on the Taiwan Stock Exchange, where the weighted index was up 0.14 percent to end at 10,506.52 points.

"The news of the approval for the deal with Google prompted investors to chase HTC shares soon after the local equity market opened," KGI Securities analyst Phil Chu said. "It seemed that many investors have high hopes that the deal will boost HTC's profitability next year."

On Friday, the Investment Commission announced that it had issued a green light for an application in which HTC will sell its smartphone ODM assets to Google for US$1.1 billion.

The transaction is expected to be completed in the first quarter of next year, with HTC to book the earnings for 2018. Foreign institutional investors have estimated that the sale will boost HTC's earnings per share by about NT$40 for next year.

"HTC incurred net loss in the third quarter of this year for the 10th consecutive quarter. The funds from the deal with Google are likely to strengthen HTC's bottom line," Chu said.

HTC's loss per share for the third quarter grew from NT$2.37 in the second quarter to NT$3.8, marking the 10th straight quarter in which the company had reported a net loss. "In addition, the money is expected to be used in VR development, on which HTC has set its sights to climb out of its doldrums in the global smartphone market, where the company is facing stiff competition in both high-end and low-end models," Chu said.

The Vive is one of HTC's gambits to diversify from its core smartphone market and create new revenue streams to turn around its money-losing business.

Jointly developed by HTC and U.S. video game supplier Valve, the Vive was unveiled at the Mobile World Congress show in March 2015 and officially went on sale worldwide in April 2016.

Chu said that investor sentiment has also got a boost from an HTC announcement last week that its Vive Focus, a standalone VR headset unveiled in Beijing in mid-November, has become a hit in the Chinese VR market. The new device helped HTC secure about NT$4.5 billion-worth of orders in China.

"HTC shares are riding the wave of positive news in recent sessions. I expect that the stock could move higher ahead of the nearest strong technical resistance level of around NT$78," Chu said.

Source: Focus Taiwan News Channel