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Beats stake sale could boost HTC in 2013: analyst

TAIPEI--Taiwanese smartphone vendor HTC Corp. is likely to remain profitable in 2013 with the sale of its remaining stake in U.S.-based headphone maker Beats Electronics LLC, an analyst said Saturday.

“HTC is struggling amid fiercer than ever competition in the global smartphone market. The gains from the sale of the Beats stake is expected to strengthen HTC's bottom line and help the smartphone vendor remain profitable this year,” MaterLink Securities analyst Tom Tang said.

In a statement released Friday, HTC said it will sell its remaining 24.84-percent stake in Beats for US$265 million (about NT$7.95 billion), which will generate about NT$2.52 billion in pretax profit.

During the transaction process, which is expected to be completed in the fourth quarter of this year, Beats will repay HTC a US$150 million loan, the Taiwanese company said.

“That means HTC could book about NT$3.9 in earnings per share (EPS) in the October-December period, which is expected to boost its bottom line,” Tang said.

It is widely expected in the market that HTC will incur losses in the third quarter amid concerns that the company will not be able to achieve its sales target of NT$50 billion to NT$60 billion for the quarter as its major rivals such as Apple Inc., and Samsung Electronics have launched new models in a bid for a higher market share, according to Tang.

He said that even if HTC's consolidated sales hit the lower end of the third quarter target range at NT$50 billion, the company could still suffer a net loss of some NT$2.9 per share in the quarter.

In the first half of this year, HTC's EPS stood at NT$1.60, sharply down from NT$14.23 recorded in the same period of last year.

“Although HTC shares have been hammered by foreign institutional selling amid worries over its shipments, the Beats stake sale lead is likely to prompt some investors to pick up bargains, which will stabilize HTC shares to some extent,” Tang said.

In the first eight months of this year, HTC suffered the steepest decline of 47.31 percent among the 813 companies listed on the main board. The company's shares closed at NT$156.50 Aug. 30, the last trading day of the month, after starting the year at around NT$300.

In September, HTC shares dropped another 17 percent, closing down 2.99 percent at NT$130.00 Friday.

“Even if the Beats sale helps HTC shares to rebound, the upside could be limited,” Tang said. “The asset disposal will produce only one-time gains, and many investors will still be keeping a close eye whether HTC will make a breakthrough in shipments.”

In August 2011, HTC bought a 51 percent share of Beats for US$309 million in a bid to appeal to the young generation through the U.S. firm's popularity. But, HTC sold part of its stake in Beats in July 2012, booking a loss of US$4.88 million.

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