OnLive’s Restructuring Causes HTC a Loss of $40 Million
HTC, after facing a series of adverse events lately that led to a massive decline in profit and revenue in Q2, now faces another loss due to its investment in the cloud gaming service OnLive. Credit:HTC
HTC, after facing a series of adverse events that led to a massive decline in profit and revenue in Q2 2012, now faces another loss courtesy its investment in the cloud gaming service OnLive.
On Aug. 20, in a Taiwan Stock Exchange filing, HTC said that it expects to book an investment loss of $40 million due to OnLive's asset restructuring during the last weekend, which was due to a "lack of operating cash and an inability to raise new capital."
OnLive Inc., the U.S.-based gaming company, known for providing on-demand PC-quality games through the cloud on tablets and even smartphones, reportedly, could not raise new funds to meet the operational cost.
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While HTC did not elaborate on its stake size, the company is known to have invested $40 million in OnLive in Feb. 2011 to introduce more online games in its smartphone line.
On Aug. 17, OnLive indicated that an unnamed owner has acquired it and as a result almost half of the company's employees will be laid off.
In a statement, OnLive noted that "asset acquisition, although a heartbreaking transition for everyone involved with OnLive, allows the company's core innovation and ongoing offerings to survive and continue to evolve."
However, in recent times, OnLive is not HTC's first debacle whereby the Taiwanese company made risky investments and incurred losses. In 2011, HTC reworked its investment in U.S.-based headphones equipment provider Beats Electronics, investing $300 million. Less than a year after making the investment, the company sold back half its stake.
Additionally, HTC reported a colossal decline in profit and revenue in Q2 2012 and an equally unimpressive Q3 2012 forecast seems to loom large. The company's quarterly revenue was $3.04 billion, 26.8 percent down from the previous year while gross margin and operating margin had also declined by 25 percent and 7 percent, respectively.
In Q3 2012, HTC expects to generate revenue in the $2.3 billion to $584.3 million range, compared to $4.54 billion in Q3 2011. The company's operating margin is expected to be around 7 percent, down from last year's 14.86 percent.
Adding to HTC's woes were its European sales, which showed a downward trend. Moreover, there was no respite for the company with its devices released for the U.S. market being held up due to customs inspections.
HTC also shut down operations in Brazil and in South Korea, and while the company had pinned all its hopes on its flagship One X smartphone, the device could not do much for the company's declining fortunes.