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Unfulfilled Financial Obligations Led HTC to Sell Back Stakes to Beats

Late last week, Taiwanese phone maker HTC announced that it is selling 25% stakes back to Beats for $150 million to provide the latter a chance to “realign” and grow more in the market it is targeting. A few days after the announcement was made, some sources emerged saying HTC did not meet financial obligations to Beats Electronics that why it has to let go half of its stakes while giving Beats majority control.

Beats Electronics was founded by Jimmy Iovine and producer-rapper Dr. Dre. In August last year, the company sold 50.1 percent of its stakes to HTC for $300 million. This is the reason why new smartphone released by the latter feature Beats Audio. Having majority control over the company and to make the best out of the stakes it bought, Beats Audio was made exclusive to HTC devices only and it would remain that way as long as both companies still have connections.

CNET published a report a couple of days ago citing unnamed sources who allegedly confirmed that it was indeed the financial woes that pushed the Taiwan-based manufacturer to give back half of what it has acquired. But it was not just HTC’s decision, Beats Electronics also showed interest in taking back control of the company in a bid to realign its performance in a market it is trying to target.

Leading up to the partnership with HTC, Beats was doing great in the market. While it could be seen that closing a deal with a bigger company was the best thing to do, it was apparently a mistake as it signed contract with a company headed for trouble. Among other problems HTC faces are falling stock price, management shakeup and dwindling market share.

The blocking of HTC One X and EVO 4G LTE by the US Customs in May did take a toll on the company’s second quarter revenue. While there has been a lot of buzz when it released its flagship this year, the popularity was not converted to revenue. In fact, HTC saw disappointing sales in Europe as its new devices was released amidst crisis. Analysts predict that HTC shipment in North America will drop by 68% and in Europe, 38%.

Giving back 25% of the stakes was the best thing to do for both companies; HTC will be bound to lower financial obligations while Beats can do what needs to be done to bring in more revenue. The exclusivity of Beats Audio, however, will remain under HTC brand.

Sources: CNET | Beta News

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