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HTC Announce NT$2 Billion Stock Buy-Back

August 25, 2015 - Written By David Steele

HTC have not had an enjoyable year. The business was one of the first supporters of the Android operating system and the first HTC Desire handset was at the time a worthy champion device. HTC have released a flagship device every year and with the exception of the Google Play Edition versions of the HTC One M7 and M8, have all included HTC Sense, the company’s proprietary software overlay. The 2013 One M7 and 2014 One M8 were considered to be amongst the best flagship devices of the industry, but for 2015 the flagship One M9 has largely been ignored by the buying public. It has been dismissed as being “too similar” or “too compromised” compared with the competition, who have instead sought the Samsung Galaxy S6 and S6 Edge, the LG G4 or the iPhone models. HTC have released other devices, including mid-range and higher end products, but, unfortunately, the media tends to concentrate on the headline story. The industry now considers the HTC One M9 as something of an “also ran” and is already looking forwards to the next device, perhaps the One M10.

However, as a business HTC has plenty of cash and financial strength: recent falls in the share price have effectively discounted the value of the smartphone business such that it is considered worthless by investors compared with the cash reserves held on deposit by the business. Investors value a business based on the potential for profits at some point in the future, so the low valuation suggests that HTC cannot add value to the cash deposit through designing and selling devices into the competitive firestorm that is the Android marketplace. However, this valuation is unlikely to be realistic: even if HTC is unable to make any headway into a competitive market, should the business be sold, the purchaser ought to be able to to extract value and benefit from the business.

Meanwhile, HTC have stated several times that they are not for sale and to underscore this, have announced plans to buy back fifty million treasury shares, which amounts to around six percent of the company’s outstanding shares. This process will take a couple of months to complete. Based on the Taiwan Stock Exchange price at the end of the 24 August 2015, this will cost HTC around NT$2 billion to complete. These shares will be bought back and effectively cancelled, thus increasing the concentration of the remaining shares trading on the market. This should improve shareholder returns for existing holders of the stock and also demonstrates an element of HTC’s financial strength in the market. However, in the face of another steep decline in HTC’s revenues (third quarter 2015 revenues are forecast to be at the NT$19 to 22 billion, compared with NT33 billion for the second quarter), it is clear that the business has its work cut out to impress the stockmarket. However, from the confines of the smartphone and tablet industry, I hope that HTC spend less time worrying about their stock price and more time designing and building great quality products.