HTC announced on September 21 that the company’s R&D and engineering unit that is responsible for Google’s Pixel smartphones will be officially joining Google. This deal to acquire of HTC’s talents and assets related to smartphone manufacturing is worth a total of US$1.1 billion.

Below is a brief analysis of this deal by TrendForce and a table showing this year’s quarterly production volumes of Google and HTC branded smartphones. Hopefully, our research will be useful to you as a reference should you decide to report on this event.

TrendForce’s take on the transfer of assets and expertise from HTC to Google:

The latest deal complements the respective strategies of Google and HTC. For Google, the technologies and know-hows from HTC will expand its development capacity for mobile hardware. In the past, Google mainly worked with major smartphone makers to build and market Android devices. Google provided its software expertise, while its partner brands focused on developing the hardware. Both sides worked to their strengths, and the resulting products were the integrations of their solutions. However, technologies and design trends in the smartphone market are changing very rapidly. Google has found it necessary to assemble its own hardware team and become more proactive in the smartphone market in the recent years.

Besides raising Android’s efficiency so it stays competitive with Apple’s iOS, Google has other future plans for Android as a mobile ecosystem platform. The company wants to take advantage of the opportunities from the fields of augmented reality (AR), virtual reality (VR) and artificial intelligence (AI). As voiced-based virtual assistants on mobile devices become more mature, Google also sees smartphones as the main medium that supports the development of AI-based solutions for smart homes and self-driving cars. Thus, Google desires to improve its hardware know-how to the level that it has for software.

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The first generation of Pixel devices, which Google and HTC jointly developed, has a cumulative total production volume of nearly 2.4 million units since their market release. HTC and LG are the ODMs for the second-generation Pixel devices that will be revealed on October 4. The total production volume target for the second-generation Pixel devices is set at 3 million units.

As a smartphone vendor, HTC since last year has shifted away from offering numerous models to drive shipments. Instead, the company is now focusing on the high-end to mid-range market. This year, HTC has fewer devices on the market, but these products have higher margins. Still, the overall sales of HTC smartphones are fairly depressed. From the start of 2017 to the end of the year’s third quarter, HTC’s smartphone production volume is estimated to total around 3.5 million units, representing a sharp year-on-year decline of 64%.

The agreement with Google is not expected to have a noticeable positive effect on the production volume of HTC branded smartphones in the fourth quarter. TrendForce estimates that the total production volume of HTC branded smartphones for the entire 2017 will come to around 4 million units.

Nonetheless, the agreement is still a win-win for both parties. In the immediate term, HTC, which is known for its R&D capability, can address the need for smartphone expertise on the Google’s end. Google will obtain the valuable patents, and HTC in return gets a large injection of funding that could help turn the company’s financial situation around. HTC has already reported losses for nine consecutive quarters.

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From the long-term perspective, HTC with the money from Google will concentrate on developing its VR business. There is a strong possibility that HTC will also form a closer ties with Google in the development of AR/VR applications. As for HTC’s smartphone business, it has given up a significant amount of resources for future product development. Around 70% of technological assets and R&D capability related to smartphones has been transferred to Google. This deal therefore suggests that HTC will eventually withdraw from the smartphone market on account of years of weak performances. Other than a flagship device carrying Qualcomm’s Snapdragon 845 SoC, HTC right now does not appear to have other smartphones line up as next year’s offerings. TrendForce’s latest forecast puts the total production volume of HTC branded smartphones for 2018 around just 1 million units.

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