Reports: HTC may outsource some handset manufacturing

HTC is considering outsourcing some of its handset manufacturing to outside contractors, according to multiple reports. Additionally, Reuters reported that HTC has halted at least one of its four main manufacturing lines, which accounts for at least a fifth of total capacity, as it looks to improve its cash flow amid declining sales.

The reports, which cited unnamed sources, come as HTC is trying to turn itself around on the back of its One franchise of smartphones, which have garnered strong reviews, but have largely failed to reverse a slump in sales. HTC is planning to revamp its mid-range product line and has also looked to China to spur growth, though it faces intense competition there. Additionally, HTC Chairwoman and co-founder Cher Wang has taken over some of the day-to-day duties of CEO Peter Chou so he can focus more on products, in what is being positioned as a temporary move to help the struggling smartphone maker right the ship.

According to Reuters, HTC will contract out some manufacturing to FIH Mobile International, a subsidiary of Hon Hai Precision Industry, better known as Foxconn, because these companies "have better component supply management and cost control." HTC is also working with Compal Communications and Wistron, according to Reuters. Citing unnamed sources, the Wall Street Journal also reported that HTC is having talks with Hon Hai and Wistron about outsourcing manufacturing.

Further, Reuters reported that HTC combined production from two lines at its Taoyuan, Taiwain, facility into one, cutting potential capacity by about 1 million phones per month, out of a total capacity of around 2.5 million at the site and close 4.5 million including operations elsewhere.

"HTC in not shutting down nor has plans to sell any of its factory assets," the company said in a statement distributed to multiple media outlets. "HTC has a very strong balance sheet and will provide the latest financials in our upcoming earnings call to investors and the broader community."

HTC CMO Benjamin Ho declined to give details about the Taoyuan facility, but told Reuters: "Like any manufacturer, we do volume planning to optimize our lines, our manufacturing and production facilities.

"Whether we are operating those facilities depends on market demand and our own expectations," he said. "When you have less demand you work with less facilities to optimize your costs. When you have demand, or bigger growth, you definitely have to activate all these facilities."

Ho told the Journal that HTC had consolidated operations at Taoyuan into a single building for cost reasons. But he said the company had no plans to sell its factories. "We are looking at all ways to optimize cost without sacrificing quality," he said.

HTC had $1.6 billion in cash in the second quarter, down from $1.88 billion a year earlier. The company recently reported its first quarterly loss since it became a public company in 2002. The Taiwanese smartphone maker reported a net loss of around $101 million for the third quarter and an operating loss of $119 million. The company said revenue clocked in at just $1.6 billion, down from $2.39 billion in the year-ago period.

HTC began its life as a contract manufacturer but moved away from the ODM model to focus on its own brand, eventually rising to become the largest player in the U.S. smartphone market and one of the largest in the world. However, research firm Gartner estimates HTC's global smartphone market share has shrunk to 2.6 percent, down from being one of the top five smartphone makers in the world only a few years ago. The company has faced intense competition in the Android smartphone market from larger-scale companies such and Samsung Electronics, LG Electronics, Huawei and ZTE.

Chou fielded a question about outsourcing from an employee at an internal town hall on Tuesday and said that HTC didn't rule out cooperation with other companies but that manufacturing was an important part of the business. Chou also said HTC aimed to double its shares of the high-end smartphone market to 15 percent next year. HTC is also working on a smartwatch based on Android software and it can take pictures, but its cost, functions and sales strategy for the watch are still to be decided before it's released by the second half of 2014, Bloomberg reported, citing an unnamed source.

For more:
- see this Reuters article
- see this WSJ article (sub. req.)
- see this The Verge article
- see this Bloomberg article

Related Articles:
HTC's Wang takes over some of CEO Chou's duties as he focuses on products
Report: Amazon working with HTC on 3 smartphones
HTC's Wang pins problems on marketing, not products
HTC posts first net loss as turnaround struggles continue
Rumor Mill: Microsoft urging HTC to support Windows Phone on Android devices
HTC confirms job cuts at U.S. unit as turnaround continues

Sponsored by ADI

What if we were never truly alone? Our next-gen communications technology can help people in even the most remote places stay connected.

What if there were no ocean, desert, mountain or event that could ever keep us from telling our stories, sharing discoveries or asking for help? ADI’s next-gen communications technology could keep all of us connected.

Suggested Articles

AT&T has shifted its Cricket prepaid brand to a 100% authorized retailer model, according to Wave7 Research.

The FCC decided to extend the timeline for responding to Huawei's application for review until December 11.

All operators are trying to understand the intersection between their networks and hyperscale networks. But who gets the lion's share of the revenue?