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Taiwanese smartphone maker HTC posted an after-tax net loss of NT$1.95 billion in the second quarter of this year, reporting losses for the ninth successive quarter. Since last year, rumors that HTC was looking for a buyer for part of its business never ceased. Some said HTC wanted to sell its virtual reality business, while others speculated that the smartphone business, the factory, or even the entire company were for sale. The answer became finally clear on September 21.

Alphabet’s Google to buy HTC’s smartphone business for $1.1 billion from CNBC.

Wang and Rick Osterloh, Google senior vice president of hardware, jointly announced that Google will buy HTC’s Pixel developer team and a non-exclusive license for related HTC patents for US$1.1 billion (about NT$33 billion).

The said ODM developer team is the ‘Powered by HTC’ division founded two years ago. The first generation of Pixel smartphones that Google launched in cooperation with HTC sold 2.4 million sets around the world. For the second-generation Pixel, expected to hit the market this October, a sales target of more than three million has been set.

Yet, sales of HTC’s own smartphones have been declining steadily. In the first three quarters of the year, only around 3.5 million HTC handsets were sold.

In an interview with CommonWealth following the news conference, Wang revealed that she flew to the United States following the Mobile World Congress (MWC) in Barcelona in March of 2015 to meet Google’s Sundar Pichai. These talks paved the way for the Pixel collaboration.

Will Selling to Google Pay Off?

The problem is that the ‘Powered by HTC’ division has around 2,000 employees, roughly half of the company’s entire staff.

Is halving the workforce and granting a patent license for US$1.1 billion a good deal for HTC?

Huang You-hsuan, smartphone analyst with global market research firm Trendforce, says, “This cash injection will help HTC shoulder its NT$4 billion in losses and allow the company to streamline.”

A former HTC executive who did not want to be named believes that the Google deal will work to the advantage of HTC. “Recently, HTC has been under pressure to bring down its expenditures. Now they don’t have to fire people and pay severance pay while still recouping US$1.1 billion. This will not only guarantee their employees' jobs but also make a world-ranking foreign company their new boss.”

For Google, the acquisition of the ‘Powered by HTC’ division’s developer talent means a big step forward into the hardware sector and in its efforts to fence off with formidable rival Apple.

Sean Yang, vice president of product consulting at the Shanghai-based market research firm Cinno Research, points out that Google and HTC both get what they need from the deal. HTC is expected to ship much fewer handsets this year – not even five million – compared to last year’s 12 million. And with Apple it faces a rival that excels at integrating software with hardware. "Previous Android products did not integrate software and hardware very well, so their functions were very piecemeal. Therefore, Google released the Pixel because they always wanted to make a handset that could match Apple smartphones,” says Yang.

In the short term, the deal will be a plus for HTC and Google, but it remains to be seen whether it can truly break new ground and create positive effects for Taiwan.

“The most important point about this acquisition is whether Google will remain in Taiwan for development, whether they have a long-term plan. If the answer is yes, this is very good for Taiwan because only then will (the tech industry) be able to compete with Chinese smartphone manufacturers,” posits one industry insider, who requested anonymity.

The following is our exclusive interview with Wang:

Q: The deal was eventually closed at US$1.1 billion. Generally, the industry is thrilled about this exceptionally high price. How did you manage to negotiate such an outcome?

A: The most important thing was that we have a relationship of mutual trust with Google. Our collaboration with Google has already lasted for 10 years. From the first G1 [Android phone] to the G2, the [Nexus 9] tablet to the most recent Pixel [smartphone], we have had a very deep strategic relationship.

It’s been more than two years since I took over as CEO. After the MWC over two years ago, I visited all of the telecom firms in Europe. They felt that Android is an integration of software and hardware, but back then the software was not able to show off its biggest advantages; it was a bit chaotic. At the time, Google thought the same.

Q: They hoped to have a smartphone that could take on Apple?

A: Yes. So I flew to the United States from the MWC and talked with [Sundar] Pichai, who has meanwhile become Google’s CEO. Back then, I told him we should collaborate to make a true flagship phone and that Google should take the lead in this effort. Google had originally been toying with such an idea, so we easily clicked and decided to collaborate to make the Pixel.

Rick Osterloh, Google senior vice president of hardware (2nd left), and HTC Chairperson and CEO Cher Wang (3rd left) shake hands after announcing that Google bought the ‘Powered by HTC’ developer team and a license for its patents.

Actually, this happened within a very short period of time. The MWC was in late March, and I went to see Google in early April. When we later decided to do it, the team began to make preparations. When the CES [Consumer Electronics Show in Las Vegas] was held in the following year, they hadn’t collaborated with HTC for many years, but the veterans in the teams who had gotten to know each other in the past were interacting excellently; their thinking was very much in tune, and their innovation was along the same lines. That’s how we started.

I am very grateful to [former HTC CEO Peter Chou] for leading a very good R&D team. Later on, when we made Pixel, he founded the ‘Powered by HTC’ team. This team has been able to bring in R&D innovation capacity, and, on top of that, Talented Taiwanese engineers will lend their support, boosting Goggle’s capacity as well as our own. We can support each other and create mutual synergies.

Smartphones, Augmented Reality, Virtual Reality

There are two focal points. First, we will maintain the HTC brand; we will march on. With Google supporting us, we will undertake many innovations together.

Second: Android smartphones will continue. Pixel will continue. It is very difficult to get a good company such as Google to invest and to regard Taiwan as a base.

Q: Does that mean the team that Google acquired will remain in Taiwan for good?

A: Yes, they will continue. But, of course, they need to do a good job. Of course, such an alliance entails a commitment, and the attitude of all the Google top executives is that they want to invest in Taiwan; they want to create synergies. The Xindian District will probably become another Silicon Valley in the future.

The team will be based in the HTC headquarters building; they are now on the 4th to 8th floors.

Q: Will the Pixel smartphone be manufactured at the Guishan factory?

A: Pixel 2 is currently being manufactured at the Guishan factory.

Q: And in the future?

A: Not necessarily; Google also has its own options. Today, this is their choice. If we do a good job, we will continue. We are now doing it until 2018. But will we continue to do it forever? I don’t know. We need to go for it; the factory needs to go for it.

Q: Should Google manufacture at the Guishan factory, will you then still have the assembly and OEM business?

A: This project is ‘Powered by HTC.’ The most important point is that an investment with such a commitment is very rare in Taiwan. Google is a very good company. The families and friends of these employees all envy them. The deal is also very good for HTC; we can continue to have our own HTC brand, and also Vive. I am very excited about the prospects for Vive.

Surviving the Market Transition

Q: The Vive virtual reality system has not yet really caught on. Everyone worries about an upcoming period when your revenue stream might be interrupted. What do you plan to do about this?

A: When the vision is right, it is worthwhile to run with this and invest. It’s like with smartphones in the past. Back then, who believed there would be smartphones? Before [Apple founder Steve] Jobs had even seen a smartphone, we were already making them; we were earlier [than Apple]. Virtual reality is currently taking off. The whole world knows that. Our timing is very good. We are now not only investing in hardware. Our ambition requires more than just hardware and technology; the ecosystem is paramount…it's worth working on this!

Q: Microsoft recently also ceased production of its augmented reality headband (HoloLens), believing that augmented reality and virtual reality will take off only after 5G wireless systems have become widely available. It might take many years before that happens. What will you tell your investors during this period?

A: The most important thing is vision. Any investment requires a long-term view. Who knew that, among the many companies in Silicon Valley, Google would make it? That Facebook would make it? This means that where there’s a vision, it is worth investing in; it’s that simple.

Q: Dell delisted to restructure during a painful transition period. Have you considered this approach?

A: I don’t have a financial frame of mind; I have a technological frame of mind.

Q: You invested in smartphones before they became popular. How long will you hold out? What is your limit?

A: I guess there is no limit! Many processes that I have experienced, from motherboards to smartphones, have made me feel that innovation does not have a limit. I am a Christian; God gave us life; during the process of life there is no limit; you need to strive every second of every minute.

‘People with a Similar Vision are Welcome’

Q: At the press conference, you mentioned that you will hire more staff. What kind of people are you looking for?

A: I want to increase R&D, and add good management talent that can innovate. Most importantly, I am not afraid of having too much talent; I am only afraid of not having talent. The entire Xindian District will become another Silicon Valley. Numerous companies will move here, and there will be a cluster effect. But the most important thing now is to find talented people who are good at execution.

Q: How many people are you recruiting?

A: There are no restrictions on talent; people with a vision and passion for 5G, mobile devices or design are all welcome, as are VR and AR people, regardless of whether they do content, platforms, or hardware., Those who feel they can generate IP are all welcome.

Q: You mentioned that you will continue to invest in 5G. However, one Android phenomenon is that, while the operating system is widely used, it is not easy to make money from it. At Apple, the profits are all concentrated. How can you make money if you continue to invest resources in Android?

A: Regarding the money question, I won’t respond. No matter how you phrase your question, I won’t be able to answer. I am passionate about innovation.

Q: Artificial intelligence is the hottest issue right now. How does HTC see this field?

A: HTC has one of the best AI teams; I don’t dare say it’s the best in the whole world, but it’s definitely the best team in Asia!

Q: Better than [China’s search engine giant] Baidu?

A: We take a different angle. Of course, we won’t make things to compete with the things that others already do very well. For example, our medical electronics have very good applications.

Translated from the Chinese by Susanne Ganz