MWC Day 2/3 – Show barometer.

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What’s hot and what’s not at MWC.

VR / AR

  • Along with the number of drones, the number of VR units on the stands has fallen substantially compared to last year.
  • I think that this is because last year, VR was a novelty that everyone wanted to try but interest has now waned as very little has changed in 12 months.
  • VR has hugely disappointed in terms of user adoption and there is very little that is new and exciting is being offered on the stands.
  • I think that this is symptomatic of the limitations that plague VR (see here) and until these limitations are properly addressed, VR will continue to disappoint.
  • AR has exactly the same problems with the exception that it has plenty of applications in the enterprise where the content, comfort and price limitations are less important.
  • Consequently, those AR companies that are focused on productivity applications are likely to fare better in the short term.
  • I would steer clear of any investment dependent on VR for now, and HTC in particular.

Jolla – Last man standing

  • Jolla has shown remarkable resilience to the difficult conditions that have caused its competitors to fall by the wayside.
  • I think Sailfish is now the only really viable alternative to Android.
  • Furthermore, the market environment has become far more favourable with both Russia and China far less willing to allow US controlled software into their networks than they were 3 or 4 years ago.
  • Russia has certified Sailfish as an approved OS for state owned enterprises which Jolla is now actively trying to leverage into China.
  • There, it has announced the creation of the Sailfish China Consortium which aims to take the core Sailfish OS, and adapt it for Chinese enterprises that wish to have software over which they have full control.
  • The consortium has three Chinese entities that have expressed an interest in joining.
  • It has also got some interest from Latin America but it is still quite early days.
  • This creates credibility for Jolla and raises the potential for Jolla to get some revenues in the door in order to keep the ship afloat.
  • It is still early days but the dark days of 2016, when the ship looked like it was holed below the waterline look to be behind it.

Artificial Intelligence

  • Artificial Intelligence has made a big appearance at the show this year but still most companies demonstrating it do not seem to have absorbed what AI really is.
  • There are many robots from Asia that are billed as AI but can only respond to a series of pre-programmed responses.
  • In a similar vein, many companies are touting their service or app as being driven by AI but when one looks under the hood one finds little more than advanced statistics.
  • AI is currently the realm of the big companies who can afford the very high salaries that AI engineers can now demand and have the balance sheet to continue investing for a long period of time.
  • The exception is tiny start-ups that have come out of universities but already these companies are very hot property.
  • I have no doubt that AI will be a major differentiator and driver of the digital mobile ecosystem over the next 10 years, but developing AI is still an incredibly difficult, time consuming and expensive task.
  • In AI, I continue to look for those that are developing:
    • Firstly: the ability to train AIs using much less data than today,
    • Secondly: the creation of an AI that can take what it has learned from one task and apply it to another and
    • Thirdly: the creation of AI that can build its own models rather than relying on humans to do it.
  • I consider fixing these problems as essential to fulfilling the dreams that so many companies effusively discuss but have no idea how they will fulfill. .

Magic Leap – Creations great but not small

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Technology is there but size is miles off.

  • While I do believe that Magic Leap is capable of producing an augmented reality experience (AR) that far outstrips anything its peers are offering, I think it is years away from fitting that technology into anything that a consumer will tolerate.
  • The latest leak (see here) from Magic Leap shows a unit that is clearly a development board in a clear plastic box powered with an external battery pack and a fairly large head unit.
  • This has been reported to be the latest prototype called PEQ (product equivalent) that the company will be presenting to its board and investors this week.
  • This group are all looking for results from the $1.39bn raised so far.
  • Magic Leap CEO, Rony Abovitz, has been quick to identify the device as a R&D test rig used for data collection that helps with the creation of surfaces and textures in AR.
  • This follows a number of data points that RFM research has collected over the last month that include:
    • There appear to be problems with the core fibre optic technology that has led to the company having to redesign elements of its offering (see here) to make it smaller.
    • Suppliers have described conversations with Magic Leap engineers that strongly imply that some parts of the system are not even past the concept stage.
    • Silicon Valley chatter also highlights the possibility of infighting between the Silicon Valley operations and the mothership in Florida as well as some high-level departures and very short senior tenures.
  • I think that the key to understanding what is happening at Magic Leap comes from Rony Abovitz himself who describes his prototypes (see here) as being in “agile build cycles”.
  • To me this means that the hardware and software design and specification of the PEQ product, that Magic Leap intends to launch, are far from being locked down.
  • Consequently, there is no point whatsoever is spending a fortune in trying to miniaturise the hardware as all that investment would be wasted if something has to be changed.
  • I also suspect that Magic Leap has been forced by the pressure to start generating revenues into producing a compromised product.
  • RFM research indicates that the older, far bulkier prototype uses all of the Magic Leap technology and produces a great user experience but remains far too bulky to wear.
  • Consequently, it appears that to make it wearable, Magic Leap has been forced to make compromises in the user experience.
  • These would include features like field of view, resolution and refresh rate.
  • This would explain why the feedback generated by the few who have experienced the technology appears to have gone from “wow!” to “ho-hum”.
  • Hence, I think that Magic Leap is very far away from producing the kind of product with which it could take the AR market by storm.
  • I don’t think that this is a problem as almost all of its competitors are looking to sell their units to enterprises where the user experience is much less important (see here).
  • Magic Leap is aiming for the consumer and given how poor the general AR experience is today, I can’t see anyone producing a successful consumer device for 2-3 years at least.
  • This gives Magic Leap time in terms of the market it is aiming at but the real question is what time frame did it promise its investors and will they be willing to pour a lot more money into this company?
  • One thing I am pretty sure of is that Magic Leap is going to need it.

 

Virtual Reality – Virtual standstill.

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VR seems only to be popular at trade shows.

  • After a very disappointing 2016, Virtual Reality looks set to have another disappointing year in 2017 while its proponents work out how to fix the issues that keep it from being a success.
  • The latest blow is the removal of 200 out of 500 of Oculus Rift demonstration stations as a result of poor performance within stores.
  • The idea has been that to get a user to buy VR, he has to try it but in some stores entire days have gone by without a single demo being given.
  • Best Buy will continue to range the Oculus Rift but the real estate given up will be re-used for products that produce better sales per square foot.
  • It appears that the only place where people queue for a demo is at trade shows with the regular user not really seeing the point of the technology.
  • This is a further indication that the limitations of VR continue to hamper its appeal.
  • These remain:
    • Price: Many of the devices cost several hundreds of dollars and also require a PC to run, further increasing the cost.
    • Clunky: VR and AR units are still large, clunky and uncomfortable to wear.
    • In many cases they also make the user feel foolish when wearing one.
    • Comfort and security: VR in cuts the user off from almost all sensory inputs from his immediate environment severely limiting the situations in which the user would feel comfortable using one.
    • Many units also cause feelings of nausea due to an imperfect replication of the real world compared to what the brain is expecting.
    • Cable: Many units require an HDMI cable which prevents the user from moving and also increases the risk of a fall should the user trip over the cable.
    • Content: Both games and content remain in short supply limiting the reasons for users to immediately adopt the platform.
    • The adult entertainment industry is a good yardstick for the adoption of new media types and even this has been slower than expected to jump in.
  • The net result is that I think 2017 will be a disappointing year for VR.
  • The one bright spot remains augmented reality (AR) to enterprise customers.
  • For the enterprise, it is productivity that really matters with the user experience being less important.
  • This is because in consumer, the users pay money for an experience but in the enterprise users are paid to use the technology.
  • Hence, enterprise users’ willingness to put up with a substandard user experience is much greater.
  • The AR user experience is still miles from where it needs to be but critically it does offer productivity improvements that have led to many companies trialling it particularly for employees in the field.
  • Hence, I think that AR in the enterprise should see both unit shipment growth as well as good growth in revenues from software and services in 2017.
  • Consequently, the companies to watch this year are those in this field like ODG, Microsoft HoloLens, Meta, Atheer Labs and of course Magic Leap.
  • Magic Leap is an exception is it has made incredibly bold promises around a consumer offering in AR, but it is questionable as to how close it really is in terms of having a working, commercial product (see here).
  • From an investment perspective, AR in the enterprise is the only place I would entertain putting money into this year unless it is something aimed at fixing the limitations I have listed above.

Magic Leap – Backwards leap.

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Massive setback means more money likely to be needed 

  • It appears that Magic Leap has hit a major problem with the commercialisation of its technology and the question really is: are its investors patient enough to hang on while a new solution is found?
  • Magic Leap is an augmented reality company that has a very high profile because:
    • First: It has promised a user experience that other augmented reality companies can only dream of.
    • In most systems the virtual world can only be superimposed on a portion of the user’s field of vision.
    • Effectively there is a letter box in front of the user within which the virtual world exits and from which it cannot escape.
    • For productivity applications, this is not really a problem but for the consumer, there is no way this will fly.
    • This is the problem that I think Magic Leap has solved and if it can produce a good product, it could dominate the consumer market for AR (see here).
    • Second: It has very high profile investors (Google, Alibaba etc.) and a valuation of $4.5bn.
    • $4.5bn is a sky-high valuation for a company with no product, no prototype and no time frame within which a product will come to market.
  • Despite some rumblings around whether one of its latest demonstration videos is genuine, the older demonstrations show clearly that Magic Leap offers a full superimposition of the virtual world onto the real.
  • However, this is not where the problems that I can see are to be found.
  • The problem is that the device is huge, clunky and uncomfortable to wear making it completely unsuitable for the consumer.
  • I have long held the view (see here) that for AR to work, the entire unit needs to be no heavier or intrusive than a regular pair of glasses.
  • The original idea was that Magic Leap would use a laser shone through a vibrating fibre optic lens to create the light field (see here) but it seems that this solution does not work properly.
  • A recent demonstration (the information) of a head unit attached to a PC with multiple cables produced images that were of a lower quality than Microsoft’s HoloLens.
  • It looks like this has laid bare the weakness in the laser / fibre optic solution in enabling a move from being the size of a fridge into a head unit.
  • Furthermore, the press does not like being made to feel foolish and so the knives are now out following the possibility that the latest video is a concept rather than real footage.
  • Either way, it looks like it is back to the drawing board for Magic Leap in terms of figuring out how to ut full field of view AR into a pair of glasses.
  • This is a huge problem as I suspect it means a lot more time and a lot more money.
  • With no revenues and aggressive hiring over the last 12 months, Magic Leap’s burn rate must be tens of millions of dollars a month raising the likelihood of another funding round probably at a lower valuation.
  • The big question is whether its investors will continue to support the longer development time required and if so, what price will they pay?
  • The longer development time also gives rivals such as HoloLens, Meta and Atheer Labs time to fix their issues with the field of view.
  • With risks increasing and sentiment souring the valuation can only come down.

 

VR / AR – legions of limitations

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VR hits a bump but AR in the enterprise fares better.

  • It looks very much as if 2016 for augmented reality (AR) and virtual reality (VR) has panned out much as I feared it would (see here) in contrast to the optimism and hype at CES 2016.
  • The supply chain has invested heavily in production of VR and AR units but has subsequently seen HTC’s Vive, Occulus Rift and Samsung’s Gear VR all undershoot expectations with no immediate improvement on the horizon.
  • Worst of the lot is Sony’s Playstation VR which was expected to ship 2.6m units during 2016 but now looks set to ship just 750,000 (SuperData).
  • Google Daydream has also disappointed with shipments now expected to be around 250,000 rather than 450,000.
  • This is a strong indication that the limitations of VR in particular remain legion including:
    • Price: Many of the devices cost several hundreds of dollars and also require a PC to run, further increasing the cost.
    • Clunky: VR and AR units are still large, clunky and uncomfortable to wear.
    • In many cases they also make the user feel foolish when wearing one.
    • Comfort and security: VR in cuts the user off from almost all sensory inputs from his immediate environment severely limiting the situations in which the user would feel comfortable using one.
    • Many units also cause feelings of nausea due to an imperfect replication of the real world compared to what the brain is expecting.
    • Cable: Many units require an HDMI cable which prevents the user from moving and also increases the risk of a fall should the user trip over the cable.
    • Content: Both games and content remain in short supply limiting the reasons for users to immediately adopt the platform.
    • The adult entertainment industry is a good yardstick for the adoption of new media types and even this has been slower than expected to jump in.
  • The low volumes of the Sony PlayStation VR headset is the most surprising as I have long been of the opinion that it has the best chance of success.
  • This is because the unit is cheaper than the others, runs on the PS4 which already has an audience of nearly 100m dedicated game players.
  • For these reasons, I think that PS4 VR has a big advantage over the others but its marketing efforts have not been particularly aggressive which has also hurt its appeal.
  • The net result is that VR is clearly not ready for the prime time and there remains a lot of work to do before volumes will really take off.
  • I do not see this happening in 2017 meaning that the outlook for next year remains pretty grim.
  • AR has exactly the same problems with the exception that it has plenty of applications in the enterprise where the content, comfort and price limitations are less important.
  • Consequently, those AR companies that are focused on productivity applications are likely to fare better in the short term.
  • I would steer clear of any investment depending on VR for now and HTC in particular.

Google – Brain distribution.

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Devices are merely the vessels for distribution of Google’s brains. 

  • Google launched a range of devices that solve some of its most pressing problems but while their volumes remain small, they will be exhibition pieces only.
  • All of Google’s search and intelligence has been folded into Google Assistant and I see the main function of the new devices being to place this functionality at the beck and call of the user.
    • First: Pixel.
    • Two unremarkable Android devices (5” and 5.5” screens) with very competitive specifications but coming at a high $649 price unlocked.
    • Where these devices will shine will be under the hood as Google has made every effort to ensure that the problems that beset it on other Android devices are not a factor here.
    • Google Assistant comes fully integrated into the whole device and works directly from the home button or with voice activation.
    • Google is fully in control of the software and will silently update the device in the background solving its huge problems with fragmentation and updates on other devices.
    • Most importantly of all, Now on Tap (see here) has been folded into the assistant such that it has contextual awareness of whatever the user is doing on the device whether that service is owned by Google or not.
    • I have long believed that this is a stroke of genius as it allows Google to collect data on Digital Life services that it does not own while at the same time improving the user experience.
    • The device is going exclusive with Verizon (which ensures marketing support and distribution in USA) as well as Deutsche Telekom, Rogers, EE and Telstra.
    • This will ensure that volumes are higher than they have been for Nexus devices, but at that price point it is a Samsung or Apple world.
    • Second: Daydream.
    • This is Google’s answer to mobile VR and comes with some good differentiation.
    • The device is made of fabric making it comfortable to wear.
    • It communicates wirelessly with enabled devices and comes with a controller for interaction in the virtual world.
    • Google has also done a good job getting partners on board with Netflix, Hulu and HBO all agreeing to allow all of their content to work in this configuration.
    • All of Google’s properties will naturally work with the device.
    • Pricing is very attractive at $79 and, with phones from other handset makers on the way, this puts Google in a very strong position in this new, but completely untested market.
    • Third: Home.
    • Google launched two devices: a smart modular WiFi router and the previously announced Google Home.
    • Google Home is coming at $129 which combined with Google’s superior intelligence and third party integration gives it the potential to stop Amazon’s Echo dead in the water.
    • The main difference between the two is that Amazon’s digital assistant, Alexa, is not nearly clever enough to compete with Google meaning that users are very likely to have a much better experience with Google Home.
    • However, Amazon has a significant head start with its product and has a huge advantage being the leading online retailer in the developed world.
    • This is why I suspect that Google Home is coming at such an attractive price and device shipments are going to be a key factor is staking out the territory for dominating the smart home.
    • This is one area where I am looking for Google to get ahead simply because its product should be leaps and bounds better than the competition.
    • Fourth: Chromecast.
    • Chromecast was updated with an “ultra” version that supports 4K, HDR and Dolby Vision that is coming at the attractive price of $69.
    • The device wisely adds Ethernet to ensure that 4K streaming can be made to work properly and it aims to work seamlessly with all of the other Google products.
  • I see the aim of these launches being to put Google’s brains as close to the user as possible and make it easy to access and use.
  • This is why the devices (except phone) are coming at what I consider to be very low prices.
  • The return will be earned through what Google learns from users making use of its brain which will be used to generate targeted advertising as well as improve the quality of the services themselves.
  • Google has the best AI but has really been struggling to get it properly into the hands of the user which is why the volumes that these devices ship will be of critical importance.
  • Outside of this perfect world, Google’s ecosystem runs on horribly fragmented software over which Google has no control and no ability to add new features or fix problems.
  • This is why I continue to believe that Google will make Android effectively proprietary (see here) as only then will it have a chance to challenge the dominance of the Apple ecosystem and hold off the threat posed by Facebook.

Leap Motion – Second lap

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This reinvention makes more sense 

  • Following on from the mess of its first launch in 2013 (see here), Leap Motion has now shifted its focus from PCs to Virtual Reality (VR) which is a use case that makes far more sense.
  • The original idea was to use the Leap Motion controller to turn any PC into a touch enabled device but adding it into VR makes far better use of the technology that has been developed.
  • The beauty of the Leap Motion device has always been its ability to faithfully recreate a pair of fully functional hands in 3-dimensional virtual space.
  • In PCs, this is a nice to have but in VR it obviates the need to have any hand controllers which is a problem that I think has not been adequately solved to date.
  • The weakness of the Leap Motion offering is that offers no haptic at all.
  • While this was not a problem in PCs, I think in VR haptics are going to be increasingly important as the experience aims to be as close to real life as possible.
  • How Leap Motion aims to solve this problem is unclear and looking at the products that it has available today, not much seems to have changed over the last three years.
  • This brings me back to the botched launch in 2013, which I have long believed was due in no small part to management execution issues.
  • However, I also believe that management was under intense pressure from its investors to get to market which resulted in good hardware but less than perfect software which meant that the user experience was far from great.
  • The result was a device that users played with a few hours and then threw in a desk draw and forgot about.
  • However, with VR the use case is far more compelling.
  • Leap Motion can detect movement in all joints of all fingers and thumbs which in a virtual 3D environment has far more applications.
  • Furthermore, the device is small enough to mount on the front of a VR headset without meaningfully increasing its weight.
  • The obvious target for Leap Motion has to be integration as the solution would be much less cumbersome with the sensor integrated into the headset.
  • I think that the combination of Leap Motion with a solution to provide haptic feedback (a pair of gloves?) could provide a compelling offering for VR.
  • I still think that Augmented Reality (AR) is the future (see here) but it is far more difficult to implement, meaning that it won’t hit the big time for some years to come.
  • In the meantime, I think that the VR solution with the most promise is Sony, as it is one of the cheapest, already has an installed base of 100m devices that can run it as well as a thriving developer community.
  • However, Sony’s has a legendary ability to surrender dominant market positions with barely a whimper so whether it can hold onto any success it has in VR is questionable.
  • I suspect that Leap Motion will end up being acquired by one of the VR players which I think will be welcomed by its long suffering investors.

Facebook & HTC – Collateral Damage. Pt II.

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Oculus is back on the HTC Vive, but it won’t save HTC.

  • Oculus Rift apps are once again running on the HTC Vive but I do not think that this will save the Vive or HTC as the road for its VR hardware is pointing to commoditisation.
  • A firmware update for the Oculus Rift prevented its apps from running on the Vive which to me made no sense as Facebook is not pursuing a hardware monetisation strategy when it comes to VR.
  • I think that, for Facebook, VR is about entering a new Digital Life segment (gaming) as well as being present just in case its core social networking functions become very relevant on this form factor.
  • Monetisation from understanding the data is the main point of this strategy with perhaps the sale of content and games being a nice extra.
  • Hence, as Facebook does not intend to make a high margin from selling Oculus Rift hardware, it makes sense to incentivise the spread of the platform as widely as possible.
  • From Facebook’s perspective, HTC is not the competition.
  • Steam, Microsoft, Google, Meta Vision, Atheer Labs and Magic Leap are, as these are the platform owners.
  • Consequently, the more devices that Facebook can get running Oculus, the better chance it will have at emerging as the dominant force in VR.
  • This is why I believe that HTC was simply collateral damage from a software update which has now been rectified.
  • However, I do not think that this will save HTC’s long lost profitability for two reasons:
    • First: I am concerned that the demand for VR units has been substantially over-estimated in the short-term.
    • Many of the usability issues with VR have yet to be overcome and I think that completely closing one-self from the real world will make most users very uncomfortable.
    • Hence, I only see it being relevant for a niche of console gamers and hard core movie fans for some time to come.
    • Second: RFM research indicates that HTC does not own the IP behind its Vive VR system.
    • Furthermore, I believe that the deal that it has signed with Steam is non-exclusive meaning that anyone can make the same product.
    • Hence, none of the games or the user experience will be exclusive to HTC, meaning that it could easily fall victim to the same commoditisation that has destroyed its Android handset business.
  • HTC competitors in VR are bigger, better financed and in many cases they also own the platform.
  • Should VR become really popular then every Chinese Internet and consumer electronics company is likely to jump on the band wagon and make a device indistinguishable from the Vive.
  • This means rapid commoditisation with 2-4% operating margins in the best instance.
  • This outcome is clearly way below what market is hoping for as HTC has enjoyed a substantial rally in the share price driven by VR hopes and market hype.
  • I continue to believe that a fair value for HTC is to be found around its net cash balance which currently stands at NT39bn.
  • With its market capitalisation currently at NT79bn, I think that there is substantial downside in HTC and would use the current hopes to exit.
  • Facebook, on the other hand, is building what could be the biggest ecosystem of them all but I think that the shares could trade lower (see here) before any of this long term upside is realised.

Facebook & HTC – Collateral Damage.

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It makes no sense for Facebook to deliberately lock HTC out.

  • Facebook has updated the firmware for the Oculus Rift that has prevented the HTC Vive from running the Oculus Rift apps.
  • The new firmware now performs a platform integrity check to ensure that the Oculus Rift hardware is present before it will allow apps to run.
  • This is a pretty standard copyright mechanism used by many platforms to try and fight piracy.
  • This test is not trivial to circumvent (and it is illegal to circumvent copy protection in US) meaning that the Vive is now very unlikely to able to run Oculus Vive apps.
  • Prior to this an un-official tool called Revive was allowing Rift apps run on the Vive by tricking them into thinking that the Rift hardware was present.
  • However, in version 1.4, this test has become more robust and the check is now performed by the Oculus Rift DRM meaning that Revive no longer works.
  • For once, I think that this is not a deliberate ploy to lock HTC out of the Oculus Rift platform because strategically it makes no sense.
  • I don’t think that HTC is in a very strong position with the Vive because RFM research indicates that HTC does not own the IP for this device and furthermore that it’s licence with Steam is non-exclusive.
  • Hence, while HTC has a lead in terms of controllers and the user being able to move around, I don’t think that this will last long nor will it be exclusive to HTC.
  • From Facebook’s perspective, HTC is not the competition.
  • Steam, Microsoft, Google, Meta Vision, Atheer Labs and Magic Leap are, as these are the platform owners.
  • Consequently, the more devices that Facebook can get running Oculus, the better chance it will have at emerging as the dominant force in VR.
  • At the end of the day, I don’t think that Facebook is very interested in hardware as a profit centre.
  • I think Facebook is much more interested in the data that Oculus generates and how Oculus could be used to migrate the fledging Facebook ecosystem into the all-important gaming segment.
  • Hence, it makes complete sense for Facebook to work with the creators of Revive and get it running again on HTC’s VR.
  • This is why I think that HTC & revive are collateral damage as a result of this update and I would not be surprised to see revive up and running again sometime soon.
  • Neither Facebook nor HTC (see here) shares are in my short-term good books but once Facebook has navigated the heavy expectations the market is placing on it for H2 2016 (see here), there could be real long term upside.

HTC Q1 16A – Family silver.

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HTC is selling the family silver to stay alive.

  • HTC reported dreadful Q1 16A results as EBIT losses ballooned to 32% of sales while revenues fell 36% YoY and NT$5.1bn (37% of sales) of cash from operations was burned.
  • HTC has continued to lose market share triggering the classic handset death spiral.
  • This means that HTC has to continue cutting costs which means its devices become less appealing so market share falls again and so on.
  • The market (and increasingly the company) has written off the handset business and is pinning all of its hopes on the Vive, HTC’s virtual reality product.
  • This product has received good early reviews and its early move to support VR in a mobile environment and provide hand controllers puts it in a good position should this market take off.
  • However, its competitors Facebook, Sony, Microsoft, Samsung and so on are also looking to sell their VR products and aim integrate these products into their existing platforms which already have millions of users.
  • This is where HTC has is at a disadvantage as when it comes to users, it will be almost starting from scratch although it will have some help through its association with Steam.
  • To make matters worse, HTC’s war chest is diminishing fast and it is quickly selling the family silver in order to support the substantial cash burn.
  • During Q1 16A HTC recognised cash gains of NT$2.1bn from selling fixed assets, NT$6.1bn from selling non-current financial investments and NT$1.4bn from selling current financial assets.
  • This is how HTC managed to show an increase in cash and cash equivalents (compared to Q4 15A) of NT$3.7bn.
  • These sales are very likely to be one time in nature meaning that, in reality, HTC is draining its reserves by NT$5.9bn every quarter.
  • These asset sales have masked what was a dreadful 3 months for HTC and I am concerned that the Vive will not take off in the kind of volumes or soon enough to keep HTC from real trouble.
  • Consequently, 2016 is likely to be dominated by the agonising decline of its handset business raising the high likelihood of further substantial cash outflows.
  • Consequently, the most I would pay for HTC would be 1 times its cash balance as I view the Vive as a long shot to rescue the company and it is very likely that the cash balance will continue declining.
  • This would put the shares at NT$47.1 some 32% below where they are today.
  • Current holders have the opportunity to cash in on expectations of the Vive long before those expectations ever have to be met.
  • I would be taking that opportunity.