HTC, $40M Down From OnLive, Puts $35.4M Into Magnet Systems For Enterprise Apps

HTC, the troubled Taiwanese handset maker, today dealt its investors a one-two punch. The company will take a $40 million hit from its investment in the cloud-based gaming startup OnLive, but it will also be redoubling its efforts to find new sources of revenue, this time in enterprise services: it is making a $35.4 million investment in Magnet Systems, an enterprise applications startup backed by Andreessen Horowitz, among others.

HTC says it will take a 17.1% stake in the company, a Series B investment, equivalent to $35.4 million. To date, Magnet had raised $12.6 million led by Andreessen Horowitz in a Series A round. The investment announcement was first spotted by Reuters.

The move signals a new strategic interest for HTC, in the area of enterprise services, at a time when its investments in more consumer-focused services seem to be falling flat.

“The investment will bring social, mobile, and cloud capabilities to HTC’s portfolio of service offerings to its mobile enterprise customers,” HTC noted. “The leading-edge social, mobile and cloud technologies at the heart of Magnet’s platform make it an ideal foundation for the applications and services that enterprises will be buying and building in the coming years.”

Magnet Systems is playing in an area definitely worth watching — touched by the two bugs of consumerization and cloud computing, businesses are investing in enterprise applications, with startups like Box and Huddle doing battle with the Oracles and Microsofts of the world to corner that still-young market. (Worth pointing out too that Magnet Systems is founded and headed by Alfred Chuang, who had also co-founded BEA Systems, which sold to Oracle for $8.5 billion in 2008.)

On the other hand, HTC’s move slightly smacks of desperation.

HTC has been hit hard as a smartphone-only device maker, with Samsung really stealing the Android show away from the company, which had an early-mover lead in Android but has not kept up pace with the breadth of blockbuster Samsung devices. In the last quarter the company reported revenues down 27% to $3 billion, and profits down by 57%. It also lowered its Q3 outlook.

And the company’s consumer investments have been less than fruitful.

HTC earlier today confirmed it would take a write-down of its entire $40 million investment in OnLive because of its sudden restructuring drama from over the weekend.

“Due to lack of operating cash and an inability to raise new capital, OnLive had completed asset restructuring over the weekend. HTC estimates that it will need to recognize a $40 million provision for this investment loss,” the company noted.

HTC had originally made its investment in OnLive in February 2011, as part of its push into content services that could be coupled with its devices.

On Sunday, OnLive announced that it has restructured and effectively sold itself to another company that will also be called OnLive, with the first investment coming from “an affiliate of Lauder Partners.”

The move also follows from HTC divesting part of its holdings in Beats Electronics. HTC had bought a 50.1% stake in Beats in 2011 worth some $309 million, but at the end of July the company said it would be selling back half of that to existing Beats investors for $150 million.

HTC has not explained the reason for its divestment — and claims it will continue to work closely with the company — but it points to a company that appears directionless in its investment and growth strategy.

“Reducing its holding to 25.57 percent signals HTC’s separation from Beats’ operations. Possibly it implies that there was not much synergy between the two companies from the beginning,” Morgan Stanley noted in a report on the news (via BI).