Beats Electronics May Give HTC The Boot In Favor Of A New Investor

Whether you like the company or not, people are snapping up Beats Electronics’ wares left and right. It’s no surprise then that Beats is looking to branch out into some new frontiers, and it may not want to do it without getting rid of some old baggage first. The Wall Street Journal is reporting that Beats is considering buying out Taiwanese gadget maker HTC’s remaining stake in the company and is also trying to lock down a new investor to help fund its expansion into consumer electronics and auto tech.

At this point, there’s no word on how much such a deal would cost, or if HTC is even willing to sell. To really get a feel for the situation though, we need to do a little rewinding.

This whole sordid situation started back in August 2011 when HTC revealed that it acquired a majority stake (about 50.1%, to be specific) in Beats Audio, a deal that cost the Taiwanese company just north of $300 million. It wasn’t long until the first Beats Audio-powered smartphones started rolling off of HTC’s production lines, and since then just about every one of the company’s notable smartphones bore that familiar red logo somewhere on its body.

Of course, that relationship wasn’t without its rough patches. Between the moment HTC finalized its deal with Beats Audio and today, the company has been absolutely battered — sales revenue is down, profits are down, and more than a few pundits have already written the company off (or are close to doing it). The situation grew so grim that HTC found itself selling nearly half of its stake back to Beats Audio in mid-2012, which reportedly resulted in a net loss of about $4.8 million for the Taiwanese gadget maker.

What’s still unclear at this point is what this turn of events could mean for Beats Audio in smartphones going forward. If Beats indeed buys out HTC’s stake, it’s not inconceivable that other smartphone manufacturers could swoop in and license whatever Beats Audio assets the company originally made available to HTC. And for all we know, HTC may be one of them — it could just decide to fold Beats Audio into its phones like nothing ever happened, albeit without most favored nation status. It’s near-impossible to make a call there without a closer understanding of the agreement the two companies forged, but I wouldn’t expect the Beats Audio brand to remain dormant in the mobile space for very long (if at all).

But Beats’ bid for another investor comes at a pretty peculiar time. There’s little doubt that HTC wanted to lock up a partnership with Beats because of the marketing clout the brand would bring its mobile gadgets, and now Beats is looking for a way out just as HTC is trying to tap into another vein of star power to revitalizing its anemic marketing efforts. For better or worse, the company is spending nearly a billion dollars on a massive marketing push that will apparently see Hollywood hotshot Robert Downey Jr. spout nonsensical interpretations of the company’s name. I may be veering slightly into the realm of the hyperbolic, but HTC really can’t afford for this kooky new approach not to work. Couple that with the fact that a Beats buyback would be yet another sizable signifier of lost faith in HTC and things are starting to look seriously dire.

I’ve reached out to HTC for a comment on all this, but it’s pretty late and the company hasn’t yet responded at time of writing — I’ll update the post with a response if/when I get one.