Taiwanese smartphone maker HTC Corp has halted at least one of its four main manufacturing lines, accounting for at least a fifth of total capacity, and is outsourcing production as a sales slump puts pressure on its cash flow, Reuters said, citing sources with direct knowledge of the situation.
A Reuters reporter who visited an HTC factory at the company's former headquarters in Taoyuan, about an hour's drive from Taipei, saw loading docks shuttered and a sign on a locked lobby door that read: "Lobby is temporarily closed for use. Thank you for your cooperation."
HTC launched its latest version of the flagship One series handsets this year but has struggled to gain traction in a market dominated by larger rivals Apple Inc and Samsung Electronics Co Ltd.
The company, whose woes have been exacerbated by supply chain constraints and internal turmoil, reported its first ever quarterly loss this month and its cash flow from operations dropped to a negative $707.27 million as of the end of June.
Despite lackluster sales, HTC devices usually receive rave reviews, and it has in recent months expanded its range to include smaller and larger models of the One phone and hinted at further products, including a tablet and a wearable device.
HTC initially denied it was shutting down any production, in Taiwan or elsewhere, and declined to comment on whether it was in discussions to outsource production.
"HTC in not shutting down nor has plans to sell any of its factory assets," the company said in an emailed response to queries from Reuters. "HTC has a very strong balance sheet and will provide the latest financials in our upcoming earnings call to investors and the broader community."
When asked about what Reuters had seen at the factory in a telephone interview, HTC Chief Marketing Officer Ben Ho declined to give details, but said: "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. 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."
Two of the four sources said HTC had combined production from two lines at Taoyuan into one, which would reduce its potential capacity by about 1 million phones per month, out of a total capacity of around 2.5 million at the site and around 4.5 million including operations elsewhere.
Most of the assembly lines in HTC's Shanghai factory, which can produce 2 million phones a month, were also out of production, one of the sources said, with only a small number of phones being produced for sale inside China.
HTC was considering selling the out-of-use production lines in China and Taiwan, two of the sources said.
"HTC's cash flow is not doing well. It has to do something soon to generate cash," said one of the sources with direct knowledge of the manufacturing sale plan.
One of the sources said HTC's top management had agreed to separate the design and manufacturing businesses, which would more closely resemble Apple Inc's model of creating products in-house but then outsourcing to assemblers such as Hon Hai. Samsung Electronics Co Ltd both designs and manufacturers its smartphones.
However, sources said even if HTC splits the two operations, it would likely hold onto some of its factory capacity initially as the split-up would be a slow process and HTC might explore the possibility of making phones for others.
