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Taiwanese phone-maker HTC has just seen the $40m it shovelled into an internet gaming company go up in smoke.

HTC [2498 Taiwan] invested in OnLive in February 2011 as part of its push into the gaming space. The American gaming company offered console-free cloud-gaming, and HTC bought the 5.33 million preferred shares in OnLive Inc for for $39m with an eye towards wrangling some of that cloudy gaming magic onto HTC mobes.

Lauder Partners was a previous investor in the cloud games biz from April 2009 - but only the assets were purchased in the "restructuring", so everyone else's investments went up in smoke.

HTC has only said:

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 recognise a $40 million provision for this investment loss.

OnLive would not reveal how much the company sold for, but issued this statement:

OnLive, Inc’s board of directors, faced with difficult financial decisions for OnLive, determined that the best course of action was a restructuring under an “Assignment for the Benefit of Creditors”. The assignee of the company’s assets then sold all of OnLive’s assets (including its technology, intellectual property, etc) to the new company.

Unfortunately neither OnLive shares nor OnLive staff could transfer under this type of transaction, but almost half of OnLive’s staff were given employment offers and the non-hired staff will be given offers to do consulting.

Apart from being bad news for OnLive's "non-hired" staff, it's a blow to HTC, which is already suffering in the phone market as it is slowly ground up between Samsung and Apple. The $40m write-off comes two weeks after its Q2 results which - though better than Q1 - showed big year-on-year declines in revenue and profit.

HTC's revenue for Q2 2012 was NT $91.04bn ($3.03bn) down 27 per cent from NT$ 124.4bn ($4.1bn) last year. Net profit was down a heavy 58 per cent to NT $7.40bn ($245m) from the NT $17.52bn ($500m) for the same three months in 2011.

The figures were better than Q1 2012, but HTC's profit margin is expected to shrink in quarter three. The Taiwanese firm recently withdrew from Samsung's home of South Korea and pulled back some of its investment in the audio-maker Beats franchise. ®

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