HTC stock falls on strategy shift

High Tech Computer Corp's (HTC, 宏達電) share price fell near its 7 percent daily limit yesterday in the wake of escalating concerns over the handset manufacturer's aggressive move into the brandname business.

HTC's share price yesterday dropped 6.97 percent to NT$828 (US$25.49) on the Taiwan Stock Exchange, bringing the decline to about 20 percent since the company said it planned to buy local handset vendor Dopod International Corp (多普達) on June 2.

The move by the world's biggest maker of phones operating on Microsoft Corp's system goes against a growing trend in the industry, where phone makers are splitting their brand and contract manufacturing businesses to help ease customers' concern. Acer Inc, for instance, spun off its design and contract manufacturing and set up Wistron Corp (緯創) in February 2002 to focus on its own-brand business.

"Investors sold their shares as they were worried that HTC may have a conflict of interest with its customers if it aggressively pursues own-brand development," said Lu Chia-lin (呂家霖), who tracks the handset manufacturing industry for Yuanta Core Pacific Securities (元大京華證券).

Pushing one step forward into the brand business, High Tech Computer, which supplies phones to mobile service carriers like Vodafone Group and NTT DoCoMo Inc, unveiled its first batch of phones under the "HTC" brand in London on Thursday.

"As long as the company continues to prioritize its carrier customers, which the management stressed, we see no conflict," said Dominic Grant, an analyst with research house Macquarie, in a report issued yesterday.

Taking a more cautious stance, Vincent Chen (陳豊丰), an analyst with CLSA Ltd in Taipei, said uncertainties about High Tech Computer's brand strategy persist.

Boosting its own-brand operations would mean rising sales, marketing and research and development expenses, Chen said.

Chen added that the "Dopod acquisition seems a bit redundant," as market leaders Nokia and Motorola have only one brand name.

Chen lowered his earnings forecast for HTC this year by around 10 percent to reflect the potential impact from the company's branding strategy after the Dopod deal was announced.

Chen forecast that the company would earn NT$26.68 billion, or NT$74.7 per share this year, down from his earlier estimates of NT$29.71 billion, or NT$83.2 a share. He retained a "buy" rating on HTC, but cut the 12-month price target to NT$1,326 from NT$1,782.