Tue, May 27, 2008 - Page 12 News List

Citigroup’s rating cut sends HTC shares reeling

SELL-OFFTech analyst Kevin Chang said HTC could lose market share in the face of rising competition from big guns such as Apple’s iPhone, Nokia and Sony-Ericsson

By Lisa Wang  /  STAFF REPORTER

The share price of High Tech Computer Corp (HTC, 宏達電) fell to a one-and-a-half-month low after Citigroup Inc advised a sell-off amid intensifying competition from bigger rivals, notably Apple Inc.

Shares of the world’s biggest maker of handsets running on Microsoft Corp’s system dropped to their 7 percent daily limit, or NT$58, to NT$772 yesterday, the lowest since April 18 when the stock closed at NT$756.

Citigroup recommended investors trim their position at current share price levels because of medium risk. The target price was set at NT$750.

Most foreign investment research houses have a “buy” or “outperform” rating on HTC after the release of its new HTC Touch Diamond early this month.

“While many investors are excited about the growing smartphone market, we note that it also invites competition from global giants that HTC had not faced in the past,” Citigroup analyst Kevin Chang (張凱偉) said in a report on Friday.

A potential business model change for Apple Inc’s iPhone and competition from Nokia and potentially Sony Ericsson could result in meaningful market share and margin pressure for HTC starting in the second half of the year, Chang said.

HTC may report 25 percent year-on-year growth in revenues to NT$84 billion (US$2.75 billion) in the second half of this year, Chang said.

The forecast is lower than consensus estimates of NT$92 billion, or 37 percent year-on-year growth, he said.

HTC has said that sales of its Diamond handsets could exceed 3 million by the end of this year, outpacing the first Touch series launched last summer. The handset maker aims to increase revenues by 20 percent to 25 percent this year.

Most analysts did not factor in potential market share loss and margin pressure amid growing competition, Chang said.

“We believe iPhone could pressure HTC’s pricing and market share,” Chang said.

Apple may significantly expand distribution for the new iPhone by selling the phone through multiple operators in selective countries rather than one single carrier as it did last year, the report said.

Apple could also accept subsidies from operators this time, which would narrow the price gap between HTC’s Touch series and Apple’s iPhone, he said.

Chang said HTC also made a rather risky move by introducing its Diamond model at a high price point of around US$800 per unit.

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