Fri, Jun 13, 2008 - Page 11 News List

HTC shares fall on threat from rival Apple iPhone

PHONE WARSA research center warned in a report that Apple had adopted a more aggressive business model that would impact on HTC’s prices and margins

By Kevin Chen  /  STAFF REPORTER

Shares of High Tech Computer Corp (HTC, 宏達電) plunged 3.76 percent yesterday, bringing the stock’s total decline in the past four days to 12.9 percent, on concerns about the potential damage to its smartphone after rival Apple Inc introduced a new iPhone.

HTC is the world’s largest maker of mobile handsets using Microsoft Corp’s Windows operating system.

It launched its latest Touch Diamond smartphones last month, before Apple’s launch of a new 3G iPhone on Tuesday.

The stock’s decline yesterday also followed a downgrade by Citigroup on concerns that HTC may be forced to slash prices to compete with iPhone, a move that could result in margin erosion for the Taiwanese company, an analyst said.

“We are cutting our 2H08 [second half of the year] and 2009 earnings by 7 percent and 12 percent respectively to reflect this risk,” Kevin Chang (張凱偉), a Citi Investment Research analyst, wrote in a client note yesterday.


Chang and several analysts have expressed concern in the past two days that Apple’s new iPhone could have an adverse affect on HTC in the near term, as HTC is expected to sell its Touch Diamond model at between US$700 and US$800 per unit.

Meanwhile Apple has decided to retail its new iPhone at US$199 for 8GB of memory and US$299 for 16GB of memory.

Citigroup estimated that for every US$10 price cut on the Diamond model, HTC would see its earnings for the second half of the year drop by 3.3 percent year-on-year. To reflect its concern, Citigroup revised down its target price on HTC from NT$750 to NT$660.

HTC shares closed down NT$28 at NT$716 yesterday on the Taiwan Stock Exchange.

Yuanta Securities Co’s (元大證券) research center also warned in a report on Wednesday that a more aggressive business model adopted by Apple would pressure HTC’s prices and margins.

The report said HTC launched its Diamond smartphone on May 6 but has not finalized its subsidy plans with major global telecommunications providers as the providers were waiting for the new iPhone.

In contrast, Apple said on Tuesday that it had signed deals with providers in 70 countries and the US company is targeting Europe and the Asia Pacific as its major markets, where HTC derives most momentum, it said.

“In our view, the new 3G iPhone could mark an end to HTC’s margin expansion story,” Yuanta wrote in a report released on Wednesday.


Yuanta said it was lowering its earnings forecasts for HTC for this year and next year by 4.2 percent and 10.9 percent respectively.

The brokerage also lowered its target price for the stock from NT$932.5 to NT$849.

Apart from price concern, the new iPhone also tends to be more Microsoft friendly — as Apple will offer Cisco technology to enable better compatibility with Microsoft Exchange e-mail servers and Microsoft office — and that will make HTC smartphones less unique than before, the report said.

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