E. Sun Investment Consulting Co (玉山投顧) has raised its recommendation on shares of HTC Corp (宏達電) to “buy” from “neutral” because of the agreement the smartphone vendor reached with Apple Inc recently to settle patent disputes.
In a research note, the firm said the patent settlement agreement has removed uncertainty over HTC’s operations, which should help the Taiwanese company concentrate on its core business and improve its competitiveness.
On Nov. 11, HTC and Apple announced the signing of a 10-year cross-licensing agreement to settle their global patent disputes and dismiss all pending lawsuits against each other.
The licensing deal extends to current and future patents asserted by both companies, the two companies said.
While HTC said the settlement will not affect its financial forecast for the fourth quarter since it had already assigned provisions it deemed appropriate for the reporting period, E. Sun Investment Consulting said the smartphone supplier’s gross margin could be squeezed.
Late last month, HTC said it expected its sales would fall to NT$60 billion (US$2.05 billion) in the fourth quarter, from NT$70.2 billion in the third quarter, and its gross margin would fall to 23 percent from 25 percent.
However, the investment consulting firm said the benefits from the cross-licensing agreement will more than offset the deal’s downsides because HTC will no longer have to worry about sales delays or bans of its products in the US market caused by patent disputes with Apple.
Because HTC now can apply Apple’s patents to its products, the handset manufacturer no longer has to expend resources finding ways to get around Apple’s technology and avoid patent infringement complaints, E. Sun Investment Consulting said.
HTC’s sales are also likely to receive a boost from the launch of its new Windows 8 phones this month, it said.