Fri, Dec 23, 2011 page11

• ANALYSIS: HTC facing rival pressure

  MOMENTUM: Though a US trade agency said HTC infringed only one Apple patent, it faces great pressure in keeping up with its rivals in design and technology

  • Bloomberg
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  HTC Corp (宏達電), Asia’s second-biggest maker of smartphones, can tweak the technology in its handsets to avoid a US trade agency ban. Dealing with the threat from Apple Inc’s and Samsung Electronics Co’s new devices may prove tougher.

  The US International Trade Commission (ITC) said on Monday that beginning in April next year, it would ban the sale of HTC phones that infringed an Apple patent on so-called data detection, such as touching a phone number or an address in an e-mail to dial or find the address on a map. HTC responded by saying it has removed the offending features from its phones.

  Keeping the handsets on the market solves HTC’s immediate challenge after becoming the top-selling vendor in the US. Samsung’s Galaxy Nexus and Apple’s faster, “Siri”-enabled iPhone hit the market within the past quarter, posing a new threat to HTC’s place in the US$262 billion global cellphone market. The Taoyuan-based company is forecast to post its slowest annual sales growth and first profit decline since the 2009 economic crisis.

  

  HTC Corp chief executive Peter Chou, center, is joined by music producer Jimmie Iovine, left, and rapper Dr Dre, founders and owners of Beats By Dr Dre, a headphone and loudspeaker brand, on stage in Taipei on Dec. 1.

  Photo: CNA

  “Things were going great at HTC two years ago, their products were so successful and they were the hottest company in mobile phones,” said Will Stofega, an analyst at researcher IDC in Framingham, Massachusetts. “They didn’t keep the momentum going and now we’re seeing products that haven’t wowed audiences as much.”

  HTC’s revenue will climb 11 percent next year and profit will drop 6.7 percent, according to analysts’ estimates compiled by Bloomberg, marking its worst financial performance since the 2009 global economic crisis. HTC’s revenue climbed 50-fold from 2000 to last year, according to Bloomberg data.

  Stiff competition prompted HTC last month to cut its sales guidance for this quarter by 20 percent. That announcement, on Nov. 23, prompted the stock to drop by its daily 7 percent limit in Taipei for two consecutive days, worsening the year-to-date loss to 45 percent.

  At least six brokers downgraded HTC since the revised guidance, with more analysts now recommending investors sell HTC than buy for the first time in at least two years.

  The ITC, the agency empowered to block imports of products that infringe the patents, found in Apple’s favor for one of four patents the Cupertino, California-based company alleged HTC breached. Apple’s so-called ’647 patent covered a feature in which the phone recognizes a telephone number so it can be stored in directories or called without dialing.

  The result, while less than Apple sought, marks its first victory in patent cases and strengthens the argument that Google’s Android “ripped off the iPhone,” as the company’s late founder, Steve Jobs, once claimed. The ruling is the first definitive decision in the dozens of patent cases that began to proliferate last year as smartphone makers battle over a market that Strategy Analytics Inc said increased 44 percent last quarter from a year earlier to 117 million phones worldwide.

  Apple also has civil patent infringement cases against HTC and Samsung. Both Asian rivals have also filed their own retaliatory actions to the ITC and in US courts. The Android operating system has led the global market since last year, climbing to 48 percent of all smartphones in the second quarter of this year and ahead of 19 percent for Apple’s iOS platform, according to UK researcher Canalys.

  Founded in 1997, HTC used its partnership with Google to help transform itself from a contract manufacturer of Compaq Computer Corp’s iPaq personal digital assistant to the biggest US smartphone seller for the first time last quarter. The company is chaired by Taiwan’s richest woman, Cher Wang (王雪紅).

  Since HTC became the leader in the US, Apple and Samsung have replied with newer and more functional devices. Apple sold a record 4 million units of the iPhone 4S in the product’s first weekend beginning on Oct. 14. The model features “Siri,” software that allows users to ask questions or issue commands by voice.

  In October, Samsung unveiled the new Galaxy Nexus that runs Google’s latest Android Ice Cream Sandwich operating system, featuring face-detection technology.

  HTC’s relative success in the ITC ruling — Apple had alleged four patents were infringed, with ITC agreeing on only one — spurred the stock up by its daily 7 percent limit in Taipei for both Tuesday and Wednesday. Still, analysts say the company needs to change if it’s to gain on Apple and Samsung.

  “They need to improve their products and the design, which hasn’t changed in two years,” said Roxy Wong, who rates HTC “reduce” at Mirae Asset Securities Co in Hong Kong. “I’d turn more positive if they became more competitive in their price-performance and design.”
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