COMPANY PROFILE HTC Corporation REFERENCE CODE: D030D163-1966-4A48-AE13-80DC33BF7F54 PUBLICATION DATE: 8 Aug 2012 www. marketline. com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED. HTC Corporation TABLE OF CONTENTS TABLE OF CONTENTS Company Overview…………………………………………………………………………………. 3 Key Facts………………………………………………………………………………………………… SWOT Analysis……………………………………………………………………………………….. 4 HTC Corporation © MarketLine Page 2 HTC Corporation Company Overview COMPANY OVERVIEW HTC Corporation (HTC or “the company”) is engaged in the research, development and manufacture of smart handheld mobile devices.
The company offers smartphones based on Android and Windows Phone operating systems. The company operates in the Americas, Europe and Asia Pacific. It is headquartered in Taoyuan, Taiwan and employed 16,746 people as of March 31, 2012.
The company recorded revenues of NT$465,794. 8 million ($15,790. 4 million) during the financial year ended December 2011 (FY2011), an increase of 67. 1% over FY2010. The operating profit of the company was NT$68,787. 8 million ($2,331. 9 million) in FY2011, an increase of 55. 9% over FY2010. The net profit was NT$61,975. 8 million ($2,101 million) in FY2011, an increase of 56.
8% over FY2010. KEY FACTS Head Office HTC Corporation No. 23 Xinghua Rd. Taoyuan City Taoyuan County 330 TWN 886 3 375 3252 886 3 375 3251 http://www. htc. com Phone Fax Web Address
Revenue / turnover 465,794. 8 (TWD Mn) Financial Year End Employees Taiwan stock exchange Ticker December 16,746 2498 HTC Corporation © MarketLine Page 3 HTC Corporation SWOT Analysis SWOT ANALYSIS HTC Corporation (HTC or “the company”) is engaged in the research, development and manufacture of smart handheld mobile devices. The company offers smartphones based on Android and Windows Phone operating systems. The company has significant R&D capabilities which give it a competitive edge to reach the market first with many industry leading innovations and features.
However, intense competition may affect the company’s revenue growth and profitability in coming years. Strengths Significant R&D capabilities Strong relationships with industry leaders Opportunities Growing smartphones market Positive trends in the tablets market is a growth opportunity Strategic acquisitions Weaknesses Market share losses Low margins compared to its peers Threats Intense competition Legal investigations may tarnish image and result in penalties Strengths Significant R&D capabilities The company has significant R&D capabilities. Since its inception, HTC has invested consistently to enhance its R&D capabilities.
For instance, the company has invested NT$15,960. 9 million ($541. 1 million), and NT$12,940 million ($438. 7 million) in R&D in FY2011 and FY2010, respectively. Further, the company has invested NT$3,427 million ($116. 2 million) in R&D in Q12012, which accounts for 5. 1% of the total revenue. Also, in FY2011 the company’s R&D professionals accounted for almost 30% of total headcount and R&D investments represented 3. 4% of total revenues. The company’s R&D capabilities aim at creating value differentiation in products delivering performance to users.
Its innovation center conducts R&D activities related to new technologies, potential future products and applications; and provides results and findings to other R&D departments for further development. The company’s development capabilities have allowed it to launch innovative and new products to the market on consistent basis. For instance, in 2012 Mobile World Congress (MWC), HTC unveiled its new HTC One series of smartphones. In 2011, HTC launched several enhanced cloud and audio-visual services such as HTC Watch and Beats Audio, to enhance and enrich the HTC user experience.
Also, in 2011, with markets shifting up to 4G high-speed mobile networks, the company introduced HTC Thunderbolt and HTC Titan II, the world’s first LTE Android LTE Windows Phone smartphones. Earlier, the company introduced the world’s first Windows Mobile and Android HTC Corporation © MarketLine Page 4 HTC Corporation SWOT Analysis smartphones, first dual-mode GSM/ WiMAX phone, first 3G Android phone, and first 4G LTE Android phone. Also, HTC Sense, launched in 2009, was a momentous breakthrough that revolutionized the mobile phone experience. Consistent innovative product launches also enhance the visibility of the company’s brand.
The company’s significant R&D capabilities gives it’s a competitive edge to reach the market first with many industry leading innovations and features. Strong relationships with industry leaders The company has strong relationships with many technology companies and telecom service providers. It maintains strong long-term partnerships with technology industry leaders, including Microsoft, Google and Qualcomm, which serve as active labs of research and development and product evolution. For instance, HTC’s launch of the world’s first Windows Mobile smartphone and first Android smartphone is an example.
These partnerships ensure that the hardware, software, and content management and delivery systems are united in seamless and intuitive ways. HTC’s products are currently sold through major carriers and local retail channels in major markets in Europe, the Americas and Asia. The three largest telecommunications service providers in the US, including Verizon, Sprint and AT&T, all designate HTC mobile phones as flagship offerings in their respective product lineups. In Europe, the company’s mobile phones are featured prominently at sales outlets of leading telecommunications service providers, including Vodafone, T-Mobile and Orange.
Also, the company works closely with Chunghwa Telecom to incorporate innovative thinking and introduce leading mobile devices to Taiwan’s telecommunications industry. The company’s strong relationships with leading technology companies and service providers enable it to address changing customer needs effectively. Weaknesses Market share losses The company has been losing its market share in the recent times. The company has been losing its market share to Samsung and Apple in the highly competitive smartphone market. For instance, the company’s market share declined from 10. 7% in Q2 2011 to 5. % in Q2 2012. Also, the company’s smartphone shipment declined from 11. 6 million units in Q2 2011 to 8 million units in Q2 2012. By contrast, its competitors Samsung and Apple shipped 50. 2 million units and 26 million units, respectively and held a market share of 32. 6% and 16. 9%, respectively in Q2 2012. Moreover, due to the launch of Apple’s latest iPhone series and Samsung’s Galaxy series of Android phones, the company’s smartphones did not gain much grip in the market. Though HTC gained traction in 2010 with its phone designs such as Evo line for Sprint Nextel, it couldn’t sustain it for long.
By February 2012, Samsung was the leading Android market with 15. 3% of the market share HTC Corporation © MarketLine Page 5 HTC Corporation SWOT Analysis while HTC’s share declined to 13. 7% from 15% in November 2011 and Apple’s iPhone was a leader among all models, with a 30. 2% share in February 2012. Also, the company shut its production lines in Brazil which resulted in market share loss. HTC phones had a mere 0. 11% market share in Q1 2012. Further, the company has decided to cancel the impending launch of the HTC One line in Brazil, and will be exiting the smartphone market in Brazil.
This move may further hurt the company’s market share in Brazil, which is one of the fastest growing smartphone market in terms of volume. For instance, in 2011 approximately 8. 9 million devices were sold in Brazil and it is on track to become the fourth largest smartphone market in the next four years. Hence, such market share losses negatively impacts investor confidence and also the company’s brand image. Low margins compared to its peers The company has recorded declining profits and margins in recent period. It reported operating margins of 17%, 15. 8% and 14. %, respectively in FY2009, FY2010 and FY2011 respectively. It also reported net profit margins of 15. 6%, 14. 2% and 13. 3% in FY2009, FY2010, and FY2011 respectively. The margins of the company are low when compared to its competitors. For instance, the company’s competitors Apple and Research In Motion (RIM), posted stronger margins in FY2011. Apple had an operating and net margin of 31. 2% and 23. 9%, respectively in FY2011 and RIM recorded operating and net margin of 23. 3%. and 17. 1%, respectively during the same period. The operating and net profit margins are indicators to measure the rofitability of the company, its pricing strategies and its controls over the costs. Declining operating and net profit margins reflect the management’s inability to deploy its assets in profitable avenues. Low margins place the company at a competitive disadvantage and also negatively impacts investor confidence. Opportunities Growing smartphones market The smartphones market is growing rapidly. According to industry estimates, the global shipments for smartphones increased from 299. 7 million units in 2010 to 487. 7 million units in 2011, an increase of 63% compared to 2010.
Also, industry estimates indicate that the smartphone shipments are set to grow at a robust pace of close to 35% in 2012. During 2012-16, the smartphone shipments are estimated to grow at a CAGR of over 18%. Further, smartphone penetration rose from 18. 6% in 2010 to 26. 6% in 2011. The smartphone share of global mobile phone sales continues to grow, fueled by rapidly evolving hardware, increasingly intuitive user interfaces and an expanding universe of mobile content and services. Moreover, smartphones based on Android operating systems (OS) represent the company’s core offering.
The Android is leading mobile platform holding a market share of 46. 5% in global smartphone market in 2011. Android held a market share of 51. 6% in the three-month period to June 2012. Also, the estimates indicate that between 2010 and 2011, Android powered devices shipments saw HTC Corporation © MarketLine Page 6 HTC Corporation SWOT Analysis year-on-year growth of over two fold. Further, of the 487. 8 million smartphones shipped in 2011, 48. 8% used Android OS. HTC being one of the leading providers of smartphones in the world supplied 9. 1% of the global martphone market in FY2011. The company ranks amongst the world’s top 5 manufacturers of smartphones and top 10 manufacturers of mobile phones. It mainly concentrates on research, development and manufacturing of smartphones including those with features such as GPS, touch functionality and multimedia capabilities. The growing smartphones market may boost the company’s revenues in the coming years. Positive trends in the tablets market is a growth opportunity The tablets market is estimated to record strong growth amid growing demand for personal communication devices.
According to the industry estimates, the sale of tablets is forecasted to grow at a CAGR of approximately 50% from 2011 to 2015. In addition, the market is projected to have a value of more than $100 billion by the end of 2015 with unit sales of more than 500 million units. Additionally, enterprises are increasingly investing in tablets. Furthermore, enterprise customers are estimated to account for up to 50% of tablets sold by 2015. The company entered the tablets market with the launch of two tablets in 2011, the 7-inch HTC Flyer branded as the EVO View 4G in the US by Sprint and the 10-inch HTC Jetstream, an AT&T exclusive 4G LTE device.
Also, the company further plans to launch tablets to tap the growing market. Positive trends in tablets market may create demand for the company’s products in the coming years. Strategic acquisitions The company has made several strategic acquisitions in the recent past. For instance, in July 2012, Beats Electronics, a unit of the company acquired certain assets owned by digital music subscription service MOG through subsidiary Daisy, to create end-to-end premium music experience. Further, the company acquired 20% of Intertrust’s SyncTV subsidiary, a provider of a cloud-based video service.
Also, in October 2011, the company acquired Mountain View-based Inquisitive Minds to further its commitment to providing personalized mobile experiences for consumers of all ages. Earlier in August 2011, the company acquired Seattle-based Dashwire, the maker of the Dashworks platform that provides mobile and web applications, enabling people to easily setup and personalize their smartphones, and seamlessly access their mobile content across multiple screens and services. This acquisition enhances the company’s HTCSense. com cloud services.
The company has been increasing its investments in order to integrate music, gaming, social and personal applications into HTC’s proprietary HTC Sense interface. It is also tapping the potential of cloud computing to develop and promote an increasingly diverse array of content and services. Such strategic acquisitions enable the company to enhance its product portfolio and revenues in the long run. HTC Corporation © MarketLine Page 7 HTC Corporation SWOT Analysis Threats Intense competition The mobile devices market is highly competitive.
The competition in the smartphones segment, the primary focus area for HTC, is expected to further intensify in the wake of booming market globally. The global mobile market is dominated by few large players, such as Nokia, Motorola, Sony Ericsson, Samsung Electronics and LG Electronics. In particular, the company faces intense competition from Nokia, Apple, Samsung, and Research In Motion which have been aggressively launching products to increase their market share. Moreover, in 2010, HP entered the smartphone market through the acquisition of Palm.
Also, Samsung’s greater scale and full range of product mix enhances its cost structure to be very competitive. Samsung has much lower unit costs than HTC for very similar offerings. Also, the cheaper alternatives in China pose a threat to the company’s growth in that region. Further, Taiwan-based mobile chipmaker MediaTek is planning to supply the Chinese market with mass produced high-tech chips by the third quarter 2012, to smaller unbranded mobile handset makers to offer better features and applications on their phones at cheaper price.
This move may impact the company’s sales in China and threaten its market share. The company also faces competition from local handset makers including ZTE and Huawei Technologies as they expand beyond the low-end segment by selling more high-end models. The intense competition in the mobile market leads to pricing pressures. High competition forced the company to reduce the prices of its products. The average selling price (ASP) of the company’s products declined as a result of intense competition in recent years.
For instance, the ASP declined from $362 in the last quarter of 2010 to $344 in October 2011, primarily due to local currency appreciation. Further, in 2012 HTC is expected to have a 10% decrease in the average selling price of its smartphones compared to 2011. Intense competition may affect the company’s revenue growth and profitability in coming years. Legal investigations may tarnish image and result in penalties The industry in which the company operates is characterized by vigorous protection and pursuit of IP rights, which have on occasion resulted in significant and often protracted and expensive litigation.
For instance, in May 2012, Nokia filed a complaint with the US International Trade Commission (ITC) against HTC, and filed suits with the district court in Delaware against HTC and ViewSonic, in the Regional Court in Dusseldorf against HTC and RIM, and in the Regional Courts in Mannheim and Munich against all three firms for infringing 45 Nokia patents. Also, in January 2012, Eastman Kodak (Kodak) filed a lawsuit against HTC concurrently with the U. S. International Trade Commission (ITC) and US District Court of Western District of New York (New York court), alleging that the company infringed its patents.
Kodak has requested ITC and New York court to prevent HTC from exporting HTC Corporation © MarketLine Page 8 HTC Corporation SWOT Analysis and selling devices made using Kodak’s patents in the US and order damage compensation. The decision regarding this suit is pending. Also, in 2010, Apple filed a lawsuit against HTC, concurrently with the US international trade Commission (ITC) and the US District Court in Delaware (Delaware court) alleging that HTC infringed its patents.
Subsequently, HTC filed on ITC investigation and a counterclaim with the Delaware court against Apple for patent infringements and requested the ITC and Delaware court to prevent Apple from selling devices in the US and order damage compensation. In December 2011, Apple won this suit as US International Trade Commission found HTC violating one of Apple’s patent related to data-detection technology and banned import of some of HTC’s smartphones from the US. This caused delay in shipment and launch of certain products in the US which affected the company’s margins.
The cost of defending against such lawsuits, in terms of management time and attention, legal fees and product delays, can be substantial. Such legal investigations may tarnish its image and result in huge penalties. HTC Corporation © MarketLine Page 9 Copyright of HTC Corporation SWOT Analysis is the property of MarketLine, a Datamonitor business and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s express written permission. However, users may print, download, or email articles for individual use.
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