HTC limit-down on slower demand, corp governance concerns

(Reuters) - Shares of world No.5 handset maker HTC Corp (2498.TW) plunged on Thursday as investor looked beyond the forecast-beating quarterly net profit to concerns over a slowdown in smartphone demand and the company's corporate governance after its plan to acquire S3 Graphics.

HTC was down 6.85 percent, the daily maximum allowed, by 0208 GMT. The main share index .TWII fell 0.57 percent.

Citi downgraded HTC from "buy" to "sell" on Thursday, after the Taiwanese smartphone maker posted a doubled net profit in the second quarter and cut its target price by 59 percent to T$927 to reflect slightly slower-than-expected smartphone demand.

"(Our downgrade was also) driven by Samsung (005930.KS) challenging HTC's status to be the 'best Android phone maker'," said Citi analyst Kevin Chang in the report.

Analysts had forecast HTC's net profit would rise 81 percent to T$71.72 billion this year and growth would slow to 26 percent next year at T$90.45 billion, according to a poll by I/B/E/S.

Macquarie analyst Daniel Chang was concerned about competition from Samsung and Apple Inc (AAPL.O), as well as Microsoft's (MSFT.O) request to Android players to pay a higher royalty and Apple's lawsuits on various patents would drive Android phone makers' costs to increase.

"We see growing risk to demand, average selling prices and, eventually, profitability in 2012," Daniel Chang said in a report, rating HTC as "neutral."

Citi forecast the smartphone market would slow from 60 percent in 2011 to around 20-25 percent in 2012, given the saturation in the U.S. market and the lack of mature 3G networks and a subsidy business model in the emerging markets.

But Huawei Technologies Co Ltd HWT.UL, the world's No. 2 network equipment maker, said on Wednesday it aimed to lift its shipment target to 20 million smartphones this year, as the company makes an aggressive push into the consumer devices sector.

Analysts said as HTC's second-quarter operating income did not contain big surprises, its shares were expected to consolidate before an investors' conference at the end of this month, when the company provides guidance for the third quarter.

HTC's announcement on its plan to acquire S3 Graphics for $300 million from Via Technologies (2388.TW), which is owned by HTC Chairwoman Cher Wang, also raised concerns over the company's corporate governance.

"While HTC may have legitimate reasons to buy S3 Graphics, this will almost certainly raise concerns given the potential conflict of interest," said Chang.

HTC said the acquisition would extend its IP portfolio with the addition of 235 patents and pending applications, including those related to graphics visualization technologies.

(Reporting by Clare Jim; Editing by Jacqueline Wong)

Remember the HTC Shift of 2008? It was an innovative device from HTC that combined both Windows Vista (for power) and Windows Mobile (for instant-on and battery savings) into a device that looked like a huge Touch Pro2, thanks to the tilting screen and sliding keyboard. Technically considered a UMPC (Microsoft Origami, anyone?), the Shift had an 800MHz CPU with 1GB of RAM and a 40 or 60GB hard drive. Powering everything was a 2700mAh battery. While the Shift was discontinued by HTC, you can still grab one (likely used), and they aren't cheap.

While the Shift shipped with Vista Business, some enterprising individuals have loaded Windows 7 onto the device...no easy feat considering the lack of proper drivers. Take a look below!

Posted in: Business-Economic