HTC's cheap price lures potential buyers

PUBLISHED : Monday, 26 August, 2013, 12:00am
UPDATED : Monday, 26 August, 2013, 5:15am

HTC has never been cheaper for buyers attracted to the smartphone maker's hardware and engineering prowess.

After peaking in 2011, HTC's stock has plunged 88 per cent as the Taiwanese company lost market share to industry leaders Samsung Electronics and Apple. Now, Chinese vendors including ZTE, Lenovo Group and Huawei Technologies could zero in on the US$4.2 billion company as a takeover target to help them gain technological know-how and a still well-regarded and recognised brand as they expand in mobile devices, according to Sanford C Bernstein.

"They continue to produce the best phones of the industry," Pierre Ferragu, an analyst at Bernstein in London, said of HTC. "They have good brand recognition. From that perspective, they could be an acquisition target for a company with more scale but less product development expertise and weak brand positioning."

HTC shares touched an almost eight-year low this month after the company signalled it may post its first quarterly loss since at least 2008 on a consolidated basis. The stock drop left the smartphone maker trading at a 56 per cent discount to sales, its cheapest valuation ever.

Chairwoman Cher Wang and her family hold a stake in HTC and may stand in the way of a takeover so long as the phone maker still has cash to keep its business going, according to JI Asia. Without a pickup in sales, the company would enter a period of decline that may lead to a sale, said Wedge Partners.

HTC was a contract manufacturer before it began promoting its own brand in 2006. The company had a short-lived reign at the top of the US market in the third quarter of 2011, when it accounted for 24 per cent of smartphone shipments, according to researcher Canalys.

Amid intensifying pressure from Samsung and Apple at the high end and Chinese makers among less expensive handsets, HTC's share of the global smartphone market has fallen to 2.8 per cent as of the second quarter from 5.8 per cent a year earlier.

While growth for more expensive phones is slowing, HTC still offers "the best piece of hardware outside the iPhone" with its HTC One, said Brian Blair, an analyst at Wedge Partners.

The firm in February 2012 said it had "dropped the ball" on products, pointing to weaknesses in design and engineering. The HTC One has so far failed to stop a slide in the firm's sales since the phone's introduction was delayed to the same timeframe as Samsung's flagship Galaxy S4.

Mainland vendors, such as Huawei and ZTE, are the most likely acquirers for HTC as they expand in mobile devices, according to Blair and Charles Golvin at Forrester Research.

Beijing-based Lenovo, the world's largest maker of desktop and laptop personal computers, is also a potential buyer, said Ferragu.