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Deutsche Bank upgrades HTC share rating to 'hold'

TAIPEI--Germany's Deutsche Bank AG has upgraded its rating on shares of HTC Corp. (宏達電) from "sell" to "hold," becoming the first foreign brokerage in nearly a year to envision a better outlook for the Taiwanese smartphone maker.

HTC shares closed up 1.81 percent at NT$140.5 Monday in Taipei, the highest closing price over the past six weeks.

The bank's upgrade came along with a significantly revised target price for HTC shares to NT$155 (US$5.12) from NT$85, citing what it described as the company's "right strategic changes" in its mid-tier and low-end devices.

Birdy Lu, a research analyst at Deutsche Bank in Taipei, said he feels encouraged to see HTC launching more mid-range phones such as the Desire 816 — a 4G smartphone with a 5.5-inch display and a quad-core processor costing only US$293.

One reason behind the optimism is that the winning formula for mid-to-low end smartphones targeting emerging markets is the cost-to-performance ratio rather than product innovation or brand value, he said.

"Another positive change is HTC starting to leverage MediaTek's (聯發科) low-cost SoC (system-on-a-chip) solution and ODM partners for mainstream products," Lu wrote in a note to clients dated March 7.

"This not only saves costs but also shortens time-to-market and reserves internal research and development resources for premium devices," he said.

Moreover, the analyst said he believes HTC will focus on ODM projects again and is likely to win orders from the new Nexus tablet from Google Inc., which could account for 10 percent to 12 percent of HTC's sales in the second half of 2014.

On the high-end market, Lu said HTC's next flagship device, codenamed "M8" within the company, is expected to come with innovative features such as a unique dual-rear-camera design and will become another growth driver in the second quarter.

Lu forecast that HTC will ship 2.5 million units of the M8 and 1.5 million units of the Desire 816 in the second quarter of 2014, which could lead to a quarterly revenue growth of 70 percent.

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