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HTC Q2 profit exceeds estimates

HTC Corp., the world's largest maker of handsets using Microsoft Corp. and Google Inc. operating systems, posted second-quarter profit that beat estimates as rising demand for Android phones drove sales to a record.

Net income climbed 33 percent to NT$8.6 billion from NT$6.5 billion a year earlier, the Taoyuan, Taiwan-based company said yesterday in a statement on its website. The average of 19 analyst estimates was for profit of NT$6.8 billion, according to data compiled by Bloomberg.

HTC is gaining from the growing popularity of Google's Android operating system for smart phones, which can download music, play video and surf the Internet. HTC will release more Android-based models this year, and the platform is expected overtake Apple Inc.'s iPhone system among smartphones by 2013.

“We previously expected demand to peak in the second quarter of 2010, but now expect demand to be sustainable through second-half 2010,” Bonnie Chang, a Taipei-based analyst at Yuanta Financial Holding Co. wrote in a report yesterday before the announcement. Chang upgraded HTC to “buy” from “sell,” citing “meaningful traction within the Android camp.”

Sales climbed 58 percent to NT$60.5 billion, HTC said yesterday, surpassing the NT$50 billion it forecast on April 28. The average of 15 analyst estimates was for revenue of NT$50.6 billion.

HTC shares climbed 5 percent to close at NT$495 yesterday in Taipei, before the company announced earnings. The stock has gained 35 percent this year, compared with a 7.8 percent decline in the benchmark TAIEX index.

Parent-level operating profit, which tracks sales less operating expenses, climbed 33 percent to NT$9.2 billion. The average of 12 analyst estimates was for operating profit of NT$7.3 billion, according to Bloomberg data.

Operating margin, which measures operating profit as a percentage of sales, was 15.2 percent, according to Bloomberg calculations, better than the 14.6 percent it posted in the prior quarter.

“HTC's Q2 earnings results show good execution of the company's brand and growth strategies,” HTC said in a statement yesterday. It didn't provide an explanation for the results or a sales breakdown.

Android, offered free by the world's largest search-engine provider, was fourth in the smartphone operating-system market during the first quarter with 9.6 percent share, up from 1.6 percent a year earlier, according to a May 19 press release from Gartner Inc.

Windows Mobile fell one place to fifth with 6.8 percent share from 10.2 percent, while Nokia Oyj's Symbian and Research In Motion Ltd., maker of the BlackBerry, maintained their lead over iPhone OS, according to Stamford, Connecticut-based Gartner.

Sales of Apple's iPhone 4, released last quarter, may challenge HTC's momentum in the second half, Joee Chang, who rates HTC “buy” at Jih Sun Financial Holdings Co. in Taipei wrote in a June 30 report.

“We anticipate the market for HTC will be cruel in the second half,” said Jih Sun's Chang, who estimates HTC shipped a record 4.9 million handsets in the second quarter. “HTC will need to struggle against severe competition, especially when its sales support from operators will be shared by opponents' new models.”

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