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September 21, 2017

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HTC seen unlikely to be hit by parts supply issue

TAIPEI -- HTC Corp.'s revenues in the second quarter of the year will not be affected much by a Dutch court injunction that prevents STMicroelectronics NV from selling critical microphone components to the Taiwanese handset maker, J.P. Morgan Securities said yesterday.

STM was ordered by a Dutch court on April 23 to stop supplying microphone parts for the new HTC One after Nokia Oyj lodged a complaint of breach of a one-year exclusivity contract against STM.

J.P. Morgan said it has confirmed that all HTC One phones being shipped currently had sourced microphone parts from STM.

However, STM has now stopped shipping the components to HTC, the U.S. brokerage said in a note to clients.

Despite the supply issue, J.P. Morgan said, HTC could still achieve about 50 percent quarterly revenue growth in the second quarter of this year, thanks to the much higher-than-expected average selling price of its flagship HTC One.

The Taiwanese company may even achieve 80-100 percent quarter-on-quarter revenue growth if the microphone sourcing issue can be resolved quickly, the brokerage said.

J.P. Morgan said, however, that if a change of components involves other design changes, it would be difficult for HTC to start shipping by June after its current inventory of 2 million to 3 million microphone components runs out.

Meanwhile, Goldman Sachs said in report that it believes the microphone issue will have no material supply-side impact on HTC's shipments.

"We believe HTC should be able to find a back-up solution immediately from its other microphone suppliers with similar product quality," said Robert Yen, a Taipei-based analyst at Goldman Sachs.

"In addition, since the dual membrane microphone design is not unique in the current acoustic component market, we expect an alternative solution to kick in shortly without lengthy qualification process," he wrote in the report.

Nokia said April 22 that it had won a preliminary injunction from the Amsterdam District Court in the Netherlands to prevent STM from selling "dual-membrane microphone" components to HTC.

The Finnish mobile phone maker said it filed the action after finding the components in the HTC device. Nokia claimed the components as its own inventions that were manufactured exclusively for its phones.

In response, HTC said the case is not expected to have any immediate impact on its handset sales, and it plans a "transition to improved microphone designs" once its inventory of STM microphones is exhausted.

HTC shares closed up 1.26 percent at NT$282 (US$9.5) Thursday on the Taiwan Stock Exchange.

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