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Foreign investors positive on HTC structural shift

TAIPEI, Taiwan -- Nomura Securities offered positive feedback regarding HTC's (宏達電) plans to overhaul the company's operation, but said it would take a while before the phone maker becomes profitable again.

Trading of HTC stocks reached 45.2 million shares yesterday and closed at NT$150, up 3.09 percent and continued the stock's growth trend.

HTC's Structural Changes

In order to address its challenges, HTC is considering four structural changes: re-positioning of the company's high-ranking officers, outsourcing production work, utilizing chips made by MediaTek (聯發科) and tapping new customers and forming new partnerships.

Sources said HTC Chairwoman Cher Wang (王雪紅) will in the future put more focus on sales, operation and supply chain management, while HTC Chief Executive Officer Peter Chou (周永明) will focus on innovation and new product development.

HTC may outsource its production to electronics manufacturing service firms such as Foxconn (富士康) and Wistron (緯創). Nomura holds that employing MediaTek's electronic chips will enhance HTC's bargaining power and help the company strengthen its position in low-end markets.

The fact that HTC has had experience working with major brands such as Google, T-Mobile, Sprint, Verizon and Facebook makes it an ideal candidate to partner with, Nomura said. He added that by working with other telecom operators, HTC may further increase sales and improve its brand image.

Nomura Securities' Evaluation

Nomura Securities offered positive feedback regarding HTC's new plans. However, the securities firm cautioned that it would take some time before tangible results are shown, and predicted that the smartphone maker would face challenges in turning a profit in the fourth quarter of 2013 and the first quarter of 2014. Nomura maintains its lowered rating of HTC and set the target price at NT$103.

The smartphone markets are becoming increasingly competitive. Although HTC is moving in the right direction, positive results are not likely to be seen immediately, Nomura pointed out.

Nomura hopes that in the future, HTC will develop new products with a more balanced approach, improve its communication with consumers, and enhance its supply chain management, so that the problem of parts and components shortage would not occur again.

Partner with China Mobile

Rumors in the market suggest China Mobile may buy into HTC, and not only will China Mobile infuse capital into HTC, but the two companies may cooperate to develop new phones in November. However, HTC has rejected the idea, saying the rumor was pure speculation and not factual.

China Mobile is the largest telecom company in mainland China, and boasts a customer base of 700 million. Market analysts believe that the two companies' partnership would help HTC substantially in entering the Chinese market. If China Mobile rolls out custom-made HTC phones in November, it may make up for HTC's orders lost in American and European markets in the past six months.

HTC has indicated the importance of the Chinese market. Chou previously said in an internal company meeting that up to 100 million phones are needed per year in the Chinese market. HTC is adopting a long-term perspective in its Chinese investment approach, Chou said, adding that there is a huge demand for phones priced below NT$4,900, and that HTC would develop new products for different market segments.

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