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Challenges face HTC despite settlement: brokerages

TAIPEI -- Taiwanese smartphone maker HTC Corp. still needs to address fundamental challenges in the coming quarters despite its patent settlement with rival Apple Inc., foreign brokerages said yesterday.

HTC and Apple announced a day earlier that they have agreed to settle their global patent disputes through the dismissal of all current lawsuits and a 10-year license agreement, ending a legal battle that has been running since March 2010.

The license extends to current and future patents held by both parties, the two smartphone makers said in a joint statement.

Daniel Chang, an analyst at Macquarie Capital Securities Ltd.'s Taiwan branch, said that while settling the lawsuit is good news for HTC, investors should understand that HTC's collapse of market share and profitability in the past year or two were not due to Apple's lawsuits. HTC has been struggling to differentiate its products, and suffers from weak branding, rising costs due to competition and falling customer loyalty, especially in the U.S. and Europe, Chang wrote in a note to clients.

“HTC needs to resolve these issues in those markets quickly. Otherwise, as the smartphone penetration in developed market matures, the profit pie will shrink rapidly as bargaining power shifts to carriers,” he said.

Separately, the patent settlement will likely boost the performance of Taiwan's industrial production in the fourth quarter of this year, according to the Ministry of Economic Affairs yesterday.

The ending of patent quarrels between HTC and Apple is expected to boost the already positive forecast for Taiwan's fourth quarter industrial production, the ministry said.

The PC, electronics and optical production sectors are also expected to benefit from the news, the ministry added.

Taiwan's industrial production index ended a decline of three consecutive quarters to stand at 133.21 for the third quarter of this year, up 1.46 percent from a year ago, according to government statistics.

Also yesterday, Economics Minister Shih Yen-shiang said that the settlement will likely boost the exports of HTC smartphones, and that Taiwan's overall exports performance will also likely step up a notch.

Smartphone production remains a core manufacturing segment in Taiwan because HTC's smartphones are assembled domestically before being shipped to foreign markets, he said.

Meanwhile, Minister without Portfolio Simon Chang, a former Google Inc. executive, said yesterday that it is a good thing that the two sides have settled their disputes.

The global patent war has gone a bit too far, he said, adding that patents have now become a weapon to attack, instead of a shield to protect, developers' creativity.

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