HTC enjoys further record revenues

HTC enjoyed another period of record revenues and profits in the third quarter of this year, highlighting that smartphone producers are continuing to grow, despite increased competition and weak economic performance in Europe and the US.

The Taiwan handset maker said on Thursday that its net profit in the third quarter rose 69 per cent from a year ago to T$18.64bn (US$609m), while revenue increased 79 per cent to T$135.82bn. Net profit was up 6.6 per cent compared with a quarter ago, while revenue rose 8.8 per cent.

HTC, which had been a little-known contract manufacturer until four years ago, is now one of the main providers of Google’s Android-based phones and the fifth-biggest smartphone vendor globally by volume. It, together with Samsung, has been among the quickest to take advantage of consumers’ shift towards smartphones and other forms of mobile computing.

Both Samsung and HTC have, however, been embroiled in wide-ranging legal battles with Apple over the intellectual property and design involved in those devices. HTC’s results were announced on the day of Apple founder Steve Jobs’ death and two days after Apple unveiled a modest update to its popular iPhone 4.

As other phone makers now sell Android-based smartphones, HTC has moved aggressively to spend $2.6bn in cash it held at the end of last year to acquire companies that can help it improve its software and online services.

Significant among these was the acquisition in August of Seattle-based Dashwire, which offers cloud services, and the UK’s Saffron Digital, a mobile video specialist. HTC also bought a stake in Onlive, an online games specialist, for $40m this year.

The smartphone maker has also expanded the range of its phones to include more mass-market devices, and has also been quick to offer cutting-edge models running on faster fourth-generation networks.

This week HTC launched two new high-end phones – the HTC Sensation XE and the HTC Sensation XL – that are co-branded with Beats, the audio and headphones company it spent $309m to acquire a controlling stake in earlier this year.

These changes are reflected in a decline in HTC’s profit margins over the past year. HTC’s operating margin in the most recent quarter was 14.9 per cent, down from 16.3 per cent a year ago.

The contraction was partly expected, given that HTC said in July that the company was focused on growing absolute profits, rather than defending its margins or its average selling prices. Jasmine Lu, Morgan Stanley analyst, noted in an earlier report that the central question was whether “HTC can grow volume as much as expected when it penetrates into other markets” beyond Europe and the US, which now account for four-fifths of HTC’s sales.

But Pierre Ferragu, analyst at Bernstein, said HTC, Samsung and Apple now formed an “oligopoly” in the smartphone market and past experiences showed “companies in similar position expanded margins as they grew in lower [priced] segments”.

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