Apple Gains Ground in U.S. Ruling Banning Some HTC Phones
Comment of the Day

December 20 2011

Commentary by Eoin Treacy

Apple Gains Ground in U.S. Ruling Banning Some HTC Phones

This article by Susan Decker for Bloomberg may be of interest to subscribers. Here is a section:
The list of affected products and a full reason for the commission's decision, which is subject to appeal and a presidential review, wasn't immediately made public. Apple's original complaint named HTC's Nexus One, Touch Pro, Diamond, Tilt II, Dream, myTouch, Hero and Droid Eris.

Kristin Huguet, a spokeswoman for Cupertino, California- based Apple, declined to discuss the possibility of a settlement. She repeated the company's position that “competition is healthy, but competitors should create their own original technology.”

Representatives from Google had no immediate comment.
HTC shares rose by the 7 percent daily limit to NT$476 in Taipei after the company said it will buy back 10 million of its own shares, equal to 1.16 percent of those outstanding.

The ruling is the first definitive decision in the dozens of patent cases that began to proliferate in 2010 as smartphone makers battle over a market that Strategy Analytics Inc. said increased 44 percent last quarter from a year earlier to 117 million phones worldwide. HTC, the second-largest maker of Android phones, used its partnership with Google to help transform itself from a contract manufacturer founded in 1997 to the biggest U.S. smartphone seller in the third quarter.

Eoin Treacy's view The mobile devices sector is highly profitable and so competitive. It is virtually impossible to stop another company from bringing out its own version of a successful product but firms such as Apple can be expected to attempt to slow the entry of copycat products into its domestic market. Yesterday's ruling can be viewed as a positive for HTC since it only received an unfavourable ruling on one of the four complaints against it. The company will now remove the offending software and re-launch its products in the USA.

High Tech Computer's share price has plummeted over the last few months and had become oversold by any measure by last week. It rallied sharply today following the above ruling. The company's announcement of a share buyback program should help to put a floor under the price. At least a reversion towards the 200-day MA appears likely and a sustained move below TWD400 would be required to question that view. (Also see Comment of the Day on December 13th).

Apple remains a relative strength leader on the Nasdaq. It has been ranging above $350 since July and a sustained move below the 200-day MA would be required to question the consistency of the almost 3-year uptrend.

Google continues to test the upper side of its almost two-year range and a clear downward dynamic would be required to question potential for a successful upward break,

Samsung Electronics rallied emphatically from the August lows to post new all-time highs. However, it is now somewhat overbought in the short-term and the potential for a pause and consolidation has increased. A sustained move below KRW900,000 would be required to question medium-term potential for additional upside.

Hong Kong listed, ZTE Corp, has been largely rangebound since late 2009 as it continues to consolidate above the 2008 peak. The share has rallied to test the 200-day MA and will need to sustain a move above HK$25 to suggest demand has returned to medium-term dominance.

In such a competitive sector, there are clear leaders represented by the above companies, and clear losers such as Research in Motion and Nokia. Both companies share a similar pattern of underperformance and remain in consistent medium-term downtrends.

LG Electronics pulled back below the 2008 lows and has firmed in the region of KRW60,000. However, it will need to sustain a move above KRW80,000 to indicate a return to medium-term demand dominance.

Ericsson is trading towards the lower side of an almost decade long base and will need to sustain a move above SEK100 to begin to suggest a return to medium-term demand dominance.

(Also see Comment of the Day on June 21 st 2011).

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