HTC Seen Luring Lenovo to ZTE With Smartphone Finesse
Comment of the Day

August 21 2013

Commentary by Eoin Treacy

HTC Seen Luring Lenovo to ZTE With Smartphone Finesse

This article from Bloomberg may be of interest to subscribers. Here is a section
The company in February 2012 said it had “dropped the ball” on products, pointing to weaknesses in design and engineering. The HTC One, which was supposed to herald a reversal of fortune, has so far failed to stop a slide in the company's sales since the phone's introduction was delayed to the same timeframe as Samsung's flagship Galaxy S4.

Chinese vendors, such as Huawei and ZTE, are the most likely acquirers for HTC as they expand in mobile devices, according to Blair and Charles Golvin at Forrester Research Inc. Beijing-based Lenovo, the world's largest maker of desktop and laptop personal computers, is also a potential buyer,

Bernstein's Ferragu said in an e-mail. Lenovo is “definitely seeking opportunities” for
acquisitions in both PCs and smartphones, Chief Executive Officer Yang Yuanqing said in an interview last week.

“The industry is in a period of consolidation, so we definitely should take the opportunity if we can find the right target,” Yang said, declining to identify specific targets. Angela Lee, a Hong Kong-based spokeswoman for Lenovo, this week declined to comment on HTC as a target.

Eoin Treacy's view On August 5th HTC announced that it is was going to buy back 15 million shares or approximately 3% of the free float by early October. The share bounced by approximately 15% in the subsequent two weeks and has given up half the advance over the last few sessions. A clear upward dynamic would confirm management's intent to follow through in supporting the share above the August 2 nd low.

Considering the company's technological prowess, it does represent a potential takeover candidate for ambitious Chinese manufacturers such as ZTE and Lenovo.

ZTE Corp has been ranging, mostly above HK$10, for the last year and has returned to test the upper side of its base over the last month. A sustained move below HK$13 would be required to question current scope for a successful upward break. Lenovo has held a progression of higher major reaction lows for the last few years. It retested the 2008 peak in May and pulled back to range mostly above the 200-day MA. The share will need to continue to hold above HK$6.60 if the benefit of the doubt is to be given to potential for higher to lateral ranging.

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