Wednesday, July 6, 2011

HTC Earnings Explodes, Buys Patents - Maybe It Should Go Further And Buy A Competitor

HTC, Google's first partner to release an Android device, has been tearing things up in the mobile maket with more than $600 million profit compared to a year ago.  And it's not done.  Not by a long shot.  It's HTC Sensation for T-Mobile has proven to be quite popular.

Hence, it attracted the wrong attention by way of a lawsuit from Apple.  For a company with its own library of patents and years in the smarpthone business before the iPhone came along in 2007, HTC is now buying Via Technologies' share of S3 Graphics and its patents so that it may defend itself against future litigations.  

The total cost: $300 million.  Not a bad price for either party.

But I'm gonna take it a step further.  I'm predicting that HTC may be looking at more acquisitions to boost its market position and further protect itself against future lawsuits.  

Since HTC isn't traded publicly in the US, it is hard to discern what its valuation is.  By my calculation of information obtained from Reuters, HTC's capitalization is approx. 30 billion USD.  And according to a Taipei Times about an HTC stock buyback in July of 2010, HTC had about $2.3 billion in cash.  Given its growth since a year ago and faster forward to today, it may now have $3-5 billion cash on hand.

With its size, cash and explosive growth, HTC could be looking for more acquisitions.

One company that could fit will with HTC is Motorola Mobility, the company spun off from the original Motorola company.  MM has a capitalization of less than $7 billion (MM itself has $3 billion in cash reserve).  And Motorola has a considerable name recognition all over the world and continues to do very well in the US.

Furthermore, just like its S3 acquisiton, MM has patents that HTC will need to defend against further legal attacks.

Obviously, HTC is a foreign company and a takeover of a US firm with a history like MM, even though MM is a mere shadow of it's former self, there is the potential of a political backlash.

But it could be worth the risk.  The competition in the mobile market is unlike anything I've seen.  The players are huge corporations with deep pockets and reaches.  A HTC-MM hookup could create a giant big enough to rival the likes of Apple.

Source: Light Reading

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