HTC Investors

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Convening of an investor conference concerning Q2 2010 Business Review
1.Date of the investor/press conference:2010/07/29

2.Location of the investor/press conference:Conference call

3.Financial and business related information:
2Q10 BUSINESS REVIEW
(1)2Q unit was 5.4mn which grew 80% yoy.
(2)2Q revenue reached NT$60.5bn which grew 58.5% yoy, better than original guidance.
(3)2Q GPM was 29.5% (would be 30.3% excludes currency impact*).
(4)2Q OPEX ratio came better than original guidance at 14.4%; therefore, 2Q operating margin reached 15.2%.
* Compared to the currency assumption from last earning call on April 28th
**All the numbers above are based on unconsolidated financial statements.
 
STRATEGIC REVIEWS
Scale expansion:
(1)Growth momentum continues to accelerate and record high quarterly sales is achieved amid a rapidly growing smart phone industry.
(2)Robust demand, coming across the board globally, drove our record high unit momentum and substantially exceeded our original guidance; We see very strong sequential unit growth from both US and Europe for the quarter.
(3)Sequentially improved operating margin evidences how scale help us gains operating leverage on marketing spending and overall operation efficiency.
(4)Strong and record sell through shows consumer preference of HTC brand and HTC Sense user experience of all major 1H new products such as Desire, Droid Incredible, EVO 4G, HD2, Legend, and myTouch 3G Slide; supply chain and capacity management was implemented to aim for continuous scale expansion in 2H.
(5)Broad range of hero products are supporting our scale growth at present, and each of our hero product portfolio is capable to deliver multi-million unit on its own market segment; which provides a strong and sustainable growth engine for our scale strategy today compared to our historic niche scale level where we had only limited hero products at most per year and unit run rate per product is capped at sub million scale on average.
(6)The pattern of current scale expansion is less volatile because we are not relying on one single hero product nor is our go-to-market push is constrained to only a few operator customers; on contrast, we are ahead of competition to deliver a cutting-edge portfolio to maximize our market share of operator shelf space globally. We are confident to continue drive scale by staying on top of technology curve, offering the best user experience and creating attractive product design innovation along with growing brand awareness.
Ramping brand awareness:
(1)Brand preference has rapidly grown where we are in the top 3 for smart phone consideration in many of the major markets (top 4 overall). This is driven by our brand awareness which has sharply increased to 40% from barely 10% globally last year.
(2)“Quietly Brilliant” global brand positioning is really resonating with new consumers to HTC brand via substantially increased marketing investment on YOU-Campaign worldwide.
(3)HTC sense user experience truly differentiates and enriches our brand value and we are consistently being rewarded as the top 2 most recommended brands by independent reviews from major media across the board.
(4)Strong global operator partnership has further strengthened HTC brand investment by hero product-driven joint marketing campaigns at both media and retail store front levels.
(5)Expanding retail coverage has also mirrored our growing brand impact–with our store presence growing daily in 24 countries, where we have specific programs aimed at retail engagement and effectiveness - taking place at the store level.
Successful Brand Launch in China
(1)HTC is established as an innovator of smartphone brand.
(2)HTC Brand Experience
(a)Started in Europe/Asia
(b)Successfully rolled out to North America
(c)Now is the time to enter China
(3)China Market is a critical market for the future.
(a)2010 is the year HTC lays the ground work for the Brand
(b)We have exciting Products and HTC Sense
 
MATERIAL BOARD RESOLUTIONS
(1)Dividend announcement: The ex-dividend date is July 28th, 2010 and the cash dividend payout date will be August 27th, 2010.
(2)The board appreciated employee effort to deliver an excellent 2010 performance year to date from a suffering 2009, and decided to offer an incentive package to reward employee and encourage morale. The incentive program will be used to compensate employee’s lower bonus level from 2009  and it is in addition to 2010 bonus sharing program which will be paid out in 2011.
(3)In order to prepare this additional compensation program, therefore the board approved a maximum 10 million shares treasury share buyback program from July 13th till Sept.11th, and the cap of buyback amount is NT$6.31 billion.
(4)To expand business in Europe for future growth, the board approved HTC Europe Co., Ltd., to purchase an office building in UK within a budget of GBP 11.3 million.
 
MANAGEMENT INITIATIVES
(1)Strengthening organization for further company growth by inviting and promoting following executive officers and regional presidents :
(a)Ron Louks Chief Strategy Officer
(b)Kouji Kodera Chief Product Officer
(c)David Chen Chief Engineering Officer
(d)Jason Mackenzie President–North America & Latin America
(e)Florian Seiche President–EMEA Region
(2)US business model was changed from cost-plus basis to buy-sell basis where local affiliates will record revenues, costs and expenses on their books. China business model has also started to use buy-sell structure as well.
(3)Starting from this earning call, guidance will be given based upon consolidated basis to provide better transparence; consolidated financial metrics such as Revenue, Gross Margin, Operating Expenses and Tax would be higher than the ones on unconsolidated basis, but the Net Profit should be the same on both reporting methodologies.
 
3Q10 BUSINESS OUTLOOK
(1)3Q unit expects to grow around 132% yoy to reach 6.5mn.
(2)3Q revenue expects to hit record high to approach NT$70bn, up 106% yoy.
(3)GPM expects to be around 29.5%~30%.
(4)OPEX ratio expects to be at the range from 14.5%± 0.5%.
*All the numbers above are based on consolidated financial statements.
 
4.Any other matters that need to be specified:The material for the investor conference is disclosed under corporate governance item on Market Observation Post system and HTC Corporation Website.