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How HTC Got It Right - Market Darlings & Humble Beginnings

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On Wednesday HTC hit a remarkable milestone. Its market capitalisation surpassed Nokia. It had already surpassed RIM. Even more impressive was the vast majority of the rises occurred in just the last two years. So what is HTC getting so very right?

First things first. Let's put these figures into context. Market capitalisation is not a literal valuation. For example in 2010 Nokia turned over £43.5bn and employs over 130,000 people. HTC turned over $9.57bn (£6.7bn) in 2010 and employs just over 5,500 people. Instead market capitalisation is share based. It looks at the share price multiplied by the shares outstanding. Run these numbers and HTC is currently worth $33.88bn, Nokia $32.84bn and RIM $28.5bn. What's more HTC's market cap is in excess of 30x its value five years ago. This poses two questions: 1. Why? and 2. Don't you wish you bought shares?

The why can be answered economically. For all Nokia's size its £43.5bn turnover made just £1.85bn in net income. By contrast HTC's £6.7bn turnover produced £1.35bn in net income. Who would you say has the more efficient, more profitable and consequently more appealing business model to investors? On Friday HTC reported its Q1 2011 financial results. Net profit for the first three months of the year hit $511m, this traditionally slow time is almost triple HTC's figures for the same period in 2010.

Don't you wish you bought shares? In fairness you're not daft if you were caught out. Despite its meteoric recent rise, HTC isn't a new company, it was actually founded way back in 1997. Initially HTC made notebooks, but found its feet by getting into bed with Microsoft and, yes, Windows Mobile. As its biggest mobile partner, HTC kept Microsoft in the smartphone game far longer than it should have been. The company produced beautiful hardware like the Wizard, TyTN and Compact series while putting ever more elaborate skins over the top of the dated Windows Mobile user interface to keep things running smoothly.

These handsets won admiration with carriers all over the world and, choosing to nurture these relationships rather than boost its own ego, HTC allowed the carriers to rebrand them. Take the HTC Wizard line. They were sold as the Cingular 8100/8125 in the US, Vodafone Compact, Dopod 838, i-mate K-Jam, O2 XDA Mini (above), Orange SPV and T-Mobile MDA and MDA Vario to name but a few.

No-one on the street knew who HTC was, but it didn't care. It was all part of a much bigger end game…

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