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Analyst: HTCmay consider a merger with Huawei

After a string of poor financial results and underwhelming sales of the HTCOne, an analyst from JP Morgan suggests that a merger between HTCand Huawei could help the struggling business survive.
July 15, 2013
htc one google play edition aa back profile

We’ve covered a fair bit of HTC’s recent ups and downs, including, financial troubles, staff resignations, and, of course, the launch of some quality products as well. But as much as we might love the HTCOne, you can’t help but notice that the wider company is grossly under performing when it comes to the financial aspects of its business.

HTC recently missed its second quarter operating margin of between 2.5 and 3 percent, managing only 1.5 percent, despite the launch of its new flagship One. This caused a further sell of the company’s stock, and led many investment firms to downgrade their expectations for HTC’s results for the remainder of the year.

In an attempt to escape from this seemingly desperate situation, an analyst from JP Morgan Securities Ltd said yesterday that HTCCorp could consider a merger with the Chinese manufacturer Huawei, just to survive in the ultra-competitive smartphone market.

[quote qtext=”With a hero product (the new HTCOne) unable to turn its prospects around, the other game changer could be a merger” qperson=”Alvin Kwock” qsource=”” qposition=”center”]

A potential merger between the two companies could leave the newly formed business with the fourth largest share of the smartphone market. According to research conducted by Gartnet Inc, Huawei holds just under a 3 percent share of the global smartphone market, as of Q1 2013, making it the sixth largest manufacturer in the world. Despite the launch of the One, HTCis still languishing behind with less than 2 percent of the global smartphone market, leaving the company in 13th place.

A merger would immediately leave the new company with around a 5 percent share of the global market, leapfrogging LG Electronics, currently sitting on a 3.7 percent share, and ZTE, 3.4 percent, into fourth place. However, the newly formed company would still be behind Apple, 9 percent, and Nokia, 14.8 percent, and a long way behind the market leader Samsung, which currently holds 23.6 percent of the entire smartphone market.

But market share isn’t the only benefit to be had from a merger, the two companies could combine their strengths in order to be much more competitive. We know that HTCis capable of producing products with outstanding quality, and Huawei has managed to break the competitive but lucrative Chinese market. Between them, there’s a potential threat to the other major players in the smartphone industry.

[quote qtext=”Combining Huawei’s China expertise with a brand that has a superior product and consumer experience could boost future growth for the company by bringing complementary expertise in-house,” qperson=”Alvin Kwock” qsource=”” qposition=”center”]

So essentially, HTCwould finally have access to a market with sufficiently strong demand to make the company sustainable. And Huawei seems like the most likely contender, and the company best placed in the Chinese market, to make this happen.

Of course, this is the musing of just one analyst, and we have no idea if this idea has even occurred to HTCor Huawei yet, let alone been discussed. But a merger is an interesting prospect for both consumers and the wider industry, and it could be HTC’s ticket out of its current dilemma, if it’s upcoming products fail to improve the company’s fortunes.