HTC 2011 Annual Report Download - page 57

5. We work hard to maximize the productivity of each
link in our business chain, enhance time management,
standardize workflows and fully implement ISO quality
control practices in order to improve competitiveness
through reduced process and communications costs and
comprehensive quality management.
6. HTC's leadership in the industry helps ensure that suppliers
accommodate and meet HTC priorities in expanding
market sales. This helps mitigate risks related to reliance
on overseas suppliers for many critical components. We
further benefit from close strategic relationships that help
ensure supplier support and favorable purchase terms.
7. As the fastest growing sector of Taiwan's economy, the
electronics industry requires a steady stream of human
resources. Downsizing in the manufacturing sector has
increased the difficulty in hiring entry-level workers. HTC
plans to continue to hire local and foreign workers, also
work with schools to help increase domestic hiring in the
future.
(2) Risk Factors
The following describes identified risks and related mitigating
measures.
1. Interest, forex, and inflation rate risks and
mitigating measures：
Impact on HTC profitability:
Item 2011
(NT$1,000 or %)
Net Interest Income 670,745
Net Forex Income 1,777,511
Net Interest Income as percentage of net
revenue 0.14%
Net Interest Income as percentage of
Earnings Before Tax 0.94%
Net Forex Income as percentage of net
revenue 0.38%
Net Forex Income as percentage of Earnings
Before Tax 2.49%
Note: Calculated on HTC consolidated financial numbers
Working capital required to support the expansion
of HTC business operations has over recent years
been supplied exclusively from internal finances. As
the corporation has taken out no long-term loans,
fluctuations in interest rates have had no effect on the
Company's liabilities. HTC is prudent in its financial
policies. Asset allocation decisions prioritize security and
fluidity, with most funds kept in time deposit accounts.
During 2011, HTC interest income totaled NT$670 million.
HTC revenues are denominated primarily in US dollars
(USD) and euros (EUR). Manufacturing costs are
denominated primarily in US dollars. Forex fluctuations
have the potential to impact HTC revenues, operating
costs and operating profits. Apart from careful
management of the quality and payment cycles of its
foreign currency-denominated accounts receivable, HTC
uses forward exchange contracts to minimize its forex
risk. At the close of 2011, financial derivatives held by HTC
related to exchange risk were valued at EUR339 million,
GBP17.1 million, CNH 671.7 million and CAD 28.9 million.
Fair value of the derivatives changes as a result of forex
fluctuations. A fall of 1% in the quoted exchange rate of
any one of the abovementioned currencies against the
NT dollar would result in a derivatives holding benefit to
HTC of approximately NT$181.5 million.
During 2011, the euro appreciated against the NT
dollar from 1:39 to 1:42, but depreciated against the
NT dollar to 1:39 at the end of the year. The US dollar
rose from 1:29 against the NT dollar to approximately
1:30.3. Net exchange income earned during 2011 totaled
NT$1,777.511 thousand. Under effective management
by the Company, negative effects of exchange rate
fluctuations on profits in recent years have been minimal.
Inflation in Taiwan was approximately 1.42% in 2011.
Inflation rates in North American and European markets
were also relatively negligible. Overall, inflation had no
significant impact on HTC profits.
2. Risks associated with high-risk/high-leveraged
investment; lending, endorsements, guarantees
for other parties and financial derivative
transactions
HTC does not engage in high-risk ventures or highly
leveraged investments. Loaning of funds takes place
only between HTC subsidiaries. All such arrangements
must be reviewed and approved by the board of
directors in accordance with the Operational Procedures
for Fund Lending and Rules for Endorsements and
Guarantees. HTC engages in derivative products trading
only to mitigate forex risks arising from foreign currency
assets and liabilities. All derivative trading is conducted
according to stipulations written in the Procedures for
Acquisition or Disposal of Assets.
Factors Favorable to HTC Growth
1. Partnerships with Industry Leaders Help HTC
Drive Industry Trends
HTC has always developed smartphone products in
close cooperation with industry leaders such as Google,
Microsoft, Qualcomm as well as the world's leading
telecom operators. Examples include HTC's launch of
the world's first Windows Mobile smartphone and first
Android smartphone. Our strong partnerships deliver
greater choice to consumers while continuing to drive
industry innovation.
2. Long-term Cooperative Relationships with
Telecom Operators Keep HTC Abreast of
Consumer Demand
HTC promotes products directly to mass-market
consumers via long-term, unique relationships with the
world's largest telecommunications service providers
that include the four big mobile operators in the United
States, five major operators in Europe and several fast
growing carriers in Asia. These relationships not only
keep HTC abreast of user demand but also allow HTC
to better tailor its products and services to the needs of
each carrier partner.
3. Diverse and growing universe of mobile data
services drives smartphone market penetration
New mobile phone operating systems such as Android
and iOS, which permit easy app store downloading of
social networking, shopping, travel, game and other
software, are attracting even more consumers to the
ranks of smartphone users. Smartphone industry is now
in the strong growing stage, and telecom operators'
aggressively rollout of 4G fastest mobile Internet
networks to stimulate growth even further. These
developments should all impact positively on HTC
business growth prospects.
4. Instilling a positive corporate culture enhances
organizational flexibility and responsiveness
HTC promotes a unique corporate culture that
is designed to instill passion for innovation and
commitment to the highest standards. Our lack of
barriers between departments promotes synergy and
dynamism even further. HTC's highly efficient operations
have been affirmed by numerous international quality
standards including ISO-9001, ISO-14001, ISO-14064-
1, TL-9000, and OHSAS 18001. Outstanding in-house
research and development capabilities give HTC the
competitive edge to reach the market first with many
industry leading innovations and features.
5. Comprehensive domestic industry infrastructure
supports current and future growth needs
Active government and private sector efforts to grow
the domestic high tech sector in recent decades have
given Taiwan a strong foundation of skilled researchers
and technicians. Taiwan is further benefiting from
increasingly coherent industry supply and support
systems and industry clustering effects. In addition to
making it easier for us to recruit and retain personnel,
these developments increasingly allow us to cooperate
with domestic and international suppliers in order
to lower purchase costs and respond even faster to
industry trends and changes.
Factors Adverse to the Achievement of HTC
Growth Goals and Relevant Countermeasures
Many current and potential competitors are now active in
the smartphone market looking to benefit from current rapid
growth in worldwide demand. Competition should continue
to intensify as the smartphone user base grows, smartphone
functions and features increase, and smartphone product
lifecycles shorten. The following outlines HTC measures
designed to respond to such challenges.
1. We work actively to establish HTC brand value, enhance
global brand recognition and preference, and leverage
effective brand management activities and product
promotions to establish the HTC brand as consumers'
"first choice" in smartphones.
2. We emphasize innovation to maintain a leading
competitive edge. Product differentiation and
innovations in user experience allow us to develop
a wide range of products tailored to meet diverse
consumer needs. HTC Sense™ is designed with customer
at the center to make mobile phones more intuitive and
easy to use.
3. We enhance product design, mass production, technical
support, distribution, and after-sales services for our
customers in order to strengthen strategic alliances with
global industry leaders and remain aligned with industry
trends and developments.
4. We regularly upgrade our materials requirement
planning (MRP) system to improve our ability to manage
material inventories and anticipate future demand in
order to lower inventory costs and reduce inventory
devaluation risks. We continue to build and diversify
supplier relationships to enhance supply stability. Our
objectives are consistent and uninterrupted supply of all
materials and a highly competitive cost structure.
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