HTC 2013 Annual Report Download - page 68

FINANCIAL STATUS, OPERATING RESULTS AND RISK MANAGEMENT FINANCIAL STATUS, OPERATING RESULTS AND RISK MANAGEMENT
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(9) Concentration risks associated with goods received and sold and mitigating measures
Purchases:
The skills and capabilities of materials components suppliers are maturing in step with mobile phone
technologies. Growing opportunities to source materials from multiple suppliers reduce the risk of
overreliance on one or several suppliers. HTC also purchases in volume to reduce unit costs and
optimize cost structures.
Sales:
HTC products are distributed across the Americas, Europe and Asia primarily through major carriers
and local retail channels. The influence of carriers can be expected to rise in the new age of 3G/4G
wireless standards, which is expected to benefit HTC product penetration. Apart from working with
current customers to expand markets and strengthen strategic partnerships, HTC continues to discuss
potential cooperative projects with leading IT and telecom companies in order to remain at the fore
of market trends. HTC is also developing the HTC brand and strengthening relationships with channel
retailers in order to reduce business and sales concentration risks.
(10) Effect upon and risk to the company in the event a major quantity of shares belonging to a director,
supervisor, or shareholder holding greater than a 10 percent stake in the company has been
transferred or otherwise changed hands and mitigating measures being or to be taken:
As of the printing of this annual report date, no transfer of significant portions of HTC share rights has
occurred with respect to any director, supervisor, or major shareholder holding more than a 10 percent
stake in the company.
(11) Effect upon and risk to the company associated with any change in governance personnel or top
management and mitigating measures being or to be taken:
There was no change in HTC managerial control in 2013.
(12) Lawsuit：
1. In April 2008, IPCom GMBH & CO., KG (“IPCom＂) filed a multi-claim lawsuit against the Company
with the District Court of Mannheim, Germany, alleging that the Company infringed IPCom's
patents. In November 2008, the Company filed declaratory judgment action for non-infringement
and invalidity against three of IPCom's patents with the Washington Court, District of Columbia.
In October 2010, IPCom filed a new complaint against the Company alleging patent infringement of
patent owned by IPCom in District Court of Dusseldorf, Germany.
In June 2011, IPCom filed a new complaint against the Company alleging patent infringement
of patent owned by IPCom with the High Court in London, the United Kingdom. In September
2011, the Company filed declaratory judgment action for non-infringement and invalidity in Milan,
Italy. Legal proceedings in above-mentioned courts in Germany and the United Kingdom are still
ongoing. The Company evaluated the lawsuits and considered the risk of patents-in-suits are low.
Also, preliminary injunction and summary judgment against the Company are very unlikely.
The Taiwan "National Health Insurance Act" was amended on January 26, 2011, to create an obligation to
fund the health insurance scheme by paying an extra 2% "supplementary premium" (based on 2% of the
total profit sharing and variable bonus) plus the basic premium charge. Such extra 2% "supplementary
premium" will be incurred in connection with future payouts of profit sharing and variable bonus and
increase the operation cost of the Company. HTC has studied the implications of this new amendment
and has taken the necessary managerial precautionary steps with respect to such amendment.
(5) Effects on HTC finances of changes in technology and industry trends and response measures
Wireless telecommunications is an important growth sector within the IT industry and the smartphone
is its flagship product. Responding to rapid mobile internet growth and communication technology
migration to 3G/4G, HTC has leveraged outstanding R&D capabilities in partnerships with global
telecom leaders to launch numerous "world firsts" that include the world's first Windows Mobile,
Android, dual mode GSM/WiMAX, and LTE Android mobile phones. The launch of a diverse range
of products through many carriers worldwide has built up HTC's significant position in the global
telecommunications industry and created exceptional business opportunities. In the meantime, in
order to timely respond to the fast-growing and coming to mature LTE technology and market, HTC
continues to invest more developing resources to ensure HTC devices to fully meet the demands of
global telecom carriers to ensure HTC's leadership position in 4G market and technology. HTC will
continue to use its resources to develop new technologies and enhance the holistic user experience
in order to deliver products and services that fit all high-end, mid-end, and low-end segment market
demands.
(6) Effect of changes in the company's corporate image on the company's crisis management protocol
and mitigating measures
HTC maintains high professional ethics and effective control over its operations. Corporate honesty and
ethics rules effectively bar all in the HTC organization from engaging in dishonest or unethical practices.
(7) Anticipated benefits / potential risks related to mergers and acquisitions and mitigating measures
Mergers and acquisitions in recent years have focused on enhancing overall product value and
enriching the HTC user experience. All such activities have been funded internally. Future mergers and
acquisitions will be conducted through careful consideration of expected benefits and in accordance
with all relevant government laws and corporate regulations.
(8) Anticipated benefits / potential risks of HTC plant expansion plans and mitigating measures
In response to global market demand for smartphone devices, in addition to the continuous review
and improvement of manufacturing processes to improve production capabilities, quality, and cost
savings, the margin of low and middle price tier smartphone is getting lower. The professional assemble
subcontractor in both production line deployment and production skills can easily create economy
of scale. Therefore HTC considers outsourcing ODM production of some low-price tier smartphone to
create price competitiveness. There is no demand for plant expansion.