HTC 2015 Annual Report Download - page 72

Financial status, operating results and risk management
Financial status, operating results and risk management
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(3) Diverse and growing universe of mobile digital 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 have a positive impact 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 quality. Our lack of barriers between departments promotes synergy and
dynamism even further. High criteria of design and manufacture capabilities have been certified by
numerousinternationalmanagementrequirements,includingISO9001,TL9000,andIECQQC
0800000. 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 base 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 the increase of industry supply and support systems and industry clustering effects.
Inadditiontomakingiteasierforustorecruitandretainpersonnel,thesedevelopmentsallowusto
cooperate with domestic and international suppliers in order to lower purchase costs and respond
even faster to industry trends and changes in.
• 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 the rapid growth and demand of smartphone technologies. Competition is expected to continue
to intensify as the smartphone user base grows, smartphone functions and features increase, and
smartphone model lifecycles shorten. The following outlines HTC measures and response to such
challenges.
(1) We work actively to establish HTC's 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 SenseR is designed with customer at the center to make mobile phones more
intuitive and easy to use.
(3)Weupgradeourmaterialsrequirementplanning(MRP)systemtoimproveourabilitytomanage
material inventories, anticipate future demand in order to drive efficient 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.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 critical
components. We also cultivated strategic business relationship with our suppliers.
(4)Improveworkingefficiencytoensuremaximizingtheproductivityineachstage;strengthentime
management, standardize work operation, practice total quality management, follow the policy
of continuous improvement, and reduce the unnecessary waste to enhance the competitiveness
effectively.
(5) 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 foreign workers and work with schools to help
increase domestic hiring in the future.
(2) Risk factors
The following describes identified risks and rela]ted mitigating measures.
1. Interest, forex, and inflation rate risks and mitigating measures
ImpactonHTCprofitability:
Item 2015(NT$1,000or%)
NetInterestIncome 411,846
NetForexIncome 689,281
NetInterestIncomeaspercentageofNetRevenue 0.34%
NetInterestIncomeaspercentageofEarningsBeforeTax -2.65%
NetForexIncomeaspercentageofNetRevenue 0.57%
NetForexIncomeaspercentageofEarningsBeforeTax -4.43%
Note: Calculated on HTC consolidated financial numbers
Working capital required to support the expansion of HTC business operations has over recent years
been supplied exclusively from internal finances. As the corporation has not taken out long-term loans,
fluctuations in interest rates have had no effect on the Company's liabilities. HTC is prudent in its
financial policies, and our asset allocation decisions prioritize security and fluidity, with most funds kept
intimedepositaccounts.In2015,HTCinterestincometotaledNT$412million.
HTC's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 efficient 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 2014, financial derivatives held by HTC related to exchange
riskwerevaluedatUSD194.7million,GBP11.5million,JPY454million,CNH374.5millionandSGD