beyondbrics

Quietly brilliant. The pithy two-word slogan of Taiwan’s HTC could readily sum up the company’s recent performance. Its Android-based smartphones are spreading across developed markets like wildfire, its unit market share in the global mobile market has gone from nothing to 2.6 per cent in just 3 years, while its latest release – the Thunderbolt – is attracting rave reviews.

And as of this week, the Taiwanese smartphone maker – which few had heard of just a couple of years ago – now has a bigger market cap than Nokia.

While a clear milestone for HTC (2498:TAI), topping Nokia (NOK1V:HEX) tells us more about the Finns than the Taiwanese. HTC’s shares have roughly tripled in value since late 2007, up from $11.7bn to $33.8bn. Nokia meanwhile has tumbled from a lofty $162bn to $33.4bn.

But HTC has a lot going for it. It was the early mover in the Android market – where it enjoyed exclusivity on the Google (GOOG:NSQ) platform for 18 months. Android’s increase in market share took HTC phones with it, helping it establish a global brand – and a market share within striking distance of both Apple and RIM, according to Nomura’s projections.

From an investment perspective, you also know what you’re getting. HTC makes one thing: smartphones. Its listed-rivals in the sector - Apple, Samsung, Nokia and LG - are all wrapped into bigger parents. [RIM - which makes and operates BlackBerry smartphones - is a product and platform in itself.]

HTC, therefore, provides direct exposure to two things growing in the right direction: Android and the smartphone market. It’s also, for now, the only handset maker in the world to sell 4G phones in the US, following the debut of the Thunderbolt on the Verizon network.

But the next 18 months look a lot tougher than the last, now that HTC’s exclusive deal with Android is up. Already, Samsung’s Google phones are making up lost ground, while Motorola recently launched the first Android-powered tablet. Android is still spreading fast, but HTC can only expect a slice – albeit a large one – rather than the whole pie.

And Nokia – though bowed and bloodied – will surely be back before long. Its recent deal with Microsoft shows its intention to transform from a high-volume low-margin mass producer into a genuine force in the smartphone market. Samsung and LG will also keep up the pressure.

HTC’s arrival as a global player has been remarkable. But having risen through the ranks to become a heavyweight in lightening speed, expect rivals to start punching back, hard.

Additional reporting by Robin Kwong in Taipei.

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