• Maintain OW, Buy on weak 1Q09 guidance, multiple positive catalystscoming up soon: Our Jun-09 TP is NT$400, based on 12x FY09 P/E (vs. 8-20x historical range). We are reviewing our estimates and expect modestcuts to our 1Q09 EPS, but upside to our full year revenue forecasts(company guides double digit Y/Y growth). Key catalysts from now tillJune: 1) New product launch in 3GSM in Barcelona on Feb 16-19; 2) Atleast 15-20 operator contract announcements on Google phone in comingweeks; 3) Guidance of Y/Y growth acceleration and margin expansion in2Q/3Q09. Key risks in 6-12 months: 1) Apple may end iPhone exclusiveoperator contract in EU sooner than expected; 2) Nokia gaining tractionwith new E-series phones and touch screen devices; 3) EU import tariff onmulti-function handset implemented earlier than expected that HTC cannotreact on time – HTC discloses that 39% of its FY08 revenue come from EU

.• Making sense of quarterly guidance, Google phone operator rolloutholds the key: HTC guides a weak 1Q revenue (down 30% Q/Q, up 1%Y/Y) vs. our estimate of down 27% Q/Q because HTC and operators wantto de-stock as much as they can – in our view, this refers to Diamond heresince once the same operators start to sell Google phone, Diamond saleswill inevitably be impacted. More importantly, HTC confidently guides for2Q and 3Q09 revenue momentum acceleration even in this environment,which we think is not impossible given Google phone penetration power isway higher than Diamond (for more analysis, please refer to our note “HTC:Google phone exclusive contract with T-Mobile near an end, major wave ofoperator rollout is imminent” dated Feb 6, 2009). Few brand companies intech can call today for positive Y/Y growth and Y/Y acceleration in next 2quarters. It is likely that HTC already has a strong lineup of operator rollout.

• Improved mix to counter blended ASP erosion, FX X-factor for GM:HTC guides for 30% GM for 1Q09, in line with our estimates, but OPEX ishigher on low revenue base. More importantly, management is looking for1Q09 to be the bottom of 2009 margin. Despite guiding for mid single-digitblended ASP decline, Google phone will be back to normal brand margin,unlike T-Mobile project, while Android being royalty-free helps. Besides,weak Euro vs. NTD YTD could hurt HTC’s near-term GM, but this mayreverse as our economist call for 6% NTD depreciation vs. Euro by Sep 09

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