HTC's Android smartphones are among the best selling devices at all major U.S. carriers, according to the checks of Robert W. Baird.

Per our checks, HTC's recently launched Android smartphones are experiencing strong demand as consumers gravitate toward 4G and larger screen sizes. In particular, the Inspire 4G, the Evo Shift 4G, and the myTouch 4G, all of which sport 4G capabilities of some sort and larger screen sizes than the iPhone, have achieved solid traction at their respective carriers, said William Power, an analyst at Robert W. Baird

HTC launched the HSPA+ (also known as Evolved High-Speed Packet Access) capable Inspire 4G, AT&T's first 4G device, two weeks ago. Our checks indicate that it's already one of the carrier's best selling smartphones, due in part to its aggressive $100 pricing, said Power.

Power said HTC's ThunderBolt, which is expected to launch this month, will be Verizon's first LTE handset. Power expects this to provide a significant edge over other Android handsets both inside and outside of Verizon.

HTC has a bevy of new devices that appear to be well positioned versus the market. In particular, Power expects the ThunderBolt to be a top selling device at Verizon given its LTE functionality.

Power said HTC's Evo and Evo Shift continue to lead other smartphones at Sprint. HTC's myTouch 4G and G2 continue to be among T-Mobile's best selling devices. HTC's pipeline appears strong, with devices like the Verizon ThunderBolt and Sprint Arrive expected to launch soon.

Power said HTC's Droid Incredible, EVO 4G, and myTouch 3G Slide continue to be solid-to-strong sellers at their respective carriers despite having been on the market for nine months or more.

Power said HTC's Flyer tablet, set to launch in second quarter of 2011, and other potential tablets, are not currently in his estimates and could drive upside to forecasts. Google Inc. continues to activate over 300,000 new Android devices per day, signaling continued momentum for the whole eco-system.

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Investment Thesis

Driven by its early Android leadership, we forecast 2011 revenue growth for HTC of 54.4 percent, with EPS up 42.9 percent year-over-year. We forecast 2012 revenue and EPS growth of 17.1 percent and 14.7 percent, respectively, said Power.

Power said HTC has been able to secure flagship device positioning in many carriers across the globe, including the HTC EVO at Sprint, HTC Droid Incredible at Verizon, HTC myTouch 4G at T-Mobile.

HTC produced the world's first Android-based smartphone in 2008, and remains the leader in Android smartphone shipments. Power expects global smartphone shipments to grow 47.7 percent in 2010 and 40.0 percent in 2011, with Android devices continuing to take share.

Android-based devices grabbed 25.5 percent of calendar third quarter global smartphone share, versus just 3.5 percent a year ago. U.S. smartphone market share grew to 24 percent in October 2010 from 17 percent in July 2010. Continuing Android traction should underpin HTC's opportunities.

HTC overlays its Android devices with its proprietary Sense technology, which helps customize and differentiate the user experience.

We do harbor long-term concerns over the ability of multiple Android OEMs to differentiate themselves over time running the same primary OS. Most of the OEMs are including proprietary software on top of the Android OS, though it is not clear that this will be a significant differentiator over time. Our concern is that consumers could become more aligned with Google Inc. than HTC's Sense or Motorola's Motoblur, said Power.

While Android has garnered the recent headlines, Microsoft Corp. has re-entered the smartphone race with a flurry of Windows Phone 7 based devices. Power said HTC has already launched four Windows Phone 7 devices, with one additional device to be launched over the next few months. How successful Microsoft is with its new platform remains to be seen, but it nevertheless provides another growth vehicle and diversification for HTC.

HTC's Risks & Caveats

While HTC, followed by Motorola, have enjoyed the fruits of early Android investment, other major OEMs (original equipment manufacturers), including Samsung, Sony Ericsson, LG and Dell, have rolled out competitive Android-based devices. HTC's early technology and design leadership could be eroded over time.

Power said the ability of application developers to deliver a seamless experience across every device could be hindered as more and more Android devices and operating systems are introduced on hundreds of carriers.

The effects of interest rate changes, exchange rate fluctuations and price inflation could have an effect on HTC's profitability. HTC manufactures it products in Taiwan and is subject to potential changes in the Taiwanese and American dollar in comparison to other securities worldwide.

The failure of one or more operating systems that HTC uses on its devices could negatively impact the company’s earnings. HTC currently produces phones using Android, Windows Mobile and Brew MP. If any of these operating systems fails to be commercially successful it could have a negative impact on the company’s earnings.

Regulations surrounding the company and its accounting policies are controlled by institutions in Taiwan. Increased regulation or government policies of HTC could affect the company’s finances.

Lawsuits and legal proceedings could affect HTC’s earnings. The company does not believe that there are any major lawsuits involving HTC which could significantly affect shareholder value. However, the company is in a lawsuit with Apple Inc. regarding the use and patent rights to certain touchscreen technologies.