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HTC’s Stock Ejected From Large Cap Taiwan Index

September 6, 2015 - Written By David Steele

Once upon a time, HTC were the darling of the Android world. Their devices were considered amongst the best of the industry and they were an early adopter of both Android and some of the underlying technologies. The HTC Desire formed the basis of the original Nexus smartphone. They were amongst the first manufacturers to release an overlay for Android that added features and changed how the device worked in order to make things easier for the customer. Roll forward to 2015 and HTC are still making devices that in many respects, are amongst the best in the industry but the competition has caught up (and in the case of Samsung, their marketing budget is much, much greater). These difficulties have weighed heavily on the stock price, which has suffered from steep falls of up to 55% this year, but the company still trades in the FTSE TWSE Taiwan 50 Index, representing one of the fifty largest companies in the Taiwan stock exchange. Unfortunately, later this month, this will change.

For most stockmarkets around the world, every quarter the constituents of the composite indexes are reevaluated. This means that those companies deemed to be the appropriate size, industrial sector or geographic location for a given index are reassessed. In the case of the Taiwan Stock Exchange’s FTSE TWSE Taiwan 50 Index, this index consists of the fifty largest (as measured by market capital) companies trading on the Taiwanese stockmarket. The index consists of almost 70% of the total Taiwanese market and the market cap is measured as the product of the number of shares in flotation and their market value. This figure can change every second the stock is traded, so various markets use averaging rules in order to determine if a share qualifies for a particular index. Sitting below the FTS TWSE Taiwan 50 Index is the FTSE TWSE Taiwan Mid-Cap 100 Index, comprising the next hundred largest constituents by market cap and this represents around 20% of the Taiwan stockmarket. This means that the 150 largest stocks trading on the Taiwan stock exchange represent almost 90% of the market valuation.

This is relevant because in a few days – on the 21 September to be precise – the Taiwan stock exchange is making changes to the index following the revaluation exercise. As part of this, HTC is to be ejected from the FTSE TWSE Taiwan 50 and placed into the FTSE TWSE Taiwan Mid-Cap 100 following a steep shareprice decline and drop in market cap value over the quarter. The news will not make any impact on the business day to day, but could have ramifications for the board if their bonus is dependent on the stock remaining in the FTSE TWSE Taiwan 50 Index or not. HTC’s place is expected to be taken by Eclat Textile, described by the source website as “an elastic functional fabric product provider,” which has seen strong share price gains in the quarter. HTC’s share price had dropped below the value of the businesses’ cash on deposit earlier in the year, which means investors are not expecting HTC’s design and manufacturing abilities to add any value to the business. We are aware that HTC are currently undergoing a business realignment program, which is expected to see a reduction in workforce numbers by around fifteen percent. The restructured business will be refocusing on what it considers to be its core products: high end smartphones, connected devices and wearables. It will also be pursuing virtual reality thanks to the Vive headset, which was announced earlier in the year and has already been delayed. Nevertheless, these changes may not be enough to stem HTC’s decline: the high end smartphone market is currently a tussle between the Apple iPhone and Samsung Galaxy S devices, with competitor Chinese smartphone manufacturers nipping at the heels of the larger players with great value, great quality competitor products.