Wall Street Beat: iPhone a Life Raft for Handset Sector

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Apple's new 3G iPhone will probably boost the shares of handset-related companies in the near term, but other sectors face a downtrend after the third major U.S. index fell into bear territory, analysts said Friday.

Hype surrounding the launch of the new 3G iPhone will continue to spark interest in smartphones in general, thereby boosting the segment. But the device isn't big enough to help the overall technology sector rebound.

"The iPhone could turn around the handset and smartphone sectors, but not the rest of the technology sector," said Ke Lai-fa, investment manager at Yuan Hui Investments in Taipei.

Investors in Taiwan appear to agree. They sent shares of smartphone maker High Tech Computer (HTC) up 6.5 percent on the Taiwan Stock Exchange to end Friday at NT$687 (US$22.58) per share, despite the fact 3G iPhone sales could hurt the company. HTC announced the Touch Diamond in June, its rival device to the new iPhone.

Other sectors will likely continue to feel downward pressure due to investor pessimism, analysts said.

All three major U.S. stock market indices are technically in bear markets now, after the Standard & Poor's 500 (S&P 500) index entered the bear zone Wednesday. A bear market is marked after an index ends trading 20 percent below a recent peak. The Dow Jones Industrial Average had fallen more than 20 percent as of last Wednesday, while the Nasdaq Composite Index fell into bear territory back in early February.

A bear market is when securities' prices are falling and investor sentiment is pessimistic. In the U.S., the housing crisis, rising inflation and the fear of recession are all causing investors to worry.

To be sure, not everyone agrees with the idea that the 3G iPhone will help rivals. CK Cheng, analyst at CLSA Asia Pacific Markets recently downgraded HTC shares to a sell last month, and a target price of NT$640.

"Increasing competition from the 3G iPhone and high-end handsets from Samsung and LG will force HTC to lower prices and margins will contract," he wrote in a report detailing the downgrade.

But even if the 3G iPhone proves a rival-killer instead of a draw for smartphones, at least companies that make parts used in the new iPhone could prosper.

Jenny Lai, analyst at CLSA, believes the 3G iPhone will be a big seller, and will boost shares of component makers and the assembler of the device, Taiwanese contract electronics manufacturer Hon Hai Precision Industry.

She predicts Apple will ship as many as 18 million 3G iPhones this year due to the low price, features and success of the original iPhone.

Shares of Hon Hai rose 3.3 percent to NT$140 on Friday.

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