HTC Trails Estimates as It Awaits New Models

HTC Corp. (2498), Asia’s second-largest smartphone maker, forecast revenue that missed analysts’ estimates as it awaits the introduction of new products to help the company rebound from its first profit drop in two years.

First-quarter sales will be NT$65 billion ($2.2 billion) to NT$70 billion, the Taoyuan, Taiwan-based company said in a statement yesterday. Revenue is expected at NT$84.9 billion, according to the average of 14 analysts’ estimates compiled by Bloomberg. HTC didn’t provide a shipment forecast.

Competition from Apple Inc. (AAPL) and Samsung Electronics prompted HTC in November to cut its sales forecast, a move that preceded its first profit decline since 2009. A lack of new models this quarter may delay HTC’s attempts to catch up with rivals as the popularity of advanced smartphones drives growth in the mobile-phone market.

“It’s going to be a transition period because their newer models were selling badly and they’re awaiting fresh products,” said Aaron Jeng, who rates the stock “neutral” at Nomura Holdings Inc. in Taipei. “We need to wait for next quarter to see how those new handsets perform in the market.”

HTC shares lost 5.2 percent to close at NT$551 in Taipei before the announcement. The stock has gained 11 percent this year after dropping 42 percent in 2011.

‘Product Transition’

HTC attributed the forecast for sales, set to be the lowest since the second quarter of 2010, on “product transition,” Chief Financial Officer Winston Yung said on a conference call. He declined to provide fourth-quarter shipments or estimates for the current period, the first time HTC didn’t provide sales volume data.

“Our weakness in first-quarter guidance also comes from facing competition in the U.S. from iPhone and Samsung,” Yung said. “LTE handsets also didn’t meet our expectations.”

HTC in 2009 began offering handsets using the fourth generation long-term evolution, or LTE, technology which allows faster downloads than 3G models.

Stiff competition also hurt shipments in Europe, where the impact was smaller, Yung said. Sales in Asia remain very good, he said.

Adding local content and cooperating with retailers will help the company drive growth in China where it has “high expectations” this year, Yung said.

Operating Margin

Operating margin, which tracks the percentage of sales less operating costs, will drop to 7.5 percent this quarter, from 12.7 percent in the previous three-month period, HTC said yesterday. That’s the lowest in at least three years, according to data compiled by Bloomberg.

Net income is expected to drop a record 39 percent to NT$9.1 billion this quarter, according to the average of 13 analyst estimates compiled by Bloomberg. HTC didn’t provide a profit forecast.

Demand for smartphones, which connect to the Internet and have high-quality displays, propelled the category to 54 percent growth in the fourth quarter, researcher Strategy Analytics said Jan. 26. That outpaced the 11 percent growth in the wider handset market which includes less-advanced models, the researcher said in a separate statement.

HTC revenue may drop about 1 percent this year to NT$462 billion, according to the average of 15 analyst estimates compiled since it reported fourth-quarter earnings.

“There’s a real possibility that HTC may not grow shipments this year, which means they would lose market share because the rest of market is growing,” said Roxy Wong, who rates HTC “reduce” at Mirae Asset Securities Co. in Hong Kong. He estimates global smartphone shipments will climb more than 30 percent this year.

Twenty of 35 analysts surveyed by Bloomberg recommend investors “hold” the stock, eight recommend buying it and seven have a “sell” rating.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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