HTC Forecasts Revenue Rebound on ’One’ Smartphone Models

HTC Corp. (2498), Asia’s second-largest smartphone maker, forecast its highest revenue in three quarters after it released new devices to help gain share following its biggest sales and profit decline in a decade.

Second-quarter sales will be about NT$105 billion ($3.6 billion), the Taoyuan, Taiwan-based company said in a statement today. Revenue was expected to be NT$106 billion, according to the average of 22 analyst estimates compiled by Bloomberg.

HTC is betting on its One series of handsets, announced last quarter, to gain share on Samsung Electronics Co. (005930)’s Galaxy and Apple Inc. (AAPL)’s IPhone after it “dropped the ball” on new products in the prior period. A shortage of chips from Qualcomm Inc. (QCOM) may delay shipments and narrow its competitive edge even after releasing more-powerful devices than its competitors.

“The window of opportunity for HTC to be ahead in the most-advanced products is shrinking because of the delay, as Samsung is set to release its next handset in May,” Richard Ko, who rates the stock neutral at KGI Securities Co. in Taipei, said before today’s announcement. He estimates the delay could reduce shipments by as much as 2 million units to about 11 million this quarter.

Chip Shortage

Qualcomm, the world’s largest maker of chips for mobile phones, can’t get enough supply from its existing manufacturer and is seeking additional output, Chief Executive Officer Paul Jacobs said in an interview last week. HTC also has models that use chips from rival Nvidia Corp. which will mitigate the shortage, KGI’s Ko said.

Taiwan Semiconductor Manufacturing Co. (2330), which counts Qualcomm as a client, has fully booked its most-advanced 28 nanometer facilities and last week announced it will raise factory spending at least 20 percent higher than originally forecast to add capacity.

“At first there was a little concern over supply” of handsets, Chief Executive Officer Peter Chou said in an investors’ conference call today without providing details of any possible impact. “We just work hard to do our best, yet we can’t comment on any specific company.”

Profit Decline

HTC net income will probably drop to NT$11.4 billion this quarter, according to the average of 18 analysts’ estimates compiled by Bloomberg. That compares with NT$17.5 billion a year earlier and NT$4.5 billion in the first quarter. HTC didn’t provide profit forecasts today.

The company plans to pay a cash dividend of NT$40 per share for 2011 earnings, it said in a statement today, in line with the NT$40 projected by Bloomberg. The company paid a dividend of NT$37 cash and 5 percent in stock for the previous year.

Gross margin, the percentage of revenue that’s left after deducting the cost of components and manufacturing, will be about 27 percent this quarter from 25 percent last quarter, HTC said today. The average of analysts’ estimates is for 26.9 percent.

HTC’s sales trailed estimates for the past three quarters with first-quarter revenue the largest miss in more than two years, according to data compiled by Bloomberg.

Information Gap

Analysts have a “gap” in information and were wrong to be bearish on the company because “they don’t know what we’re working on,” Chou said in a Feb. 26 interview when the company announced its One series of handsets.

HTC became the largest smartphone provider in the U.S. during the third quarter, according to market researcher Canalys. Apple’s IPhone 4S and Galaxy models from Samsung prompted HTC to lose its lead and cut its sales forecast more than 20 percent in the fourth quarter.

“We won’t be able to return to the same market share we had before, yet we don’t think that’s a problem,” Chou said today. “Europe and Asia growth will be more balanced and very good.”

Sell Ratings

More analysts have a sell rating on the company than buy, according to data compiled by Bloomberg. The stock’s 3.7 percent decline this year trails a 6 percent advance in the benchmark Taiex index and follows a 42 percent drop last year.

The shortage of chips and resulting delay in handset shipments comes after HTC posted a 70 percent drop in profit, the most since its 2002 listing in Taipei, and a 35 percent decline in revenue during the first quarter.

The company “dropped the ball” on new products in the fourth quarter, forcing a “transition” quarter in the first three months of the year, then-Chief Financial Officer Winston Yung said in February.

Chang Chia-lin, a former partner at Goldman Sachs Inc. who holds a doctorate in electrical engineering, took over as CFO on April 16, less than 16 months after Yung was appointed. HTC, which has announced at least five acquisitions in the past 18 months, may buy more companies, Chang said today.

“It has to be a strategic investment that makes financial sense,” Chang said on the conference call.

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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