HTC Sees Lowest Sales Since 2010 as Market Share Slides

HTC Corp., Asia’s second-largest smartphone maker, forecast its lowest sales in 11 quarters, missing estimates, as new models fail to arrest a slide in market share amid competition from Apple Inc. (AAPL) and Samsung Electronics Co.

Fourth-quarter revenue will be around NT$60 billion ($2.1 billion), the Taoyuan, Taiwan-based company said in a statement today. The average of 24 analyst estimates compiled by Bloomberg is for sales of NT$74.6 billion. The figure would be the lowest since the first quarter of 2010, according to data compiled by Bloomberg.

HTC posted a 43 percent decline in third-quarter smartphone shipments from a year earlier, the most among the top five vendors, even as the market climbed 45 percent, according to IDC Corp. New handsets using Microsoft Corp. (MSFT)’s Windows system may not be enough to offset lost share in the market for those which run on Google Inc. (GOOG)’s Android.

“Worldwide competition is incredibly tough, which is challenging HTC,” said Alvin Kwock, who rates the stock underweight at JPMorgan Chase & Co. in Hong Kong. “In China, the strongest-growing market, margins are substantially lower than elsewhere because Samsung is cutting prices.”

Gross margin, which measures the percentage of sales left after deducting the cost of goods sold, will be about 23 percent this quarter, the company said today. That’s less than the 25 percent average of 21 analysts compiled by Bloomberg and the 25 percent it posted in the prior quarter.

Lower-Priced Products

Operating margin will be about 1 percent this quarter, from 7 percent last quarter, HTC said.

Revenue will be less than investors expected because new products won’t be on shelves ready for sale until the middle of November, Chief Financial Officer Chang Chialin said on a conference call today.

“We believe products announced and ready on the shelf in the fourth quarter will continue with their momentum into the first quarter,” Chang said. “In China (2498) we have a very good plan and strong partnerships with distributors” that will help boost sales there.

Revenue in October will be lower than September, while sales in November will exceed that of September, Chang said. Gross margin will drop because of a higher proportion of lower- priced products and a provision for clearing older inventory, he said.

Refreshed Product Line

HTC released its first handsets using Microsoft’s new Windows Phone 8 operating system in September and refreshed versions of its Desire and One Android-based models in the past three months amid competition from Apple’s iPhone 5 and new Galaxy devices from Samsung.

HTC on Oct. 8 posted a record 79 percent drop in net income to NT$3.9 billion for the third quarter while revenue of NT$70.2 billion also missed analysts’ estimates.

Stronger brand awareness in China and a greater retail presence helped that market drive HTC growth in the third quarter, Chang said. U.S. sales were in-line with expectations, he said.

HTC has good customer awareness in Europe and needs to boost the proportion of consumers who prefer its brand over competitors, Chang said. The company’s performance in some emerging Asia-Pacific markets isn’t meeting expectations, he said.

Shares of HTC dropped 4.8 percent to close at NT$236 in Taipei before the announcement, extending their decline this year to 53 percent. The stock fell 42 percent last year.

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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