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HTC Forecasts Continued Sales Decline as Market Share Wanes

HTC Corp. (2498) forecast its sixth consecutive decline in quarterly sales as the Taiwanese smartphone maker faces a loss of market share to Chinese rivals.

First-quarter revenue will be NT$50 billion ($1.7 billion) to NT$60 billion, the Taoyuan, Taiwan-based company said in a statement today. That’s below the NT$64.8 billion average of 19 analyst estimates compiled by Bloomberg.

HTC dropped out of the global top five by smartphone market share last quarter as Samsung Electronics Co. (005930), Huawei Technologies Co. and ZTE Corp. (000063) gained share. A new smartphone, codenamed M7, to be unveiled this month may help boost sales and shipments next quarter.

“The M7 could enter mass production in late February, with shipments ramping up from 1 million in 1Q13 to 2.5 million in 2Q13,” Birdy Lu, who rates the stock hold at Daiwa Securities Co. in Taipei, wrote in a Feb. 1 report. Sales may rise as much as 20 percent in the second quarter from the current period, he wrote.

Net income dropped 91 percent last quarter to NT$1 billion, the lowest in eight years, the company reported Jan. 7. Revenue of NT$60 billion and operating profit of NT$600 million were equal to its own guidance given Oct. 26.

Gross Margin

HTC fell 1.6 percent to NT$285.50 at the close of trading in Taipei before the earnings were announced, taking its decline to 5 percent this year following a 40 percent drop last year.

Gross margin will be from 21 percent to 23 percent, lagging the 24 percent average of 17 analyst estimates compiled by Bloomberg. Operating margin will be 0.5 percent to 1 percent.

Gross margin was 23 percent in the fourth quarter and operating margin was 1 percent, it said.

Net income is expected to be NT$2.56 billion in the first quarter, according to the average of 17 analyst estimates compiled by Bloomberg. HTC doesn’t provide net income guidance.

HTC, whose global smartphone share climbed to 10.7 percent in the second quarter of 2011, posted a 25 percent drop in shipments last year, according to IDC. Its declining share put it outside the top five, with less than 4.3 percent in the fourth quarter, the researcher said Jan. 24.

Samsung, Huawei, Sony and ZTE all gained share for the period, it said. Shenzhen, China-based Huawei, with 90 percent shipment growth, climbed to become the world’s third-largest vendor in the third quarter.

“We’re most confident now because last year we achieved a lot, and we changed a lot,” Chief Executive Officer Peter Chou told employees Feb. 1 at the company’s year-end party after showing off the M7 handset which will be released at press conferences in London and New York on Feb. 19.

HTC named a new marketing chief in November following the appointment of Chang to the CFO post in April and a new North America Chief in July. In an internal e-mail, Chou told employees in August to “kill bureaucracy,” according to a copy obtained by Bloomberg News.

A global patent battle with Apple Inc. was settled during the fourth-quarter after HTC agreed to pay royalty to the iPhone maker. Terms of the deal weren’t disclosed.

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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