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HTC Bets on ’One’ to Break Vicious Cycle of Slumping Sales

HTC has launched its most important product for the year, which it hopes will turn around its fortunes. A lot's riding on the HTC One - profits at the Taiwanese company have been declining for 5 straight quarters, as Jessica Howard reports.

HTC Corp. released its most important smartphone for the year as investors wait to see if HTC One can revive fortunes at a company that’s seen its market share and revenue more than halve in 18 months.

Chief Executive Officer Peter Chou took to the stage in London to tout a handset with an aluminum body, a camera that captures three times more light than any other, and new software aimed at differentiating it from competitors including Samsung Electronics Co., Huawei Technologies Co. and ZTE Corp.

“We see this as a huge opportunity for us to bring new excitement to the smartphone experience,” Chou said. “We as an industry need a new approach to the smartphone.”

HTC’s global smartphone ranking dropped to eighth in the fourth quarter, from fourth six quarters prior, as Asian rivals offer a mix of cheaper and more-advanced devices to consumers from Europe to Asia. With its stock down more than 70 percent since a peak in 2011, success of HTC One will be key to whether profit can rebound after five quarters of decline.

“This is their most important product for the year and will determine whether earnings double or halve in 2013,” said Lu Chia-lin, who rates the stock hold at Daiwa Securities Group in Taipei. “They’re already in a vicious cycle of failed launches leading to lower brand awareness which hurts future releases.”

‘Halo Product’

HTC posted earnings per share last year of NT$20.16, down from NT$73.32 a year earlier, according to data compiled by Bloomberg. A successful product release could boost EPS to NT$40 this year, while a “mediocre” device may see it fall to NT$10, Lu said by phone.

Its shares fell 0.7 percent to NT$280 as of 10:09 a.m. in Taipei today, taking its decline this year to 6.8 percent compared with a 4.2 percent gain in the benchmark Taiex index. This year’s decline follows a 40 percent drop last year and a 42 percent slide in 2011.

HTC One includes front-facing stereo speakers, a 4.7-inch 1080p full high-definition display and a Qualcomm Inc. Snapdragon 600 1.7 Gigahertz quad-core processor. Models with 4G LTE Internet will be available in some markets, it said.

“I could see it being a hero product for them, a halo product,” said David McQueen, an analyst for market researcher Informa Telecoms & Media in London.

Among the new software is BlinkFeed, an application that updates news, photos and social media in real time on the handset’s home screen. HTC Zoe transforms photos into three- second videos, and HTC Sense TV acts as an interactive program guide and television remote control.

Photographer: Simon Dawson/Bloomberg

An employee demonstrates the new HTC One smartphone ZOE camera feature during a launch event in London. The latest handset includes front-facing stereo speakers and a Blink Feed feature, which offers access to social media and news feeds. Close

An employee demonstrates the new HTC One smartphone ZOE camera feature during a launch... Read More

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Photographer: Simon Dawson/Bloomberg

An employee demonstrates the new HTC One smartphone ZOE camera feature during a launch event in London. The latest handset includes front-facing stereo speakers and a Blink Feed feature, which offers access to social media and news feeds.

Revenue Drop

“Smartphones are going to go from being smart to being alive,” AOL Inc. Chief Executive Officer Tim Armstrong said at the London event while showing content features of the HTC One. “It’s going to serve a real consumer need, which is getting instantaneous updates from content.”

HTC’s revenue last quarter dropped to NT$60 billion ($2 billion), less than half the NT$124 billion it posted in the second quarter of 2011 when it was the world’s fourth-largest smartphone vendor at 10.7 percent share. Its plunge to eighth, with a 3.1 percent share, puts it behind BlackBerry, according to data from Bloomberg Industries and IDC Corp.

Component shortages and product defects hampered sales of the One series of handsets, which were unveiled in February last year and released in April with three basic models -- V, S and X -- for the low, middle and high-end.

“They need to avoid a repeat of last year’s HTC One series which had many complaints right from launch,” said Jeff Pu, who rates HTC add at Fubon Financial Holding Co. in Taipei.

HTC will benefit from stronger support from mobile operators seeking alternatives to the iPhone, which commands higher operator subsidies that cut into profits, Pu said. Over 185 operators will offer the device starting from March, HTC said. That’s more than the 140 which sold the One X last year, Pu said.

Photographer: Simon Dawson/Bloomberg

Peter Chou, chief executive officer of HTC Corp., stands beneath a projection of the new HTC One smartphone during a launch event in London on Feb. 19, 2013. Close

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Photographer: Simon Dawson/Bloomberg

Peter Chou, chief executive officer of HTC Corp., stands beneath a projection of the new HTC One smartphone during a launch event in London on Feb. 19, 2013.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

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

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