HTC Sales Forecast Misses Estimates on Weak Phone Demand

Even Iron Man is struggling to save HTC Corp. (2498)

The Taiwanese smartphone maker, which began running ads with Robert Downey Jr. in August and used to be one of the biggest handset vendors in the U.S., is now trying to show it can make devices to compete against those of Apple Inc. and Samsung Electronics Co. The company posted its first loss on record last month and forecast sales that missed analyst estimates for a second straight quarter as new models such as One max fail to spur demand.

Fourth-quarter revenue will be between NT$40 billion ($1.4 billion) and NT$45 billion, the Taoyuan, Taiwan-based company said in a statement yesterday. That trailed the NT$52.2 billion average of 21 analysts’ estimates compiled by Bloomberg.

HTC’s introduction of new handsets, cut in expenses and the release of advertising campaigns featuring “Iron Man” film star Downey failed to prevent its first loss since listing 11 years ago. Weak demand for the latest installment in its HTC One franchise, a large-screen handset called One max, may push sales lower and may drive the company to its second consecutive operating loss.

Related: Rumors, Reality Clash as HTC Tries to Spell Out Future

“Their profit driver for the quarter is HTC One max, which is not a very competitive product,” said Dennis Chan, an analyst at Yuanta Financial Holding Co. in Taipei, who recommends selling the stock. “HTC One was a good phone but faced supply chain problems, now HTC One max has no supply troubles yet it’s not a strong product.”

Photographer: Kiyoshi Ota/Bloomberg

Weak demand for the latest installment in its HTC One franchise, a large-screen handset called One max, will push sales lower and may drive HTC Corp. to its second consecutive operating loss. Close

Weak demand for the latest installment in its HTC One franchise, a large-screen handset... Read More

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Photographer: Kiyoshi Ota/Bloomberg

Weak demand for the latest installment in its HTC One franchise, a large-screen handset called One max, will push sales lower and may drive HTC Corp. to its second consecutive operating loss.

Beats Sale

Gross margin for the fourth quarter will be 19 percent to 21 percent, compared with estimates for 20.7 percent. The company is aiming to cut operating costs to NT$10 billion or below, Chief Financial Officer Chang Chialin said on a call with investors yesterday. Operating expense fell to NT$13.1 billion in the third quarter from NT$15.3 billion in the prior period.

Net income will be boosted by the completion of HTC’s sale of its stake in headphones maker Beats Electronics LLC, Chang told investors. Earnings per share will be NT$0.10 to NT$1.70, HTC said, compared with a loss per share of NT$3.58 last quarter and the NT$0.04 average of analyst estimates.

The company said Sept. 27 that it will sell its remaining 24.84 percent stake in Beats for a pretax profit of NT$2.52 billion, two years after first investing in the U.S. company.

To boost sales, HTC plans to offer phones in a wider range of price bands while avoiding the “ultra low-end” market, Chang said. The company is open to alternatives when considering whether to outsource production to cut costs, he said.

Photographer: Lam Yik Fei/Bloomberg

Customers look at a HTC Corp. One smartphone at one of the company's stores in Taipei, Taiwan. Close

Customers look at a HTC Corp. One smartphone at one of the company's stores in Taipei, Taiwan.

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Photographer: Lam Yik Fei/Bloomberg

Customers look at a HTC Corp. One smartphone at one of the company's stores in Taipei, Taiwan.

Shares Decline

“You are not just going to be able to gain profitability by being more efficient,” Chang said. “You still need to grow your top line.”

Shares of HTC fell by the daily 7 percent limit, the biggest drop since October 2012, to NT$140.50 yesterday before the outlook was announced. They declined sharply in the last hour of trade after trading above NT$146 prior to 12:30 p.m., according to data compiled by Bloomberg. HTC declined to comment on the share decline in response to an e-mailed query.

HTC on Oct. 4 posted a NT$2.97 billion net loss for the quarter ended September, wider than the NT$1.71 billion average of 16 analysts’ estimates at the time. Sales of NT$47.05 billion trailed the NT$54 billion average of estimates.

One Mini

The company released the One mini and two Desire models last quarter, the latest version of the two franchises that have formed the basis of its product portfolio this year. One max, its largest handset to date, was unveiled last month.

HTC, founded in 1997 as a contract manufacturer of personal digital assistants and handsets, needs to improve its customer focus and after-sales service to build loyalty and repeat business, Chairwoman Cher Wang told workers at a town-hall style meeting in October. Peter Chou, president since 2004, is still in charge while Wang will take a more active role so Chou can focus on product development, she said.

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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