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HTC Returns to Profit as Cost Cuts Offset Sales Miss

HTC Corp. (2498), the smartphone maker that reported three straight quarterly operating losses, returned to profit after the release of its marquee One M8 smartphone and marketing cost cuts helped stem the effect of a sales decline.

Second-quarter net income was NT$2.26 billion ($76 million), the Taoyuan, Taiwan-based company said in a statement yesterday. That’s higher than the NT$2.06 billion average of 14 analyst estimates compiled by Bloomberg.

One M8, released in March as the company’s main product for the year, helped drive the largest monthly revenue growth since 2011 for April before declining again in May and June as competition from rivals such as Xiaomi Corp. intensifies. Earnings would return to profit for the June quarter with sales improving throughout this year, Chief Financial Officer Chang Chialin told investors in a May 6 conference call.

“We believe that 2Q14 might be the sales peak in 2014,” Robert Cheng, an analyst at Bank of America Merrill Lynch in Taipei wrote in a report after the earnings. “HTC One M8 might have generated good performance since its launch, but given the short product cycle, HTC needs to have more models.”

Beyond M8, a high-end thin, metallic handset released in March, HTC is also looking to its mid-end Desire series to sustain sales momentum throughout the year. Wearable devices and a tablet may also be released later in the year. Revenue and net income are set to fall through the rest of this year, according to analyst estimates compiled by Bloomberg, indicating the second quarter was HTC’s peak as it faces competition from new devices made by Apple Inc. (AAPL), Xiaomi and Samsung Electronics Co.

Photographer: Maurice Tsai/Bloomberg

A pedestrian looks at an advertisement for the HTC Corp. One M8 smartphone displayed at one of the company's stores in Taipei. One M8, released in March as the company’s main product for the year, helped drive the largest monthly revenue growth since 2011 for April before declining again in May and June. Close

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Photographer: Maurice Tsai/Bloomberg

A pedestrian looks at an advertisement for the HTC Corp. One M8 smartphone displayed at one of the company's stores in Taipei. One M8, released in March as the company’s main product for the year, helped drive the largest monthly revenue growth since 2011 for April before declining again in May and June.

Quarterly Sales

HTC shares rose 1.1 percent to close at NT$138.50 in Taipei trading. The benchmark Taiex lost 0.2 percent.

Sales for the quarter fell 8 percent to NT$65.1 billion, at the lower end of HTC’s own forecast for NT$65 billion to NT$70 billion. While that missed analyst estimates for NT$66.9 billion, the decline was the smallest since the last quarter of 2011.

Operating income was NT$2.43 billion for the quarter, up from NT$1.05 billion a year earlier, and beating the NT$2.17 billion average of analyst estimates. HTC released the figures in an exchange statement and news release without elaborating.

HTC is cutting operating expenses by reducing marketing costs, Chang said in May. The company had forecast operating expenses of NT$11.7 billion to NT$12.2 billion for the quarter, compared with NT$15.3 billion a year earlier, and didn’t provide a figure in its announcement yesterday.

HTC, founded by Chairwoman Cher Wang in 1997, posted three consecutive operating losses through to the first quarter of this year, with its net income in the fourth quarter coming via profit from the sale of its stake in Beats Electronics LLC.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net Aaron Clark

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