HTC Forecasts 12th Straight Quarter of Declining Sales

HTC Corp. (2498) forecast a 12th consecutive quarter of declining sales, with revenue and earnings to miss analyst estimates as mid-priced models fail to make up for a slowdown in premium devices.

Third-quarter sales will be NT$42 billion ($1.4 billion) to NT$47 billion, the Taoyuan, Taiwan-based company said in a statement today, missing the NT$53.2 billion average of 21 analyst estimates compiled by Bloomberg. The company’s forecast for earnings-per-share of NT$0.05 to NT$0.69 is short of estimates for NT$0.692.

HTC One M8, the company’s mainstay device released in March, didn’t revive growth last quarter amid increased price pressure from Chinese rivals including Lenovo Group Ltd. and Huawei Technologies Co. Models from its mid-priced Desire smartphone series may help drive revenue in emerging markets in the second half of the year.

“We are not going to be a high-end only smartphone vendor,” Chief Financial Officer Chang Chialin said on an investor conference call today. “We care very much about market share.”

Margin Sacrifice

HTC is willing to sacrifice profit margins to allow the company to cut prices and boost sales volume, Chang told reporters in Taipei after the conference call.

New devices, including an update to its M8, will help the company post an increase in fourth-quarter sales from both a year earlier and a quarter earlier, Chang said. That would be the first year-on-year increase since 2011, with sales for the period projected to climb 14 percent to NT$48.9 billion, according to the average of 21 analysts’ estimates compiled by Bloomberg.

Plans for a new phone using Microsoft Corp.’s Windows operating system will be unveiled this quarter, Chang said today, without elaborating.

Third-quarter comprehensive income will be in a range of a loss of NT$810 million to profit of NT$1.42 billion, HTC said in a statement to the Taiwan Stock Exchange. Comprehensive income includes net income and adjustments for other items including exchange differences on translating foreign operations, said acting-CFO Edward Wang.

The average of analyst estimates is for third-quarter net income of NT$675 million, while HTC’s forecast for pretax profit of NT$50 million to NT$810 million trails analysts’ estimates for NT$1.4 billion.

Gross Margin

Gross margin will be 22.5 percent to 23 percent, compared with the 21.2 percent average of analyst estimates.

HTC on July 3 reported a return to profit, with second-quarter net income of NT$2.26 billion. That beat estimates for NT$2.06 billion, while sales fell short of analyst expectations.

Ben Ho, the third chief marketing officer in three years, quit and will depart by the end of the year, while president of engineering and operations Fred Liu will move into an advisory role after 16 years at the company, Bloomberg News reported earlier. A new CFO to replace Chang may be announced soon, he told reporters today.

HTC shares fell 1.9 percent to NT$132.50 at the close in Taipei trading before the earnings announcement. The stock has lost 6 percent this year, lagging an 8.2 percent advance in the benchmark Taiex index.

(An earlier version of this story corrected the pretax profit forecast.)

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 Dave McCombs, Suresh Seshadri

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