HTC Posts Profit as One-Time Gains Mask Sales Slump

HTC Corp. posted third-quarter profit that beat analyst estimates as one-time gains helped overcome eroding sales amid competition from Xiaomi Corp. and other Chinese smartphone makers.

Third-quarter net income was NT$640 million ($21 million), the Taoyuan, Taiwan-based company said in a statement today. The average of 15 analyst estimates compiled by Bloomberg was for profit of NT$501.6 million. HTC, maker of the One line of smartphones, posted a loss a year earlier.

HTC’s mid- and low-end phones released in China face competition from devices by Xiaomi and Huawei Technologies Co., while the introduction of Apple Inc.’s iPhone 6 models attracted high-end buyers. Sales and profit probably will drop again this quarter, analysts estimate, while the company plans to release its first action camera and a tablet computer developed for Google Inc.

“In China, you have Xiaomi and Huawei and a whole bunch of cheaper handsets with quite good performance, while in the States you have the iPhone,” Birdy Lu, who rates HTC shares hold at Deutsche Bank AG in Taipei, said before the earnings announcement. “From a share price perspective, it might not fall off too much from here because there’s already no expectation for the stock.”

Foreign Exchange

Revenue fell to NT$41.9 billion in the third quarter, missing the company’s forecast of NT$42 billion to NT$45 billion and the NT$45.5 billion average of 19 analyst estimates compiled by Bloomberg. Sales have dropped every quarter since 2011 and have missed estimates 13 consecutive times.

Operating profit of NT$160 million missed the NT$222 million median of 17 analyst estimates compiled by Bloomberg. HTC didn’t explain its earnings in today’s statement.

The operating income indicates it had a non-operating profit of NT$480 million, likely from foreign exchange and disposal gains, said Calvin Huang, an analyst at SinoPac Financial Holdings Co. in Taipei.

HTC planned to manage costs, including a “streamline” of marketing expenses, to help its earnings, Chang Chialin, chief financial officer and director of global sales, said in a July 31 investors’ conference call.

Wearable Devices

HTC rose 2.3 percent to close at NT$131.50 in Taipei today before the announcement. The shares are down 6.7 percent this year, compared with a 5.8 percent advance in Taiwan’s benchmark index. Two of 32 analysts surveyed by Bloomberg recommend buying the stock, while 22 advise selling.

HTC is likely to unveil its first camera and new phones at a press event this week in New York, a person familiar with the plans said last month. The new product category coincides with HTC’s return to tablets with this quarter’s release of a Nexus tablet for Google.

A move into cameras, part of Chairwoman Cher Wang’s push into new categories including wearable devices, may prove difficult for HTC, which has focused on smartphones.

“They need to have a channel because it’s a new product that’s different to smartphones, so that could be one of the challenges” for their move into cameras, Deutsche Bank’s Lu said.

The addition of new products also comes as HTC revamps its leadership. Chief Marketing Officer Ben Ho departed at the end of September, and the company appointed Chang to co-lead its smartphone business with David Chen.

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