Fri, Nov 10, 2006 - Page 11 News List

HTC's shares plunge on speculation of weak sales

UNDER PRESSURE Rumors that a defective component had affected sales of its handsets last month sparked a sell-off of HTC shares in the local exchange yesterday

By Jason Tan  /  STAFF REPORTER

Shares of High Tech Computer Corp (HTC, 宏達電), the world's largest maker of handsets operating on Microsoft Corp's mobile operating system, plunged to near their 7 percent daily limit yesterday amid speculation that sales in October might be affected by a component defect.

The company's shares dipped NT$56, or 6.8 percent, to close at NT$774 on the Taiwan Stock Exchange yesterday.

The share drop came in the wake of speculation that HTC, which is expected to announce its October figures today, would only see sales reach NT$10 billion (US$304.3 million) to NT$10.5 billion.

"If October revenues are below NT$10 billion, [they would] be weaker than our expectation," CLSA Ltd said in a report released yesterday.

The securities brokerage forecast that the handset maker's revenues would at least reach NT$10.5 billion.

Faulty connectors

Rumors of weak sales started with HTC's statement on Wednesday that it needed to rework some faulty connectors on its handsets, which would cost it about NT$5 million.

The company said in a filing to the Taiwan Stock Exchange that the connector replacement was underway and it would negotiate with its supplier, Singatron Enterprise Co (信音), on the possibility of sharing responsibility for the cost.

Shares of Singatron dropped 0.5 percent to NT$52.

HTC reportedly first discovered the defective connectors from Singatron in a batch of smartphones that were scheduled for shipment to Palm Inc at the end of last quarter.

The Chinese-language business news Web site Cnyes.com reported earlier that HTC had thus stalled four production lines for Palm smartphones early last month.

This, coupled with earlier market rumors that some of the smartphones HTC had shipped to Chunghwa Telecom Co (中華電信), the nation's largest provider of telecommunications services, have touch panel problems, would affect its sales volume in the fourth quarter, it said.

Tight supplies of components will be another challenge, according to CLSA.

"The key issue is still [the] component [touch screen panel] shortage that has impacted shipments of two out three major HTC models in the fourth quarter -- Trinity and Artimes," CLSA said in the report.

Cautious sentiment

Though another model, Excalibur, is selling better than expected at more than 300,000 units per month, HTC's revenues in the current quarter will not be very exciting due to conservative handset sales sentiment in the near term, the report said.

As a result, fourth-quarter sales may come in at NT$31 billion, at the low end of company' s guidance and lower than consensus forecasts of more than NT$35 billion, according to CLSA.

But CLSA expects HTC's shares to regain momentum after the low season and the short-term component supply issue has been fully resolved.

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