Tue, Oct 07, 2008 - Page 12 News List

HTC reports profit drop

By Lisa Wang  /  STAFF REPORTER

HTC Corp (宏達電), the world’s largest maker of handsets running Microsoft Corp’s system, yesterday reported that third-quarter net profits dropped 4.2 percent year-on-year after deducting employee bonus expense, marking its first income drop in five years.

Net profits fell NT$310 million (US$49.28 million) to NT$7.07 billion in the quarter ended Sept. 30, compared with NT$7.38 billion a year ago, a company statement showed. Revenues, however, expanded 30 percent to NT$37.86 billion during the same period.

The company said it was sticking to its full-year revenue target of a high 20 percent to 30 percent growth from last year’s NT$118.59 billion.

“The third quarter results match the company’s forecast,” HTC said in the statement.

Before booking expense for employee bonuses, net profits grew 14 percent annually to NT$8.41 billion. HTC also set aside about 15 percent of its profits for bonuses in the first half of the year after the law requiring companies to book bonuses as an expense went into effect this year. It plans to allocate 18 percent of its full-year profits to reward employees this year.

Yuanta Securities (元大證券) senior analyst Vincent Chen (陳豊丰) said that HTC’s third-quarter net profits were 14 percent lower than his forecast.

HTC has reported second straight disappointing quarterly earnings, suggesting that “earnings momentum has slowed down,” Chen said in a report yesterday.

The company’s financial results usually beat the expectations of most analysts, he said.

“We suspect the gross margin and operating margin could have come in lower than [the company’s] guidance of around 35 percent and 25 percent respectively,” said Chen, who rates HTC a “sell.”

Investors were concerned about mounting pricing and margin pressure in the field of smartphones after more competitors such as Nokia and Blackberry phone maker Research In Motion (RIM) joined Apple Inc in selling touch-screen handsets, Chen said.

Macquarie analyst Lu Chia-lin (呂家霖) said that the third-quarter profit fall might be a signal that “demand is slowing because of growing macroeconomic risks.”

HTC failed to meet Lu’s forecast of NT$8.04 billion in earnings.

To reach its goal of more than 30 percent growth in revenues, HTC would need to post another 30 percent rise in sales in the final quarter of this year, Lu said.

“Sales of Google phones will be the biggest driver,” plus contributions from other new models, Lu said.

HTC is the supplier of Google phones. Telecom operator T-Mobile is set to sell the world’s first batch of Google handsets running on the new Android operating system later this month in the US for US$179 along with a two-year contract.

Lu maintained his “outperform” rating on HTC, with a 12-month target price of NT$700.

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