HTC Corp (宏達電), the leading maker of smartphones running on Windows Mobile and Android platforms, saw its shares drop by the daily limit yesterday as the company forecast lower profit margins this quarter amid launches of mid-range phones.
The company’s shares closed at NT$334.5 (US$10.1) on the Taiwan Stock Exchange, the lowest since Nov. 3. The benchmark TAIEX index dropped 0.51 percent yesterday to 7,560.03 points — the lowest close since the beginning of the year.
“The TAIEX kept its head above water in the morning session after yesterday’s [Tuesday’s] sharp 3.48 percent decline; however, selling pressure in the afternoon sent the index down 0.51 percent,” SinoPac Securities Corp (永豐金證券) said in a note yesterday. “The tech sector was dragged down by HTC after the company went limit-down on worse-than-expected guidance.”
HTC told an investor teleconference on Tuesday that its gross margins, a measure of profitability, will be between 29.5 percent and 30.5 percent this quarter, compared with 32 percent last quarter. Sales would be around NT$32 billion to NT$34 billion, up from NT$31.6 billion last quarter.
HTC CEO Peter Chou (周永明) said this year would be HTC’s “brand year,” as the company seeks to position itself as a global consumer smartphone brand.
As it aims to raise brand awareness, it may have to compromise gross margins to launch more mid-range models, Chou said.
“This is a confirmation of our view that market share and scale are more important than short-term profitability,” Citigroup said in a report on Tuesday night.
Based on HTC’s revenue and unit growth guidance, Citigroup estimates that the average selling price of HTC phones could fall 10 percent sequentially this quarter.
The average selling price of HTC’s phones was US$348 in the fourth quarter, unchanged from the previous three months. Its average selling price was US$367 in the fourth quarter of 2008.
“While we agree with HTC’s pricing strategy ... we expect HTC to go through a painful transition period in 2010 in which HTC could face both drastic average selling price and margin erosions,” Citigroup said.
Given its bearish view on HTC’s revenue growth and margins, Citigroup maintained its “sell” rating, with a target price of NT$250 — a 25 percent downside on yesterday’s closing price.
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