Fri, Jun 08, 2012 - Page 11 News List

HTC shares tumble as target is cut

By Kevin Chen  /  Staff reporter

Smartphone maker HTC Corp (宏達電) is set to face low order visibility amid more market competition in the second half of this year, despite the recent launch of its new flagship model, especially after the company said it would not meet its sales target for the second quarter, analysts said.

HTC shares tumbled by the 7 percent daily limit to NT$378 yesterday, as jittery investors sold off their shares after HTC announced on Wednesday it was cutting its second-quarter sales guidance by 13.3 percent on weak European demand, competition from Samsung Electronics Co, delayed shipments to the US and a NT$2.6 billion (US$87.09 million) one-off channel inventory write-down.

Yesterday’s closing price was the lowest level since July 2, 2010, when the stock traded at NT$365.97. Yet, the stock could go even lower as several foreign stock brokerages cut their target share prices for HTC to between NT$320 and NT$230 over the next 12 months.

“With Samsung’s Galaxy S III winning popularity and Apple’s new iPhone possibly going on sale in the third quarter, HTC is facing a number of challenges ahead,” Grand Cathay Securities Co (大華投顧) analyst Lisa Chen (陳玫芬) said yesterday.

On Wednesday, HTC reported lower-than-expected sales of NT$30 billion for last month and slashed its sales guidance for the second quarter to NT$91 billion, from the NT$105 billion it projected previously. The company also said gross margins would stay put at 27 percent in the quarter, but cut operating margins by 200 basis points to 9 percent from 11 percent forecast earlier.

JPMorgan analyst Alvin Kwock (郭彥麟) said HTC’s second-quarter sales guidance adjustment was not totally unexpected, given that the market has been expecting some downside since its shipments to the US custom were delayed by customs review last month.

“Still, the magnitude of the cut was larger than expected, and the increasing volume gap compared with Apple and Samsung, as well as changing geographical mix, raise questions about [HTC’s] longer-term profitability,” Kwock wrote in a note.

Credit Suisse analyst Pauline Chen (陳柏齡) said HTC’s downward move, coming after its recent launch of a much better flagship model — the One series — indicated the company’s “weakness in running a global campaign, channel distribution and marketing skills.”

"The second half could be even tougher," she said in a separate note.

HTC stock has dropped more than 70 percent from as high as NT$1,300 in April last year. The stock is likely to face more near-term pressure after Apple reportedly filed a new complaint seeking to block HTC’s latest handsets in the US and Microsoft Corp might shut out the company from future product development based on its Windows 8 operating system.

Yesterday, HTC reiterated its shipments to the US cleared the US Customs review. “The US Customs office has reviewed and approved HTC devices for import into the US, as they are in compliance with the ITC’s ruling,” HTC said of the Apple action in a statement.

The company also stressed to maintain its collaboration with the US software giant.

“HTC has sold more than 40 million Windows Phones over the past 10 years and we are committed to future versions of Microsoft’s Windows Phone platform more than ever,” it said in the statement released yesterday.

This story has been updated since it was first published.

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