Fri, Jun 07, 2013 page14

• HTC’s sales likely to flatten: Citigroup

  SUSTAINABILITY: Citigroup and Morgan Stanley Taiwan have voiced concern that the smartphone vendor’s reliance on developed markets could hurt it in the long run

  • By Kevin Chen / Staff reporter, with CNA
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  Smartphone vendor HTC Corp (宏達電) is likely to see flat sales growth this month, after sales last month climbed to their highest level in 11 months, Citigroup said.

  “We expect HTC shipments to peak in May, stay at a similar level in June and start to decline in July,” Citigroup Global Markets Inc analyst Kevin Chang (張凱偉) said in a note on Wednesday.

  Chang’s forecast came after HTC on Tuesday reported its consolidated revenue for last month increased to NT$29 billion (US$969.4 million), up 48.03 percent from April, thanks to better-than-expected sales of its flagship HTC One smartphone.

  “We estimate that HTC One accounted for around half of HTC’s May sales,” Chang said, adding that the company might have shipped around 1.2 million units of the phone last month, up 100 percent from April.

  REVISION

  Citigroup originally forecast HTC wouldship only 1 million HTC Ones last month before ramping it up further this month.

  Chang said he revised his shipment forecast upward because HTC’s component yield rate had improved faster than expected, which in turn had enabled it to push some shipments to last month from this month.

  However, “with One volume peaking and other models still weak, we believe May will be the peak of near-term sales,” he said in the note.

  HTC may experience a similar scenario as last year, when sales also peaked in May and June, he added.

  The Taoyuan-based company could also face headwinds from the generally slow market demand in the high-end smartphone segment, according to Citigroup.

  Chang attributed the slow demand to a combination of saturation in developed markets and demand being delayed to next year as consumers wait for the launch of the big-screen iPhone.

  EXPLANATIONS

  “This is probably why iPhone shipments are still stable at around 30 million units per quarter despite the poor consumer feedback on iPhone 5 for its small screen,” Chang said. “We suspect this could be the reason HTC One is not doing particularly well despite other brands not doing so well either.”

  Citigroup maintained a “sell” rating on HTC shares and a NT$205 target price. HTC shares fell 1.4 percent to NT$285 yesterday.

  In a separate note on Tuesday, Morgan Stanley Taiwan Ltd said that HTC needs to conquer its structural issues to win more ground in the competitive smartphone market, despite the success of the HTC One.

  It said that HTC’s sales upsurge last month was probably the result of wider distribution and improved component supply.

  The market has already anticipated the robust sales, and HTC’s risks now lie in the sustainability of its sales into the third quarter, the brokerage said.

  “While new HTC One feedback has been constructive, we are mindful of a few structural issues,” Morgan Stanley’s equity analyst Jasmine Lu (呂智穎) wrote.

  First, HTC is not well-positioned in relation to the industry’s dynamic shift from developed markets to emerging markets, especially as its brand awareness in China is weaker than that of archrival Samsung Electronics Co, Lu said.

  US MARKET

  The Taiwanes/be firm’s market gains in the US are not enough to drive growth because of the deceleration of growth in the US market and a higher mix of prepaid smartphones in the US without operators’ subsidies, she added.

  Moreover, HTC’s component sourcing strategy has been problematic, causing it to miss the best window of opportunity, despite having a well-received product, said Lu, who rated the stock “underweight,” with a target price of NT$199.
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