HTC Corp (宏達電) shares gained 1.09 percent to NT$138.50 yesterday after the company released better-than-expected quarterly net profits, but analysts were not impressed, retaining their neutral view toward the smartphone maker amid concern over a shorter product cycle and intensifying competition.
Last quarter, HTC swang back to profit after three straight quarters of operating losses. Its operating profit during the April-to-June period totaled NT$2.43 billion (US$81.29 million), while its net profit amounted to NT$2.26 billion, beating analysts’ consensus estimate of NT$1.96 billion.
While HTC expects the sales momentum of its new flagship product, M8, and mid-tier model, Desire 816, to persist throughout the whole year, analysts are cautious about the company’s profitability as smartphone product cycles become shorter.
“We estimate HTC’s third-quarter sales to decline to NT$47.5bn, down 27 percent quarter-on-quarter, mostly due to weaker HTC One M8 momentum,” UBS Securities analyst Arthur Hsieh (謝宗文) said in a client note published on Thursday.
As the sales momentum of the M8 wanes, HTC is expected to ship fewer high-end smartphone products and more lower-margin mid-tier and entry-level models this quarter, Hsieh said.
Based on his downbeat perspective, Hsieh forecast that HTC’s operating margin would dip to only 0.4 percent this quarter from 3.7 percent last quarter, and projected that its net profit would decline 85.2 percent sequentially to NT$334 million, or NT$0.41 per share.
Hsieh retained his rating of “neutral” for HTC, but cut his price target to NT$140 from NT$180.
First Capital Management Inc (第一金證券投顧) also maintained its “neutral” rating, saying that HTC still faces many challenges as Chinese smartphone brands initiated cutthroat pricing competition in the market.
“Cutting operating expense is a way to stay profitable only in the short term. HTC’s plan to sell more new products in collaboration with US telecom giant AT&T Inc can help the company regain global market shares and improve sales performance, and that is what we expect to see during the second half of the year,” First Capital said in a report yesterday.
First Capital forecast that high-end smartphones would account for 55 percent of HTC’s annual sales this year, while mid-tier and entry-level models would make up the rest.
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