HTC stock tanks on weak Q2 guidance

MIXED REACTIONS::While a UBS analyst was bearish on HTC’s outlook and retained a ‘sell’ rating on its stock, a Credit Suisse analyst upgraded its price target to NT$290

By Helen Ku  /  Staff reporter

Sat, May 04, 2013 - Page 13

HTC Corp’s (宏達電) shares sank 5.25 percent in Taipei trading yesterday after the smartphone vendor released weaker-than-expected guidance for this quarter.

HTC closed at NT$279.50 after falling to an intraday low of NT$277.50.

On Thursday, the company said it expected sales to expand 63.6 percent sequentially to NT$70 billion (US$2.37 billion) this quarter, driven by its latest flagship product, the new HTC One.

It also projected a gross margin of between 22 percent and 24 percent and an operating margin of between 1 percent and 3 percent.

Analysts’ reaction to the guidance was mixed.

UBS Securities analyst Arthur Hsieh (謝宗文) said in a note released yesterday that HTC’s guidance for second-quarter sales was in line with his expectations, but that the company’s forecast gross and operating margins fell short of the average estimates by most brokerage firms.

Hsieh forecast that HTC’s operating margin could fall below 1 percent, as the company prioritizes marketing and market share expansion rather than profitability.

“Even though we do think the HTC One is a great product, we still need to assess how fast HTC can further ramp up volumes and how the market landscape could evolve,” Hsieh said in the note.

Hsieh retained his “sell” rating on HTC, with a price target of NT$155.

In contrast, Credit Suisse analyst Pauline Chen (陳柏齡) upgraded HTC to “neutral” from “underperform,” and raised the price target to NT$290 from NT$210.

Chen said despite concern over HTC’s profitability as it focuses on market share gains, the company remains a good turnaround story.

“HTC finally has a product that is arguably best-in-class,” Chen said. “This, along with improving components supply, suggests the probability of market share gains has gone up over the next three to six months before the new iPhone shows up.”

Separately, HTC yesterday posted on its Web site for the US market that from Thursday to tomorrow (May 2 to 5), US consumers can trade in their old smartphones, including Apple’s iPhone, Research In Motion’s BlackBerry and Samsung Electronics’ Galaxy S3, and get a cash rebate of up to US$375 when purchasing the new HTC One.

Asked whether such the move was part of the company’s efforts to promote its new flagship product, HTC chief marketing officer Ben Ho (何永生) said by telephone: “The company works very closely with many telecom carriers and retailers all over the world on selling new products.”