HTC should turn to apps for its profits: analysts

By Helen Ku  /  Staff reporter

Mon, Jul 15, 2013 - Page 13

As the smartphone market has come to a saturated stage where players face falling margin issues, HTC Corp (宏達電) could use mobile applications to attract more consumers to its devices, analysts said.

Mega Investment Trust Co (兆豐國際投信) said HTC could follow Apple Inc’s model of making profits from selling mobile apps in its App Store. Chinese smartphone maker Xiaomi Corp (小米) and telecom equipment maker Huawei (華為) have already followed in Apple’s footsteps and generated significant profits from app stores, it said.

Enjoying the advantages of a large home market with strong demand for both low and high-end smartphones, Xiaomi and Huawei have developed a variety of gaming, social networking and news publishing apps for consumers to download in their own app stores, which are installed in their smartphones, Mega analyst Kevin Hsu (許鈞雄) said by telephone on Friday.

Despite confronting challenges in expanding its market share in China, HTC could still follow the move and develop Chinese-language apps in its own app store, Hsu said.

With creative applications built in high-quality smartphone products, HTC might find it easier to attract more consumers in the Chinese market, instead of striving to balance market share and profitability, he added.

“Even Huawei and Xiaomi have realized making smartphones running on Google Inc’s free Android platform generates less and less margin. HTC should not keep pushing high-end models, but come up with new profit sources before it’s too late,” Hsu said.

On July 5, HTC reported a 23.87 percent month-on-month sales decline to NT$22.07 billion (US$738.86 million) last month from NT$29 billion in May, and the company’s One flagship model failed to lift the company’s second-quarter sales to meet the market consensus of NT$75 billion, reaching only NT$70.7 billion.

“HTC’s second-quarter operating margin is disastrous, reflecting the fact that the high-end new One flagship smartphone is hardly driving up the company’s sales after only two months since shipments started,” Hsu said.

“Analysts expected the new One, with its innovative features, to sustain HTC’s sales growth for at least two months as a high-end smartphone model,” Hsu said.

“However, the company’s earlier-than-expected month-on-month sales drop proved high-end smartphone models are no more attractive to the market because handheld devices have become like cheap commodities to everyone,” he added.

In a report released on Thursday, JPMorgan Securities (Asia Pacific) Ltd analyst Alvin Kwock (郭彥麟) said Samsung Electronics Co, the world’s largest smartphone maker by shipments, had cut the price of its flagship Galaxy S4 smartphone by more than 20 percent only three months after its launch.

The typical price drop for smartphones is between 5 and 8 percent per quarter, Kwock said.

However, Samsung, LG Electronics Inc and Sony Corp have lowered their prices by between 12 percent and 20 percent for their Galaxy S4, Optimus G Pro and Xperia XL models respectively, he said.

This has pressured HTC to enter the same pricing competition and proved that the product cycle of high-end smartphones is getting shorter, he added.