HTC forecasts a grim Q3, possible loss

INVENTORY WOES::The firm predicted its gross margin would drop from 23.2% last quarter to between 18% and 21% this quarter, but would improve in the next

By Helen Ku  /  Staff reporter

Wed, Jul 31, 2013 - Page 13

Smartphone maker HTC Corp (宏達電) yesterday said it might post a loss in the third quarter, with an operating margin of zero to minus-8 percent, after reporting an 83 percent plunge in net profits for the second quarter due to higher costs and inventories.

Its net profit totaled NT$1.25 billion (US$41.67 million), compared with the NT$7.4 billion recorded in the third quarter last year, while revenue fell 22 percent year-on-year to NT$70.7 billion.

If HTC does post a loss next quarter, it would be the first time it posts a negative operating profit margin since 1999. Last quarter, its operating profit margin rebounded from 0.1 percent in the first quarter to 1.5 percent.

Cheng Kai-ming (鄭開明), an analyst with Horizon Securities Co (宏遠證券), said the potential quarterly loss could be caused by an inventory write-off as high as NT$28.1 billion.

“It is too early to say if HTC can raise its profitability during the fourth quarter,” Cheng said.

“With the high-end smartphone market becoming overcrowded with suppliers, HTC has to find a good balance between increasing its marketing budget and making new products with distinct features to meet market demand,” Cheng said.

HTC forecast that revenue this quarter would grow at a slower pace by between 14.28 percent and 28.57 percent sequentially to fall within the range of NT$50 billion and NT$60 billion from NT$70 billion.

The company blamed stiff competition for the decline, but said it expected momentum to return next quarter.

“We hope the third quarter will be the bottom and an improvement will follow in the fourth quarter,” HTC chief executive officer Peter Chou (周永明) said.

HTC forecast its gross margin would decline to between 18 percent and 21 percent this quarter from 23.2 percent in the second quarter.

HTC expects its gross margin to improve next quarter, boosted by sales of mid-end and entry-level smartphones, Chou said.

Supported by strong sales of the flagship "One”smartphone, the Taoyuan County-based HTC earlier this month posted NT$1.25 billion in net profit for last quarter, compared with NT$900 million in the previous quarter. But the figure still represented an annual decline of 83.78 percent from NT$7.4 billion.

While HTC has also seen sales of its high-end smartphone models improve in China over the past three months, it is ramping up shipments of mid-end products to enhance its competitiveness in the Chinese market, where competition in the smartphone sector has intensified at a fast pace, Chou said.

“Chinese consumers this year have gained a very strong brand awareness about HTC after we launched an aggressive marketing campaign there,” he said.

HTC also announced yesterday that it has hired former Apple Inc marketing official Jack Yang (楊偉國) to be the company’s head in the South Asia market and has made former Nokia Oyj smartphone division executive Sirpa Ikola senior director of marketing for the same region.

Additional reporting by AFP