ANALYSIS: HTC needs to sharpen up business strategies: experts

By Helen Ku  /  Staff reporter

Mon, Aug 12, 2013 - Page 14

HTC Corp (宏達電) could have reported better sales if all of its latest business strategies had been executed before the smartphone market started entering a matured stage, experts said.

That means the company needs to take steps in a more timely manner to stop declines in its sales and market share, including more mid-end smartphone products, further reduction in product costs, and stronger presence in emerging markets and improvement in internal communication, analysts said.

“HTC has finally adopted an aggressive marketing strategy this year, but the market has changed,” Taishin Securities Investment Advisory Co (台新投信) chairman Andy Wu (吳火生) said by telephone yesterday.

“Guerrilla marketing on core product lineups was necessary and helpful in the past, but it is not enough to create strong replacement demand now as the market is almost saturated,” he said.

On July 31, HTC chief executive officer Peter Chou (周永明) told investors in a conference call that the company’s latest marketing strategies, which cost NT$14.2 billion (US$474.51 million), had paid off, with the One flagship model driving up the company’s sales to NT$70.7 billion last quarter from NT$42.8 billion in the previous quarter.

Last month, HTC launched the 4.3-inch One Mini mid-end model in a bid to boost sales during the third and fourth quarter of the year.

Despite HTC’s announcement that it is planning to roll out more mid-end smartphone models later this year, analysts said the growing strength of Chinese smartphone vendors such as Xiaomi Corp (小米), ZTE Corp (中興) and Huawei Technologies Co (華為) has blocked HTC’s access to the Chinese and other emerging markets.

“HTC’s product strategy this year is right in terms of the number of core flagship products, but the company omitted that fact that the high-end smartphone market is nearing saturation,” said Albert Chen (陳振鈞), vice president of IBTS Investment Consulting Co’s (台灣工銀投顧) research department.

“HTC realized it needs to roll out more mid-end products, but chances are that Chinese vendors, in collaboration with telecoms, have already seized large market shares in their home market,” he said.

Chen said HTC could have avoided its current difficulties if the company had merged with Chinese smartphone vendors in 2010 and 2011.

While Chinese smartphone vendors can manufacture smartphones at a relatively low cost, lack of both sales channels and pricing advantages will be HTC’s biggest concern while operating there, he added.

Wu said HTC needs to form “an alliance” to compete with South Korea’s Samsung Electronics Co and the US’ Apple Inc, the world’s largest and second-largest smartphone brands.

“HTC is an internationally renowned brand with an established reputation, which is what Chinese smartphone vendors lack,” Wu said.

“Given that Chinese smartphone vendors can assemble products themselves and save on assembling cost, HTC should consider merging, which could help strengthen its foothold and may accelerate its speed in expanding market share in other emerging markets,” he said.

However, the tepid global economic recovery may postpone consumers’ decision to purchase for a longer period, he added.

“Products such as desktops, laptops and smartphones yield less and less margin for makers after the penetration rate of such devices has reached a level where growth speed starts decelerating,” Wu said.

For this quarter, HTC forecast its sales to decline by between 14.3 percent and 28.6 percent to a range of between NT$50 billion and NT$60 billion, from the NT$70 billion it generated last quarter.

Gross margin this quarter is forecast to drop to between 18 percent and 21 percent from 23.2 percent during the April-to-June period, while operating margin could fall to between zero percent and minus-8 percent from 1.5 percent last quarter, the company said.

Wu said HTC could report net losses per share of NT$2.5 this quarter, with full-year earnings per share falling into red this year for the first time after becoming a listed company.

The company’s EPS were NT$0.1 and NT$1.5 during the first and second quarter of the year respectively.

However, CLSA Asia-Pacific Markets analyst Cheng Chao-kang (鄭兆剛) said he was particularly concerned by HTC management’s product strategies, but saw the company’s board appear “in no hurry to reshuffle management.”

While Cheng did not say that he felt a management reshuffle was necessary, he said HTC’s employee turnover rate has become another issue it needs to resolve after a total of 12 executives left the company in the past few months for a variety of reasons.