Cheap phones may cause HTC to consider outsourcing

Staff writer, with CNA

Fri, Sep 27, 2013 - Page 14

HTC Corp (宏達電) might outsource its smartphone orders to Taiwanese contract manufacturers in a move to ease financial pressure sand target the price-sensitive China market, JPMorgan Securities said on Wednesday in a report.

The brokerage said Chinese companies might be interested in a merger with HTC as a way of upgrading their design capabilities, because it is becoming increasingly difficult to make money in the sub-US$100 segment due to the rise of Xiaomi Corp (小米) mobile phones and “white box” models — cheaper clones of brand-name devices.

HTC has engaged Quanta Computer Inc (廣達) and Wistron Corp (緯創) to produce mid-range and entry-level cellphones for the Chinese market, according to JPMorgan analyst Alvin Kwock (郭彥麟).

“Thus, we suspect that HTC might not consider a merger scenario right now,” Kwock said in the report, in which he maintained an “underweight” rating on the stock with a price target of NT$100.

The Hong Kong-based analyst expects HTC’s third-quarter sales to reach the low end or fall short of the company’s guidance at NT$50 billion to NT$60 billion (US$1.7 billion-US$2 billion), as HTC has limited flexibility for cutting its prices to compete against other Android mobile phones, leading to a shorter-than-expected life cycle for its flagship smartphone, the HTC One.

To limit the magnitude of the loss, Kwock says HTC must reduce its operating expenses and marketing budget, making a recovery in coming quarters even tougher.

“We also believe that the financial loss may continue, but will not be enough to create financial stress, although this could change when a bigger iPhone arrives,” he said.

HTC shares closed 0.74 percent lower at NT$134 yesterday.