HTC Corp (宏達電) should sell its smartphone manufacturing plants in China and Taiwan in order to reduce its manufacturing and labor costs so the company might have a chance to make a turnaround sooner, analysts said.
“Given its poor shipment performance in the first half of the year and the gloomy outlook for the second half, HTC’s production capacity utilization rate is very likely to be lower than 50 percent. I expect the company to soon sell its plant in Shanghai,” a SinoPac Securities Investment Service Co (永豐投顧) analyst, who declined to be named, said by telephone.
Last week, Chinese-language Next Magazine reported that HTC was to shut down two production lines at its Shanghai plant. The Taiwanese brand might consider selling the Shanghai facilities to an unnamed Chinese company, the magazine said.
HTC did not confirm or deny the report. The company reiterated its plans to streamline its operation through a 35 percent cut in operating expenditures, including a 15 percent reduction in its global headcount.
In the April-to-June quarter, HTC reported revenue of NT$33.01 billion (US$1 billion), down 20.51 percent from the previous quarter, with an operating loss of NT$5.11 billion and net loss of NT$8.01 billion, or a loss of NT$9.67 per share.
Amid market speculation that the company might be losing global competitiveness and have an oversupply of inventory this quarter, suggesting unsolved problems in the company’s management and business strategy, HTC shares dropped 14.49 percent last week to close at NT$44.55 on Friday in Taipei trading, the lowest level in the company’s history.
The stock has plunged by 68.63 percent since the beginning of this year, compared with the broader market’s 16.33 percent fall over the same period, Taiwan Stock Exchange data showed.
Due to persistent operating problems, sliding competitiveness and inventory issues, HTC should act aggressively to streamline its facilities and align its cost structure with market realities, analysts said.
The company’s Shanghai plant was established in 2009 in the Pudong New Area with an initial investment of NT$1.05 billion, according to the firm’s stock exchange filing.
Chinese Internet giant Alibaba Group Holding Ltd (阿里巴巴) and Le Holdings (Beijing) Co (樂視控股) are reportedly in talks with HTC regarding the company’s Shanghai plant, local media reported last week.
The SinoPac analyst said HTC’s Shanghai factory is in a good location and that it should not have a problem finding a buyer.
The analyst said HTC might eventually sell its plant in Taoyuan and seek contract manufacturing partners in India, as the company aims to adopt a more agile operating model.
“In other words, HTC could announce a second round of global job cuts in the foreseeable future,” the analyst said, adding that such measures might help the company to significantly cut its labor costs.
While cost cuts might see HTC reduce its losses in the short term, it will still be a challenge for the company to maintain competitiveness in the global market, especially when sales from its virtual reality headsets and other Internet-connected devices will only make meaningful contributions from next year, analysts at Nomura Holdings Inc said in a note released after the company’s 15 percent job cuts announcement on Aug. 13.
The analyst at SinoPac said that as the global smartphone market is slowing down, HTC is expected to shift its focus to emerging markets, such as India or Indonesia, as the regions’ smartphone penetration rates are still low.
“Emerging markets might be HTC’s only chance to see smartphone shipment growth,” the analyst said.
Gartner Inc said global smartphone sales last quarter recorded the slowest growth rate since 2013, with sales of smartphones to end users totaling 330 million units, an increase of only 13.5 percent from the 290.38 million units sold in the same period of last year.
While the growth rate in developed countries last quarter was slowing down, that in emerging markets still grew faster than expected, Gartner said in a press statement issued on Thursday last week.
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