Bloomberg News

HTC Falls After Cutting Sales Forecast, Reviewing Takeover

November 24, 2011

(Updates with analyst’s comments in fourth paragraph.)

Nov. 24 (Bloomberg) -- HTC Corp., the largest seller of smartphones in the U.S., fell to the lowest level in 16 months after unexpectedly cutting its fourth-quarter revenue forecast amid the global economic crisis and competition with Apple Inc.

The shares dropped 6.9 percent to NT$526 as of 10:31 a.m. in Taipei, its daily limit and the lowest since July 28, 2010. The benchmark Taiex index added 0.6 percent. Revenue this quarter will be little changed from a year earlier, the Taoyuan, Taiwan-based company said in a statement last night, compared with an earlier forecast for growth of 20 percent to 30 percent.

HTC’s first sequential sales decline in almost two years comes after it took the lead in the U.S. market while fending off lawsuits from Apple. At least four brokers, including Credit Suisse AG and Yuanta Securities Co., lowered their price estimates on the stock, which has lost 57 percent since hitting a record high in April.

“The key reason for a projected 4Q disappointment is that HTC has missed out on the new product cycle at the high end of the smartphone market,” Lu Chialin, a Hong Kong-based analyst at Samsung Securities Co., wrote in a report. “The rapid decline in US sales was a negative surprise, coming just as HTC became the US’s largest smartphone vendor in the third quarter.”

Suppliers Decline

Lu cut his price estimate on the stock by 30 percent. HTC edged out Samsung Electronics Co. in the third quarter to become the largest smartphone vendor in the U.S. with 24 percent of the market, according to Palo Alto, California-based researcher Canalys.

HTC suppliers -- including Catcher Technology Co., TPK Holding Co. and Largan Precision Co. -- also declined in Taipei trading. Catcher, which makes casings, and Largan, a supplier of camera lenses, both dropped by their 7 percent limit.

HTC also will reevaluate its $300 million acquisition of S3 Graphics Co. after the target company lost a patent-infringement case against Apple, HTC said last night. Fremont, California- based S3 Graphics is owned by HTC Chairwoman Cher Wang and VIA Technologies Inc., a Taiwan chipmaker whose board she also chairs.

‘Blow to Credibility’

HTC said yesterday that fourth-quarter revenue will be approximately the same as a year earlier, when it was NT$104 billion ($3.4 billion). The average of 23 analyst estimates compiled by Bloomberg before the forecast revision was for fourth-quarter revenue of NT$136.7 billion, 31 percent higher than a year earlier.

HTC has posted quarter-on-quarter sales growth each period since the three months ending March 31, 2010.

“Due to global macroeconomic downturn and market competition, the assumptions of 2011 Q4 financial forecast provided earlier are no longer applicable,” HTC said in a statement last night.

Growth will return in the first half of next year, it said.

HTC Chief Financial Officer Winston Yung didn’t answer calls to his office and mobile phones today. The company didn’t specify which markets or products were responsible for lowering the forecast.

“This guidance revision, as well as the review of the acquisition of S3, are a major blow to management credibility,” Pierre Ferragu, a London-based analyst at Sanford C. Bernstein Ltd. wrote in a note. “Some of it has to be HTC specific.”

He did not amend his recommendation or price estimate.

--Editors: Anand Krishnamoorthy, Michael Tighe.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.


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