Bloomberg News

HTC Cuts Sales Outlook on Europea Competition, U.S. Delay

June 06, 2012

HTC Corp. (2498) cut its sales and profitability forecast after demand in Europe fell short of the Taiwanese smartphone maker’s own projections and a patent dispute with Apple Inc. (AAPL:US) led to a delay in U.S. shipments.

Second-quarter revenue will be around NT$91 billion ($3 billion), 13 percent lower than an April 24 forecast for NT$105 billion, Taoyuan, Taiwan-based HTC said in a statement yesterday. The company also cut its operating margin forecast to 9 percent from 11 percent.

The slashed forecast is the second time in three quarters that the maker of One, Desire and Sensation handsets reduced predictions as it struggles to compete with devices from Apple, Samsung Electronics Co., (005930) Nokia Oyj (NOK1V) and Research in Motion Ltd. (RIM) In November, HTC cut its sales forecast by 23 percent, less than a month after predicting a rise in fourth-quarter revenue.

“They’re underplaying the competitive issue because you’ve got Sony, RIM and Nokia all pricing very aggressively in Europe while the macroeconomic environment makes it challenging for everyone,” said Avian Securities LLC analyst Matthew Thornton, who has a neutral rating on HTC.

HTC dropped 18 percent this year to NT$406 at the close of Taipei trading yesterday, after declining 42 percent last year.

Weaker-than-expected sales in Europe were the main reason for the forecast cut while a delay in the U.S., where customs officials checked for patent-infringements, also hurt revenue, Chief Financial Officer Chang Chialin said on a conference call.

“Even with the U.S. customs issue over, the window of opportunity to get sales ahead of Samsung’s Galaxy III U.S. debut is closing,” Thornton said.

Customs Review

On May 29, HTC said it its products were found to be in compliance with a U.S. ruling, 13 days after announcing its One X and EVO 4G LTE devices had been delayed for a customs review required after an International Trade Commission exclusion order.

HTC now faces fresh pressure in the U.S. after Apple sought an emergency enforcement action at the International Trade Commission in Washington to block imports of the Taiwanese company’s phones, according to a new filing by the maker of iPhones and iPads.

Chang and investor relations representative Joey Cheng didn’t immediately respond to questions sent after business hours requesting comment on whether the new forecast included the impact of the latest Apple filing.

“The U.S. Customs office has reviewed and approved HTC devices for import into the U.S., as they are in compliance with the ITC’s ruling,” HTC said in a separate statement.

Charge

HTC yesterday also said it took a one-time charge of NT$2.6 billion this quarter to clear inventory of unsold phones from last year. Without that charge, second-quarter sales would reach NT$93.6 billion with an operating margin of 11.2 percent, it said.

“In certain areas of Europe, in general, we’re seeing the competitive environment intensify,” Chang said without elaborating. “Asia, north and south, are basically performing in line while China sales are performing better than expected.”

Roxy Wong, who rates the stock “reduce” at Mirae Asset Securities Co. in Hong Kong, said Apple’s next iPhone will further increase pressure on HTC.

“With the iPhone 5 coming, Samsung will cut prices. So HTC will also have to either cut price and lose profitability, or maintain its price but lose sales,” Wong said.

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

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.


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