Bloomberg News

HTC Forecasts Drop in Sales, Missing Analyst Estimates

August 03, 2012

HTC Corp. (2498), Asia’s second-largest smartphone maker, forecast a record drop in sales amid continued market share declines.

Third-quarter revenue will be NT$70 billion ($2.3 billion) to NT$80 billion, the Taoyuan, Taiwan-based company said today. Revenue is expected to miss analysts’ estimates for a fifth consecutive quarter, with the average of 10 estimates compiled by Bloomberg in the past 28 days at NT$87 billion.

Competition from Apple Inc. (AAPL:US) and Samsung Electronics Co. has forced the maker of HTC One, Sensation and Desire handsets to cut its workforce to shore up profitability amid declining revenue. New models from its larger rivals have prompted analysts to forecast HTC’s biggest annual sales decline since it listed in 2002.

“They’re going to face a lot of pressure because their high-end models are facing a lot of competition,” Aaron Jeng, who rates the stock reduce at Nomura Holdings Inc. in Taipei, said before the earnings announcement. “HTC’s top-line sales are declining so they need to cut expenses to help improve their bottom-line profit.”

HTC on June 6 cut its guidance for the second time in three quarters, reducing its revenue forecast for the period by 13 percent to NT$91 billion.

Second-quarter net income dropped 58 percent to NT$7.4 billion, missing the NT$7.59 billion average of analysts’ estimates while revenue dropped 27 percent to NT$91 billion, it reported July 6.

Record Sales Drop

The mid-point of HTC’s third-quarter revenue range, NT$75 billion, would be a 45 percent decline from a year earlier, the largest drop since it listed in 2002.

The company’s share of the global smartphone market dropped to 4.5 percent in the first quarter from a peak of 10.7 percent in the second quarter of last year, according to data compiled by Bloomberg Industries.

HTC lost 3.7 percent to NT$277.50 at the close in Taipei trading before the announcement, extending its decline this year to 44 percent.

Last month HTC said it plans to close its South Korean office after the Taiwanese company in June announced it would shut a research and development center in North Carolina and an office in Brazil.

HTC’s operating expenses climbed to a record 18 percent in the second quarter from a year earlier as sales fell faster than its ability to cut costs.

Margins to Shrink

HTC on July 21 announced it would sell back about 25 percent of Beats, the headphones maker promoted by rapper Dr Dre and pop-singer Lady Gaga, to its original shareholders for around $150 million, less than a year after announcing it would buy almost 51 percent of the Santa Monica, California-based company for approximately $300 million. A separate deal announced the same day saw HTC lend Beats $225 million for purposes that weren’t specified.

Gross margin, a key measure of profitability that tracks the percentage of sales less cost of goods sold, will be about 25 percent this quarter, less than the 27 percent of the prior period. The average of seven analyst estimates compiled since it cut its guidance was for second-quarter gross margin of 27.1 percent, with that figure expect to drop to 26.6 percent this period.

Operating margin was 9 percent last quarter, only the second time operating margin fell below 12 percent since HTC began reporting consolidated data in 2008, according to data compiled by Bloomberg. That figure will drop to 7 percent in the current period, it said.

               2Q*                           3Q
               Guidance  Estimate  Actual    Guidance  Estimate
Sales (NT$b)   91        91.3      91.0      70-80      87
Gross Margin   27%       27.1      27        25         26.6

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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