Bloomberg News

HTC’s Wang Says Fourth Quarter Will Be ‘Biggest Challenge’

October 07, 2013

HTC J One HTL22

An employee demonstrates a HTC Corp. HTC J One HTL22 smartphone during the unveiling event in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

HTC Corp. (2498), the Taiwanese smartphone maker that posted a first quarterly loss last week, said the next two months are its “biggest challenge” as the company tries to win sales from Apple Inc. and Samsung Electronics Co.

“We really have the best technology and the best product,” Chairwoman Cher Wang said in an Oct. 5 interview with Bloomberg TV while attending the Asia-Pacific Economic Cooperation conference in Bali, Indonesia. HTC needs to “communicate better” with consumers, she said.

HTC fell the most in more than a month in Taipei and has slumped this year as the company’s share of the global smartphone market dropped by more than half in the second quarter. Once the biggest seller in the U.S., HTC plans redesigned versions of its flagship HTC One model and has hired actor Robert Downey Jr. in a renewed push to promote its brand.

The stock plunged by its limit in Taipei trading to NT$126, the biggest decline since Sept. 4. The stock has dropped 58 percent this year, compared with an 8.2 percent advance in the benchmark Taiex index. The company is valued at about $3.7 billion, compared with $37 billion at its peak.

Product Competition

Amid growing pressure from Samsung and Apple at the high end and Chinese makers among less-expensive handsets, HTC’s share of the global smartphone market fell to 2.8 percent as of the second quarter from 5.8 percent a year earlier, data compiled by Bloomberg show.

“We don’t see a turnaround in the near future,” Richard Ko, a Taipei-based analyst at KGI Securities, said by phone. “Its products aren’t good enough to compete, and those in the pipeline aren’t going to rescue the business either.” Ko has an underperform rating on the shares.

Goldman Sachs Group Inc. cut its price target to NT$80 from NT$86 today after the company reported last week a first-ever quarterly loss of NT$2.97 billion ($101 million) for the three months ended September. The results exceeded the NT$1.71 billion average of 16 analyst estimates compiled by Bloomberg. Credit Agricole SA (ACA) cut its target to NT$91 from NT$93 yesterday, according to data compiled by Bloomberg.

“Our communication does have a problem but we are improving on that,” Wang said. “It’s a gap between our new products coming out and we are improving our innovation and our marketing,” she said.

Change Maker

HTC is pinning its current hopes on new products, including models that build on the HTC One franchise, to halt declining sales. The company’s HTC One mini, which went on sale in August, features a 4.3-inch display and a more slender design. Samsung and Apple dominate the global smartphone market with a combined 43.5 percent share in the second quarter, according to data from IDC in July.

The Taiwanese company this year enlisted actor Robert Downey Jr. to promote its brand in a two-year global marketing deal worth about $12 million, two people with knowledge of the plans said in June. Television ads featured Downey, who starred in the “Iron Man” and “Sherlock Holmes” movie series, thinking up new names for the smartphone maker that include “Humongous Tinfoil Catamaran” and “Hipster Troll Carwash.”

“People like him because people see him as a change maker,” Wang said of the actor. “I believe HTC is here to change.”

Why Consolidate?

Terry Myerson, head of Microsoft’s operating systems unit, asked HTC last month to load Windows Phone as a second option on handsets with Google’s Android software, according to people with knowledge of the matter, who asked not to be identified because the talks are private. The talks are preliminary and no decision has been made, two people said.

The slump in its share price could make HTC a takeover target for Chinese rivals including Lenovo Group Ltd. (992) and Huawei Technologies Co. As phone network equipment makers such as Huawei and ZTE Corp. (763) expand in smartphones and tablets, acquiring HTC would offer better brand identity and presence in the high-end market, Charles Golvin, a Cambridge, Massachusetts-based analyst at Forrester Research Inc. (FORR:US) said in August.

Wang’s stake in HTC would help block the company from a hostile takeover, Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong, wrote in August. The chairwoman and her husband Chen Wen-Chi own more than 18 percent of HTC directly or through wholly owned investment firms, according to data compiled by Bloomberg.

“This ubiquitous intelligent technology is still at infancy stage, why do you want to consolidate?” Wang said when asked about mergers in her industry, adding that HTC should achieve 20 percent share of high-end smartphone market in China next year.

HTC was a contract manufacturer before it began promoting its own brand in 2006. The company had a short-lived reign at the top of the U.S. market in the third quarter of 2011, when it accounted for 24 percent of smartphone shipments, according to researcher Canalys.

To contact the reporters on this story: Chinmei Sung in Taipei at csung4@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net

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


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