Smartphone maker HTC sees third-quarter revenue drop, only China to grow

Taiwanese smartphone maker HTC Corp said on Friday it sees sales growing only in China this quarter while other regions decline, forecasting as much as a 23 percent fall overall in revenue, in a further sign of how tough its road to recovery will be.

The world's No.5 smartphone maker, once one of the industry's high flyers but badly hit by competition from Apple Inc and Samsung, sees third-quarter revenue at between T$70 billion and T$80 billion ($2.3 billion and $2.7 billion), compared with T$91 billion in the second quarter.

HTC was expected to earn T$92.51 billion in revenue in the third quarter, according to the median of 18 analysts polled by Thomson Reuters.

"China will continue to see growth in the third quarter, while other markets will have different degrees of decline," Chief Financial Officer Chialin Chang told an investor conference.

"Europe, Middle East and Africa will face challenges because of macro softness and competition," Chang said.

HTC, formerly a contract maker, had a fairytale ride in 2010 and early 2011, when its shares more than tripled in the 14 months to April 2011, reaching T$1,238.10. The company's sales grew four-fold in 1-1/2 years as consumers snapped up its innovative phones with their distinctive large clock numerals.

But it suffered an equally rapid fall from grace as its phones failed to keep up with Apple's iPhones and Samsung's Galaxy range. HTC's shares closed Friday at T$277.50, their lowest in around 2-1/2 years.

Last month, HTC said profit more than halved in the second quarter after European sales disappointed and phones destined for the U.S. market were held up by customs inspections. The results came on the same day that rival Samsung reported record second-quarter operating profit.

MARGINS

HTC on Friday also said it expects a gross margin and an operating margin of around 25 percent and 7 percent, respectively, in the third quarter, falling from 27 percent and 9 percent in the second quarter.

Chang said the lower gross margin is due to falling product prices and a change in product mixes in different markets.

HTC launched its new One series of models in April, banking on their advanced cameras offering photography on a par with traditional digital cameras, as well as music features such as advanced audio technology from U.S. firm Beats Electronics to regain market share lost to iPhones and Galaxy.

However, despite generally good reviews by analysts and tech blogs, sales have not taken off. Nomura noted that HTC has cut the price of One X to 4,999 yuan ($780) from 5,677 yuan in China and U.S. operator AT&T lowered the contract price of the same model to $99 from $199 last month.

"(Cutting prices) in less than three months after its launch, we think is a bad signal as, in the past, HTC has been able to sell 6-12 months before price cuts," Nomura said.

"We expect competition will become tougher over the next six to nine months, with the new iPhone5 hitting One X and China branded low-price dual core and quad core phones hitting the New Desire model."

HTC has also been readjusting as it wrestles with declining sales. It has sold back half of the 50 percent stake in Beats it acquired last year, though it will continue to work with the maker of high-end headphones and speakers.

"We have witnessed HTC conducting a series of cost-downs and restructuring in its R&D team recently to lift the bottom line. However, amazing new models and market position are the key growth factors for the company," said Robert Cheng, an analyst of Bank of America Merrill Lynch in a report. ($1 = 6.3794 Chinese yuan)