HTC shares tumble on weak Q1; focus shifts to new models

TAIPEI (Reuters) - Taiwan smartphone maker HTC Corp's (2498.TW) forecast of much lower-than-expected first-quarter revenue sent its shares down by the 6.9 percent maximum on Tuesday, with attention turning to how its new models due for release this month may help turn around its fortunes.

The new phones by the world's No.5 smartphone maker will launch into a cut-throat market with fickle buyers where Samsung Electronics (005930.KS) and Apple Inc (AAPL.O) already have big shares and emerging low-end makers such as China's Huawei HWT.UL are threatening the traditional names.

The challenge for HTC, which was once the standard bearer for the Android operating system but dropped one place in global rankings last quarter as rivals outsold it, is to make such devices stand out.

Software could be the key, as the battlefield is moving away from hardware where vendors find it hard to differentiate.

"HTC has to start looking closer at building an ecosystem," said Melissa Chau, analyst at technology research company IDC.

"Not necessarily its own like Samsung is trying to develop its own OS, but maybe choosing a partner to work with."

HTC is widely expected to roll out four models later this month at the Barcelona Mobile World Congress, including an ultra-slim type, currently codenamed the HTC Ville, and one that uses advanced quad-core chips.

Other reported models include a high-end design codenamed the Edge that uses a quad-core CPU, boosting processing speeds, as well as a couple of mid-range smartphones.

The new phones could give the company a boost, but it may not last as its competitors will not be standing still either.

"HTC's guidance shows the company is actually under growing pressure, especially with regard to high-end phones. HTC is expanding to lower-end models, but that's an area already held by Samsung and Nokia," said Simon Liu, deputy investment officer at Polaris Financial Group's fund arm.

"The key to watch is whether its new models lure new buyers. Its new phones will probably boost sales momentum for the second quarter. That will be a good chance to sell HTC shares as Q2 might well be its peak quarter this year," Liu said.

He added that Polaris funds sold their entire holdings of HTC stock in December, and had not bought any shares since.

REVENUE DROP HITS SHARES

HTC said on Monday that it anticipated a drop in revenue of as much as 36 percent for the first quarter to between T$65 billion and T$70 billion ($2.20-2.37 billion), from T$101.42 billion in the previous three months.

That was well below that in a poll of 19 analysts by Thomson Reuters I/B/E/S, which had forecast HTC would see T$89.64 billion in revenue this quarter.

On Tuesday, its shares closed down 6.9 percent, the maximum allowed in a session, at T$520 in a broader market .TWII up 0.25 percent. The shares had stood at as high as T$1,238.10 in April last year, as the company rode a wave of popularity for its phones.

PCA Prudential fund manager Andy Wei said HTC could see poor full-year sales if it failed to narrow the gap before Samsung launches its Galaxy 3S late in the second quarter and Apple launches the iPhone 5 in the third quarter.

He expected HTC's shares to consolidate between T$450-550. The shares could break above T$600 if the reception of the new phones beats expectations.

Goldman Sachs said in a report on Monday HTC's hardware catch-up, outperforming software and strategy in China will help it regain its product cycle momentum and it "should continue to be a formidable runnerup brand in 2012."

However, Nomura cut HTC's investment rating to 'reduce' with a target price of T$300, among the lowest, citing an accelerating trend for smartphone commoditization.

"At CES, we saw several nice high-end models by new peers, such as Huawei's Ascend P1S, with an attractive price," the brokerage said in a report on Monday, referring to the 2012 Consumer Electronics Show in Las Vegas last month.

"We also saw low-end smartphone specs get much stronger, narrowing the gap with high-end phones."

Nomura also noted that even though HTC is pushing to be first in design, so is the competition. It cited Japanese firm Fujitsu's first quadcore chip smartphone and Huawei's thin 6.68mm smartphone model that will reportedly be sold at only $400 that were unveiled at the CES show.

(Additional reporting by Faith Hung in TAIPEI; Editing by Muralikumar Anantharaman)