UPDATE 1-HTC counts on cheaper smartphones to return to profit in 2014

Mon Feb 10, 2014 4:41am EST

* Jan sales down 38 pct y/y, Q1 revenue seen falling y/y

* Mid-tier phone launches to stoke sales later in year

* Remains optimistic on prospects for flagship products

By Paul Carsten and Michael Gold

BEIJING/HONG KONG, Feb 10 (Reuters) - Taiwanese smartphone maker HTC Corp said new lines of mid-tier handsets will help it return to net profit in 2014, predicting cheaper products can help it reclaim market share and put an end to over two years of sliding sales.

HTC's optimism comes despite 27 consecutive months of falling year-on-year revenue amid stiff competition from heavyweights like Apple Inc and Samsung Electronics Co . On Monday HTC said January sales slid 38 percent from a year earlier to T$9.67 billion ($319.23 million).

Chief Financial Officer Chialin Chang told an analyst and investor briefing on Monday that 2014 should see a rise in gross profit margins due to an improved product mix. "What we're shipping in there, we want to make sure is competitive," Chang said.

HTC's decline has been swift, squeezed by cheaper rivals in China as well as Apple and Samsung. Just over two years ago it supplied one in every 10 smartphones sold around the world: in 2013 its global market share had fallen to just 2 percent, according to Strategy Analytics analyst Neil Mawston.

That decline has left its mark on investors. HTC's share price has shown no signs of recovering from a three-year slide in value to one-tenth of its record high.

HTC has acknowledged the need for action. "The problem with us last year was we only concentrated on our flagship. We missed a huge chunk of the mid-tier market," said co-founder and Chairwoman Cher Wang, speaking to Reuters in an interview in New York last week alongside Chang.

Amid the decline in its fortunes, HTC's brand image has suffered, and investors have been desperate for signs of a clear strategy - though the announced push into mid-tier smartphones may offer a glimmer of hope for the company.

The CFO said on Monday that new mid-tier and low-end handsets should provide the majority of revenue, bar sales from its flagship HTC One phone, after the first quarter. For January to March, it expects revenue to fall to T$34 billion to T$36 billion from T$42.8 billion a year earlier.

The company in January reported its second consecutive quarter of operating losses, with a slim net profit of T$300 million ($10 million) for the fourth quarter helped by an asset sale.

Chang was optimistic about prospects for its flagship, feature-loaded HTC One smartphone, which won rave reviews last year that have yet to translate into matching sales.

During the investor call, Chang also hinted at a venture into wearable technology. He declined to give details as to the type of product, or when it may be announced.

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