April 24, 2012 / 11:26 AM / 7 years ago

UPDATE 1-HTC sees recovery but no return to U.S. peaks

TAIPEI, April 24 (Reuters) - Taiwan smartphone maker HTC Corp won’t have the United States as its largest market from this year, a sign of how far it has fallen and how much more work it has to do in Asia to regain share lost to rivals Apple Inc and Samsung Electronics.

Chief Executive Officer Peter Chou forecast better times ahead for the company after a slump in the first quarter, but said HTC won’t return to the days when more than 50 percent of its revenue came from the United States.

“A major challenge we faced last year was the big drop in sales in the U.S. because of competition from the iPhone 4S,” Chou told an analysts’ briefing on Tuesday on the company’s first-quarter results released earlier in the month. He did not elaborate.

Former contract maker HTC 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 reported a 70 percent tumble in net profit in the first quarter to T$4.464 billion ($151.5 million), just below forecasts, early this month.

Chou’s comment on the U.S. market is a symbol of that fall, though HTC remains upbeat and forecast a 55 percent jump in revenue in the second quarter to T$105 billion ($3.56 billion).

That is up from the first quarter’s T$67.79 billion, and in line with the median T$101.46 billion in a poll of 21 analysts by Thomson Reuters I/B/E/S.

HTC also expects gross margin and an operating margin of around 27 percent and 11 percent, respectively, improving from 25.03 percent and 7.53 percent in the previous quarter.


It 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, to regain market share lost to iPhones and Galaxy.

“The guidance on revenue looks acceptable; it’s a figure that has taken all the risks into account,” Barclays Capital analyst Dale Gai said, but he added that the forecast on operating margins was lower than market expectations.

“This is a difficult war; the market will be focusing more and more on HTC’s profit and value. HTC has said it will return to normal levels, but I don’t think it will be able to go back.”

However, challenges remain. Pacific Crest analyst James Faucette said in a report last week sales of HTC’s One X and S products have not increased meaningfully in Western Europe.

Also, the earlier than expected roll-out of Samsung’s new smartphone in the Galaxy series will also leave HTC less time to grab back share. The Korean smartphone maker is set to launch the Galaxy S3 in London on May 3, a month earlier than expected.

Apple’s new iPhone 5, which is expected to be on the market in the third quarter, will be another strong rival. Barclays’ Gai suggested that the iPhone 5 could mean an up to 10 percent downside to HTC’s 2012 earnings per share.

But HTC’s Chou painted an upbeat picture of the coming year.

“I feel that HTC is being reborn this year, in terms of product strategy and execution of global sales and marketing. We are a new HTC; HTC One will help us to reach this goal.”

He indicated that the company was looking to China to make up for lost share, saying he expects to see material sales this year, the third year of the company’s entry into the country.

However, he reiterated that the company will not launch 1,000 yuan ($160) low-end smartphones, focusing on the 1,999-2,129 yuan range.

On Tuesday, HTC closed up 1.16 percent at T$478.50, versus the broader market’s 0.24 percent rise.

The shares had reached a high of T$1,238.10 at the peak of the company’s it end the year boom in April 2011, before investors’ loss of confidence saw down 42 percent, the worst share performance among global smartphone makers.

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