July 29, 2011 / 8:00 AM / 9 years ago

UPDATE 2-Taiwan's HTC sees revenue growth slowing in Q3

* Sees Q3 revenue up 80 pct y/y and 10 pct m/m

* Sees Q3 gross margin and operating profit margin weakening

* Company guidance better than street consensus-analyst

* Apple lawsuit will not have fundamental impact on company-CEO (Adds company comment, other details)

By Clare Jim and Argin Chang

TAIPEI, July 29 (Reuters) - Taiwan smartphone maker HTC Corp said on Friday it expects revenue and shipment growth in the third quarter to slow for the first time in four quarters.

The world’s No.5 smartphone maker said demand was faltering and competition from rivals such as Apple Inc and Samsung Electronics led it to forecast its gross margin and operating margin would weaken in the third quarter.

The outlook however, was better than analysts expected.

“The company guidance has beaten the street consensus,” said Aaron Jeng, an analyst at Nomura. “The recent share price correction reflected a market expectation of flat (quarterly) revenue and a big fall in operating margin, but the guidance is better than these,” he said, adding that the share price should rebound next week.

HTC said forecast revenue in July-September would hit T$137 billion ($4.76 billion), up 80 percent from the same period a year ago, but slowing from the growth rates in previous quarters.

It forecast sales volumes at 13.5 million units, up 98 percent, and forecast a gross margin in the quarter at around 28 percent, down from between 29-30 percent in previous quarters. Net operating margin should be around 15 percent.

For the second half of the year, HTC’s chief executive officer, Peter Chou, told an investor teleconference that the company will launch six to eight new products that are expected to spur revenue growth in the fourth quarter. He also said growth in China will pick up.

“China has high acceptance for high-end phones,” Chou said. “It is also a big market for mid-tier phones...I don’t think China is for low-ends.” Chou stressed that HTC will not produce low-end phones.

Commenting on a suit against Apple Inc in which the International Trade Commission said earlier this month that HTC infringed on two Apple patents, Chou said it will not have a fundamental impact on the company. He said the company is preparing to appeal the decision to a U.S. court.

“Many lawsuits nowadays are results of being successful. It’s part of the business,” Chou said. “We will not bring the company to a dangerous position.”

Last quarter, HTC saw its net profit double, beating market expectations and boosted by surging customer demand.

Investors have been pushing the company’s shares lower because of the declining product demand and stiff competition. The shares have fallen as much as 30 percent below their peak in April when they traded at T$1,300. The shares fell 4.77 percent on Friday to T$858, underperforming a 1.4 percent drop in the broader market .

Analysts said HTC needs new markets to sustain growth and will have to use the same resources it leveraged previously to transform itself into a global brand within five years and propelled its market value beyond Nokia this year.

According to research company IDC, the global mobile phone market grew 11.3 percent in the second quarter compared to the same period a year ago.

$1 = 28.794 Taiwan dollars Editing by Jonathan Standing and Matt Driskill

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