HTC Corp. share price up, Q3 profit beats forecasts due to one-time gains

HTC Corp. reported a second-straight quarterly profit on Friday, reversing a heavy loss from a year earlier, but extended a three-year sales decline amid fierce competition in both the low and high-end smartphone segments.

According to the companys statement, its preliminary net income during the three months ended September 30th was NT$640 million ($21 million), or NT$0.78 per share, topping analysts projections for NT$500-NT$550 million. One-time gains helped the company remain on the green but fierce competition in the low-end segment in the face of Chinese manufacturers, as well as rivalry with Apple in top-line smartphones extended HTCs three-year revenue decline.

HTC said that its revenue over the third quarter decreased to NT$41.86 billion, down from NT$47 billion a year earlier. This was lower than the previously projected range of NT$42 billion to NT$45 billion and the NT$45.5-billion analysts forecast. Operating profit was NT$160 million, missing expectations for around NT$220 million. The companys sales have fallen during each quarter since 2011 and have missed projections 13 consecutive times.

Birdy Lu, a Taipei-based research analyst with Deutsche Bank, said for Bloomberg before the earnings announcement: “In China, you have Xiaomi and Huawei and a whole bunch of cheaper handsets with quite good performance, while in the States you have the iPhone. From a share price perspective, it might not fall off too much from here because there’s already no expectation for the stock.”

During its last quarterly earnings report briefing, the company shared that it believed improved efficiency in its sales and marketing operations would allow HTC to maintain its profitability in the three months through September. Sales in July fell by an annualized 33%, followed by a rise of 10% in August from a year earlier and a 7.9%-decline in September, HTC said.

While the bottom-line was on the green, HTC management has yet to find a way to reverse its prolonged sales decline in its flagship HTC One line. The company has said it intends to expand its product lineup in 2014 in an attempt to bring a new life to the business.

HTC will likely release its first action camera and new phones at a press event in New York on October 8th. The company already rolled out new middle-level smartphones this year, but they are yet to prove whether they can offset the shrinking market share of the flagship line.

HTC executives push into a new product category (the camera, which can be used to shoot while swimming or playing sports) coincides with the companys return to tablets. HTC is joining Google to release a new Nexus tablet this quarter, the Taiwanese manufacturers first tablet in three years. According to industry analysts, the new devices might help HTC offset the slide in smartphone sales, but the company will still face heavy competition for its camera from GoPro Inc. and other manufacturers, while the tablet market remains heavily saturated.

HTC Corp. settled 2.33% higher on Friday in Taiwan before the announcement at NT$131.50 per share, marking a one-year change of -1.13% and valuing the company at NT$110.51 billion. According to the Financial Times, the 21 analysts offering 12-month price targets for HTC Corp. have a median target of NT$101.00, with a high estimate of NT$140.00 and a low estimate of NT$88.00. The median estimate represents a -23.19 % decrease from the last price of NT$131.50.