HTC share price slumps on Q3 loss projection

Shares of troubled Taiwanese smartphone maker HTC Corp tumbled by the daily limit on Friday to their lowest in more than a decade after the company announced poor second-quarter results and forecast a third-quarter loss five times greater than analysts projections.

HTC reported a net loss of NT$8.0 billion for the three months ended June, or -NT$9.7 per share, which included a one-time charge for excess capacity of NT$2.9 billion. Second-quarter revenue of NT$33.0 billion met the guidance, but that had already been revised down by 35% from initial projections of NT$51 billion. It booked an operating loss of NT$5.1 billion with an operating margin of -15.6%.

The smartphone maker blamed the poor results on weaker-than-projected demand for high-end phones, as well as weak sales in China, although it underscored volume increases achieved in select key emerging markets. However, the main pressure on the stock came as the company projected much greater loss for the third quarter than analysts had estimated.

HTC said it expects loss per share in the current quarter to be between NT$5.51 and NT$5.85, five times greater than analysts already gloomy projections for a loss of NT$1.17 per share. This would be on the back of sales of between NT$19 billion ($600 million) and NT$22 billion for the quarter, the company said, as much as 48% lower than a consensus estimate of NT$36.8 billion.

Other manufacturers of smartphones running the Android operating system have also reported disappointing results due to intense competition in the premium segment by Apple, while low-cost Chinese rivals take over the low-end side of the market. Once a major player, HTCs global market share in smartphones has fallen to less than 2% from 10% in 2011, with its shares having lost half of their value over the past year. The stock tumbled 10% on Friday in Taipei to NT$63.00.

“HTCs multiple model strategy in the past year did not work as planned,” JPMorgan Chase & Co. analyst Narci Chang wrote in a note, cited by Bloomberg. “HTCs current business model needs a significant makeover.”

And such a makeover should come soon, with the phone maker saying it would cut jobs and discontinue models as part of its strategy to focus on premium devices to better compete with Apple and Samsung in the high-end segment.

“The cuts will be across the board,” Chief Financial Officer Chialin Chang said, adding that the cost reductions will start this quarter and bring results in the quarter through March. He said that the company was banking on selling premium handsets in emerging smartphone markets such as India and will overhaul its strategy to produce fewer models over longer time intervals, shifting focus on profits instead of growing sales.

The Taiwanese company also said it continues to invest in promising new product areas such as virtual reality, where it “is working with over a thousand developers on
content creation over a wide spectrum of applications including gaming, entertainment and education”. Nevertheless, analysts are skeptical that HTCs turnaround strategy would be fruitful in the next few quarters.