Barclays warns that HTC risks being drawn into a marketing war

July 3, 2013
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HTC just can’t seem to catch a break when it comes to the company’s finances. The British bank Barclays Plc has cut its estimate for HTC Corp’s earning throughout 2013, due to concerns that the smartphone manufacturer will have to spend more on marketing to combat the fierce competition currently present in the smartphone market.

Dale Gai, a Barclays analyst in Taipei, expects HTC to increase its marketing expenses by 20 to 25 percent in 2013 and 2014, in order to counter the aggressive marketing strategies employed by rivals Samsung and Sony, which will cause a squeeze on the company’s bottom line.

We expect the marketing war, led by Samsung and Sony, to force HTC to increase global co-marketing and incentive programs, a negative for margins,
Dale Gai, Barclays Plc

But even if HTC was to end up increasing the ratio of its marketing expenditure to sales revenue to the same levels as Samsung, Barclays believes that HTC still wouldn’t receive as much exposure as its biggest rival.

Gai also stated that HTC could face risks in the high-end smartphone market from an increasingly long replacement period in developed countries, a shorter product cycle, less differentiation in the Android platform, and decreasing subsidies from operators. These concerns have led to Barclays reducing its forecast for HTC’s 2013 earning per share by a rather large 16 percent, down to NT$14 per share from the expected NT$16.68.

Daniel Chang, an analyst at Macquarie Capital Securities, is also equally concerned about HTC’s financial prospects, echoing worries about Samsung’s aggressive marketing strategy and the exceptionally competitive high-end smartphone market.

We agree HTC One is a good phone but our key concerns remain the maturing high-end market, which will lead to significant price competition, and HTC's inability to compete in the low-end space
Daniel Chang, Macquarie Capital Securities

But it’s not all bad news for HTC, Gai also expects that HTC’s second-quarter sales will reach $NT75 billion, which is around 7 percent higher than HTC’s own forecast of NT$70 billion for Q2 2013. Third quarter sales are also expected to grow by a further 12 percent, driven by the current demand for the HTC One and the company’s new line-up of products.

The high-end market is probably the most competitive that it’s ever been, there are numerous top of the line smartphones and tablets on the market right now, so over saturation is certainly a reasonable concern for investors. But these anxieties regarding the high-end smartphone market permeate other companies, as well as HTC, so it’s likely that we’ll be hearing more negative outlooks on the subject of sales performance in the coming months.

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