HTC now expects to lose money in Q2, writes off $93 million due to unused production capacity
The price of HTC shares has been sliding ever since early March, when the Taiwanese company unveiled the One M9 to frosty reception. Today, HTC shares hit a new low after the company announced it expects a loss for the quarter ending this month, due to lower than expected sales and a one-time write-off of “idled assets.”
HTC now expects to record a net loss of TW$7.95 billion ($257 million) to TW$9.05 billion ($291 million) for the quarter ending June 30. Revenue is expected to be in the range of TW$33 billion to TW$36 billion. That compares to TW$41.5 billion revenue for the previous quarter.
HTC’s revised prediction for this quarter is 30 percent lower than the previous estimate. The phone maker blamed poor sales and intense competition for this dramatic cut.
The change for revenue outlook is due to slower demand for high-end Android devices, and weaker than forecast sales in China, while gross margin is revised primarily on product mix change and lowered scale. At the same time, increased competition has raised operating costs for product promotion; HTC is enacting measures to further improve operating efficiency.
The poor performance of the One M9 is probably the main reason HTC is doing so bad, even if the company didn’t acknowledge it. HTC said, however, that it would incur a “one-off impairment of NT$2.9bn for idled assets and some prepaid expenses.” In plain English, that means HTC booked more production capacity than it needed, and when demand for its products failed to materialize, it had to foot the bill. This meshes with the report from Taiwanese media claiming HTC cancelled 30 percent of the One M9 production due to lack of consumer interest.
For May 2015, HTC announced revenue of TW$10.79 billion, much lower than the $13.5 billion from April, which was the company’s worst April in six years. And this is just one month after the launch of the One M9.
HTC is trying hard to divert attention from the disaster that the One M9 shapes up to be. The company has launched three high-end phones (all three arguably better than the M9) in China and India in the past weeks. And just yesterday, CEO Cher Wang promised a new “hero” product coming out in October, and significant improvements for the next generation of the M series. Problem is, how much can HTC go at this rate?