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HTC posts strong Q2 2014 earnings results, but still faces an uncertain future

HTC breaks three months of losses to post a profit in Q2 2014, but worrying July sales leave question marks over the company's long term sustainability.
August 4, 2014

The end of July marks the release of Q2 earnings reports, and HTC is no exception. Unlike smartphone rival Samsung, HTC has faced a much more profitable second quarter of the year, although there have been deeps in both sales and profits over the past month.

HTC Q2 2014 at a glance
Firstly, looking at the quarter’s results a whole, HTC’s revenues and profits have increased substantially
compared with last quarter.

HTC’s Q2 revenues lept to NT$ 65.1 billion (USD 2.05 billion) from NT$ 33.1 billion (USD 1.1 billion), an impressive increase of 97 percent. However the yearly figures show a slightly different story, HTC’s revenues declined by 8 percent compared with Q2 2013.

Looking at profits, in the short term HTC appears to be turning things around, following a string of quarterly losses. Q2 2014 operating profits reached NT$ 2.4 billion (USD 80 million), defying three consecutive negative quarters. In percentage terms, operating profits at HTC are up 220 percent compared with the last quarter, and up 118 percent compared with the same quarter last year. This is a stark contrast to Samsung’s Q2 2014 performance, which saw smartphone profits decline by 31 percent over the last quarter, and 30 percent year on year.

HTC states that gains in revenue were driven by a strong market presence for the HTC One (M8) in the US and Europe, as well as a positive reception of the HTC One mini 2 in Europe. In Taiwan, the HTC One (M8) and Desire 816 performed exceptionally well, and the company’s extended product portfolio saw good momentum in China and India too.

HTC Q2 2014 Sales and Profit graph

However it has not all been smooth sailing for HTC. In July the company posted sales revenue of NT$10.6 billion (US$353 million), its lowest sales figure in the past five months, which includes the poor figures for Q1 2014. July sales fell by an astonishing 51.6 percent from the previous month, and declined 32.5 percent compared with the same month last year. The worry here is that the hard work put into to producing strong second quarter results could be short lived, and that sales for its new devices are falling off too sharply.

“Some of our products, after the initial excitement, have settled at a lower level. But the good thing is it is stabilized,” Chialin Chang – HTC’s Chief Financial Officer

As a result, HTC is expecting operating profits for the third quarter to fall back towards the same level as last year, somewhere in the region of NT$42 billion to NT$47 billion. This could well push profits back towards, or below, the break even point.

Despite a positive second quarter, HTC still remains in a more precarious position than other smartphone manufacturers. Sustainable profit margins and a strong product portfolio in the second half of the year will likely be the deciding factors as to how we judge HTC’s 2014.