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In the red: HTC may lose money for the first time next quarter

HTC has made a profit in every quarter since its founding, but the next few months may bring its first loss, warned the company.
July 30, 2013
HTC Desire X logo aa 2 1600

I won’t talk again about HTC’s dire financial situation or the reasons why HTC’s once shining star turned dim in just a couple of years. One thing is for sure – for HTC, it’s going to get worse before it gets better.

The company issued its guidance for the third quarter of 2013, and there’s nothing to smile about. HTC thinks that revenues next quarter could plummet as much as 30 percent compared to Q2, to $1.7 – 2 billion. Even worse, HTC had to admit that next quarter might bring an unwelcome premiere: the first loss in its history.

I say “might” because HTC predicted an operating margin between 0% and -8%. In other words, there’s a minute chance HTC will manage to break even, though industry watchers expect the worse.

What brought HTC in this situation? “Our overall gross margin has been impacted by a relatively higher cost structure, lack of economy of scale and certain provisions needed to facilitate the clearance of aging products.” In layman’s terms, HTC’s phones cost too much to make and sell and the company had to discount older models to clear inventory.

HTC tries to offer some reasons for optimism: the One has been selling better than last year’s hero products combined (One X and One S?). The aluminum-clad device has been doing “very well” in US, EMEA, and China, and, in the latter market in particular, HTC has managed to increase its market share in the high-end segment.

Peter Chou’s company also promised “a range of innovative and competitive mid-tier products in the coming months”. Speaking of the coming months, it’s going to be a very busy time, with devices like the Moto X, LG G2, Note 3, Xperia Z Ultra, and possibly a new line of iPhones about to hit the market.

To end on an optimist note, a quarter of losses is not the end of the world by any means. A comeback is still possible for HTC, and we root for it here at Android Authority, because we need more phones like the HTC One.


HTC reports 2013 recond-quarter results

Taipei, Taiwan – July 30, 2013 – HTC Corporation (the Company, TWSE: 2498), a global leader in mobile innovation and design, today announced consolidated results for the Company and its subsidiaries for the second quarter of 2013.

2Q 2013 Results
HTC posted quarterly revenue of NT$70.7 billion, with gross margin of 23.2 % and operating margin of 1.5%. Net profit and EPS were NT$1.25 billion and NT$1.50, respectively.

“My leadership team continues to focus on execution,” said Peter Chou, CEO of HTC. “We are seeing expected results as we fill the channels and meet demand for the new HTC One. As we broaden our focus to include a new member of the HTC One family, the recently announced One mini, we are looking forward to delivering great products and results in 2H.”

HTC announced key appointments, including Jack Yang to president of South Asia, Sirpa Ikola to senior director of marketing for South Asia, and Lorain Wong to vice president of global PR.

As manufacturing ramped up, the US saw sequential growth in 2Q, as well as expansion in retail channels. EMEA saw renewed strength in major Western European markets and emerging countries.

Progress was observed across Asia. HTC gained market share in Taiwan, showing an improved presence in Hong Kong and warm reception of its products by consumers in Japan. In China, sales of HTC’s high-end models improved, while competition at the mid-tier and affordable intensified. In South Asia, the improvement of key operator relationships provides optimism about the region.

3Q 2013 Outlook
The Company’s outlook for the second quarter of 2013 is as follows:

3Q revenue is expected to be in the range of NT$50bn to NT$60bn
Gross profit margin is expected to be in the range of 18% to 21%
Operating margin is expected to be in the range of 0% to -8%
The new HTC One has performed well in the market, better than that of our hero products for the same period last year. We aim to extend the momentum as we enter into the second half of 2013. The new HTC One has also helped the company establish strong brand awareness and received numerous accolades as the world’s best smart phone. With the help of HTC One, we have regained superphone market share across major markets including China.

We also have plans underway to launch a range of innovative and competitive mid-tier products in the coming months. We hope to regain momentum and market share in these segments in Q4. This will address our challenge of mid-tier products competiveness

Our overall gross margin has been impacted by the relatively higher cost structure, lack of economy of scale and certain provisions needed to facilitate the clearance of aging products in the channel. Actions have been taken and we expect to see improvement in Q4

We are also optimizing our organization, including the improvement of management efficiency and effectiveness.

People, innovations, and technology are the core assets of HTC. We will continue to invest in innovations and technology, as well as retaining and rewarding our best talents. We look forward to a brighter future for HTC and continue to delight our customers with the best and most exciting products