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HTC – Not Likely to Change Much

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By: Larry Darrell
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HTC Corp. (2498.TW), Taiwan's largest smartphone maker, failed to improve on the trend reflected in its last quarterly announcement and reported lackluster performance in its unaudited results for the fourth quarter (4Q) of fiscal year 2013 (FY13). The company reported net income of $10.4 million, buttressed by the sale of its remaining 25% stake worth around $265 million in the US headphone company, Beats Electronics. HTC still missed consensus estimates for net profit of $24.3 million. Share price fell by as much as 4% as investors became increasingly concerned about the future prospects of the company.

The company whose ad campaign revolves around the slogan ‘here’s to change’, posted revenues of $1.4 billion, which were pretty much in-line with analysts’ estimates, as well as company guidance. However, this reflected a 29% year-over-year (YoY) decline in revenues. According to Bloomberg data, the company's sales have missed analyst estimates for the last three years.

Although the company posted net profits after selling its remaining stake in Beats Electronics, it still reported an operating loss of about $52 million, according to the unaudited results.

Despite aggressive cost-cutting measures (previously announced in the third quarter) such as buying chips from cheaper vendors and outsourcing production, the company is seemingly stuck in operational inefficiencies coupled with declining market share in the face of stiff competition from Apple (AAPL), Samsung (SSNLF), and other local players.

Back in 2010, HTC was one of the top smartphone makers in the world, accounting for one in every ten smartphones sold. The company introduced the HTC One, one of its flagship products, which, despite rave reviews, could not bring about a turnaround for the company because of supply-chain issues faced in early 2010.

HTC’s release of its One Max phone has also failed to halt a nine-quarter slide in sales as China’s Lenovo Group Ltd. (LNVGY) and Huawei Technologies Co. continue to gain market share.

Kylie Huang, an analyst at Daiwa Securities Group Inc. in Taiwan, believes that 2014 is going to be the worst year for the company. She is of the opinion that the company's cooperation with China Mobile will be countered with growing competition from leading players as well as other local Chinese brands. In contrast, Dale Gai, tech analyst at Barclays, sees signs of recovery going forward, but expects sales to decline during the first quarter of the year.

The company is planning to introduce competitively priced models after experiencing a decline in its market share in high-end phones. The company’s global share of the smartphone market has declined to 2.2% in the third quarter of 2013, from a peak of 10.3% only two years ago.

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