Company cuts outlook on U.S. and European weakness, but is bullish on Chinese gains

For cash-strapped Android phonemaker HTC Corp. (TPE:2498), an inexplicable month-long seizure of its flagship smartphones may have hurt the company's ability to get stock to customers.  But HTC appears to be continuing to struggle, to some extent, on appeal factor as well.

The company reported slow sales on Thursday, which forced it to revise its sales estimates, which had previously predicted a larger recovery.

While its HTC EVO 4G LTE and HTC One X were impressive, many buyers are opting to wait instead for the Samsung Galaxy S III from Samsung Electronics Comp., Ltd. (KSC:005930).  While HTC's handsets remain isolated on single carriers in the U.S., Samsung's flagship phone will launch on all four of America's top carriers.

Thus the problem likely boils down to a mix of availability and marketing.

New chief financial officer, Chia-Lin Chang, warns that despite the myriad of complications in the U.S. market, U.S. sales were respectively better than Europe where the situation was very bad.  Comments Mr. Chia-Lin, "A bigger softness is from Europe than the U.S.  Given all the things happening in the second quarter here, we certainly hope we can get the right guidance and have a more smooth transition going forward."

HTC Phone Quietly Brilliant
HTC is hoping for a big turnaround in Q2 2012. [Image Source: Reuters]

The only good news is that HTC saw stronger than expected growth in China, a market long dominated by Samsung and Nokia Oyj. (OMX:NOK1V).  Comments Mr. Chia-Lin, "But sales in China are better than we thought; we expect China will contribute a representative percentage to the revenue this quarter."

Mr. Chia-Lin was appointed CFO in mid-April after a disastrous first quarter cost his predecessor the job.  The executive holds a Ph.D. in Electrical Engineering from Princeton University and an M.B.A. from the Wharton School at University of Pennsylvania.  He served at Motorola -- which today competes with HTC as Google Inc. (GOOG) subsidiary Motorola Mobility, during its more successful years (some time ago).  More recently he worked as an investment banker at Goldman Sachs Group Inc. (GS) as an investment banker and partner.

Due to a $2.6B TWD ($87.3M USD) write-off to clearance unsold inventory, HTC is expecting 2 percent lower operating margins for the quarter, revising its forecast to 9 percent.  Revenue was bumped down from $91B TWD ($3.06B USD) from $105B TWD ($3.53B USD).

That's still a third better than the $67.8B TWD ($2.28B USD) that HTC pulled in during the first quarter.  While HTC's second quarters have typically outpaced Q1, it's a positive sign that fire at the phonemaker hasn't yet entirely burned out.

Between 2010 and 2011 HTC grew four-fold, and briefly seized the top sales spot in the U.S. However, Samsung and Apple have since bumped HTC downwards, and the company is in fifth place in global smartphone sales.

Reuters reports that overall the smartphone market growth looks to be weakening for the latter half of 2012, which may be part of HTC's problems, given its otherwise solid lineup.  Analyst Bonnie Chang, an analyst from Yuanta Securities, said the cut outlook was not a major concern, except in the sense that there's a general fear across the entire market about reduced revenue growth.

Comments Ms. Chang, "If the reason is more because of the macro concern, then it's not in the control of the company, no matter how good its products are.  It can even affect the business of Apple."

Sources: Reuters, HTC

"Well, there may be a reason why they call them 'Mac' trucks! Windows machines will not be trucks." -- Microsoft CEO Steve Ballmer

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