New flagship smartphone "M7" and Chinese growth raise hopes for a turnaround

For embattled Taiwanese smartphone maker HTC Corp. (TPE:2498) the audited version of fiscal Q4 2012 financials brought a bit of good news and a bit of bad news.

On the one hand HTC's profitability slide continued, with net profit dropping to NT$1B ($33.82B USD) -- or an earnings per share of NT$1.21 ($0.04 USD/share).  On the other hand, that beat analyst predictions by over 20 percent.  A survey of 17 analysts by Financial Times predicted earnings of NT$0.97 per share.

Quarterly revenue fell at NT$60B ($2.03B USD), slightly less than the analyst consensus of NT$61.7B.  However, the a better-than-expected 23 percent gross margin and reduced operating margin of 1 percent drove up the profit slightly, despite the revenue miss.

HTC posted a troubling outlook for Q1 2013, though, suggesting revenue could dip as low as NT$50B.  In Q1 2012, HTC pulled in NT$67.8B in revenue.

HTC Chief Financial Officer Chang Chia-Lin looked to cheer up analysts in the conference call, announcing plans to aggressively target the Chinese market with more affordable smartphones.  HTC is one of the fastest growing players in the Chinese market, the world's largest smartphone market.  However, price is an obstacle to its growth -- its cheapest model is 1,999 yuan ($320).

HTC Sign
HTC wiill sell cheaper smartphones in China this year. [Image Source: Cult of Mac]

CFO Chia-Lin remarks, "We're going to go down, but not below 1,000.  We see there's still room to play [in 1,000 to 2,000 yuan phones]."

A new flagship smartphone, code-named "M7" is also in the works.  Expected to launch mid-month at events in New York City and London, the phone is rumored to feature a super-high resolution camera.

Overall Taiwan's stock market rose 12 percent in 2012.  However, HTC's stock was pounded down 40 percent as revenue and profits slid downward.  A major culprit is a weakening brand.  While HTC is still a top tier Android phonemaker, it has fallen far behind Apple Inc. (AAPL) and Samsung Electronics Comp., Ltd. (KSC:005930) in brand image.

Both Samsung and Apple predicted similar Q1 slumps on weakening demand.

Sources: HTC, FT [analyst estimates], Reuters

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