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Things aren't looking very good for Taiwan's top Android phonemaker

Six quarters have came and went, and in each one Taiwan's HTC Corp. (TPE:2498) has seen its once rising star turn into a financial failure.  But this most recent one was arguably as bad as any as the Android smartphone maker's unaudited Q1 2013 earnings have badly missed on analyst earnings expectations.

I. Another Miss

survey of 19 analysts by Bloomberg had predicted a net profit of NT$600M ($19.97M USD).  A separate survey of 16 analysts by UK-based Financial Times, a Pearson PLC unit (LON:PSON), predicted a slightly leaner NT$287M ($9.56M USD).  Instead, HTC managed to miss both targets, essentially breaking even for the quarter with a net earnings of NT$85M ($2.83M USD).

Revenue fell to a new low of NT$42.8B ($1.42B USD), versus a Bloomberg analyst prediction of NT$54.7B ($1.82B USD) or a Financial Times analyst prediction of NT$53.8B ($1.79B USD).  

Taiwan Dollars
HTC is on the brink of no longer turning a profit. [Image Source: Reuters]

Worse yet, the operating margin -- a measure of profitability -- was around 0.1 percent, less than the 0.5-1 percent HTC had forecasted.  To put that in perspective, Samsung Electronics Comp., Ltd. (KSC:A005930) has a margin of 14.4 percent; while Apple has an industry-leading operating margin of around 33.46 percent.

HTC Broken
HTC has seen its profits shattered over the last year and a half. [Image Source: Gadget Stress]

HTC's new marketing chief Benjamin Ho has tried ardently to reinvent the company's image, scrapping its "quietly brilliant" motto and assuming a more belligerent advertising stance towards rivals.  However, his efforts have been hampered by delays to HTC's flagship HTC One 1080p Android smartphone, delays that originated from a snub from a camera components retailer who had downgraded the Taiwanese OEM from "preferred" status.

II. More Trouble Ahead

HTC is slowly ramping up HTC One production and sales this month.  However, that leaves it with a far leaner window to market before Samsung's hot Galaxy S IV than it anticipated.  The Galaxy S IV launches on April 26.
HTC BlinkFeed
The HTC One suffered a costly delay due to a parts snub. [Image Source: HTC]

Taipei, Taiwan-based Yuanta Securities Comp. (TPE:2885) warns that the dire Q1 2013 financials may only be a precursor to the Q2 2013 bloodbath, saying that the HTC One shipping delays will cost the phonemaker. Yuanta analyst Dennis Cheng comments to Bloomberg, "These numbers show the production shortage really is that bad, and my sense is that it won’t get much better in the second quarter because many of those issues continue.  For smartphones, timing is everything and the delay means they lose that timing."

Sources close to the company have said that HTC's embattled long-time CEO Peter Chou had told employees late last year that he would step down if the HTC One did not reverse his struggling firm's fortunes.

HTC Storm
The worst is not yet over for HTC. [Image Source: SOC Wallpapers]

Briefly the largest U.S. phonemaker in late 2011, HTC today is no longer even the second largest Android phonemaker, passed by China's ZTE Corp. (SHE:000063) and Huawei Technologies Comp. (SHE:002502).

Aside from shipping delays one under-examined factor in HTC's decline is the cost of the "patent tax" paid to Microsoft Corp. (MSFT) and Apple, Inc. (AAPL).  While HTC did brag about getting a "bargain" from Apple in terms of patent licensing, and it at least no longer has to worry about bans, it reportedly must pay $10 USD per device to Microsoft and around $5 USD to Apple per device.  That's far from HTC's only problem, but paying licensing fees is one more factor battering the phonemaker's margins.

Sources: HTC, Bloomberg, FT



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RE: What a shame...
By BabelHuber on 4/8/2013 2:19:04 PM , Rating: 4
I would have bought the HTC One X last year if it would have had a removable battery and an SD-card slot.

I would consider the HTC One if it had these features.

Samsung does it right, I do not understand why HTC does not include those features.
Hell, they could just leave the battery as-is and simply ad the SD card, and the device would look much better to me!

Some people may say that this is unimportant, but then it begs the question why Samsung sells so much more Android-phones than HTC...


RE: What a shame...
By ChronoReverse on 4/8/2013 2:30:54 PM , Rating: 3
Yeah, I like my One X a LOT but I ALWAYS run into the problem of storage space. Even had it been 32GB standard it would have been okay but 16GB means only 10GB available for the user and it's cramped.


RE: What a shame...
By Nortel on 4/8/2013 3:01:53 PM , Rating: 3
Samsung spent 4.3 billion on advertising... you don't think that could have something to do with it?


RE: What a shame...
By Tony Swash on 4/8/13, Rating: -1
RE: What a shame...
By Cheesew1z69 on 4/8/2013 4:16:41 PM , Rating: 1
Yes, because actually adding features people want, that totally has to do with them spending money on advertising! /s

Moron...


RE: What a shame...
By Nortel on 4/8/2013 6:03:01 PM , Rating: 2
A correlation between advertising dollars and gross sales, what a scary thought. Can you imagine such a world where this was true?

Seriously, HTC and Samsung phones (most android phones for that matter) are so similar that to trash HTC for being 5% is a joke. Pot calling the kettle black really. Wow, no removable battery and SD card, better burn it at the stake.


RE: What a shame...
By Reclaimer77 on 4/8/2013 10:17:03 PM , Rating: 2
Correlation, yes. But Samsung's advertising budget seems to only be brought up by embittered Apple fans or Samsung haters as a convenient way to excuse away Samsung's success. They've convinced themselves that Samsung makes pure garbage, and the only reason they sell is from commercials. How convenient.

As if we're all in the 1950's and the only way to experience products are through advertising.


RE: What a shame...
By TakinYourPoints on 4/9/2013 12:37:27 AM , Rating: 3
Advertising works.

Mass advertising and good products can certainly go hand in hand, but they don't have to. Samsung outspends everyone on advertising and its a huge reason why they're as successful as they are, even when they don't make the best hardware in the Android space. You get public mindshare with billboards and TV ads everywhere and you're going to sell units. Obviously good products follow through and build loyalty, but companies need to get their foot in the door first. How can companies like HTC or LG compete with the muscle Samsung has?

All that said, a lot of this is actually self-inflicted by HTC themselves. They are terrible at building a brand that is recognizable by consumers. They release a new flagship every few months, each with a different naming scheme than the last.

It doesn’t matter how good HTC's individual phones are, they throw away any brand recognition they might have had and start all over again every couple of months. As much as Samsung has been outspending them and everyone else on marketing, many of HTC's current problems are partly due to their own terrible marketing decisions.

Forget copying the UI or earlier hardware designs or whatever, the smartest thing Samsung took from Apple might be their marketing and release strategy. Don't release multiple flagships a year, release one. Don't completely rename your product line with dozens of random prefixes and suffixes, pick a strong name and stick with it.

GALAXY

Smart and it sure as hell works.

If you want to name the next HTC/Motorola/LG/Sony phone, go here: http://androidphonenamegenerator.com

No wonder they're all floundering while Samsung and Apple are thriving. HTC would do well to pick a brand and stick with it.

Also, this is brutal: http://i.imgur.com/ENWgm7J.png


RE: What a shame...
By Tony Swash on 4/8/13, Rating: -1
RE: What a shame...
By Cheesew1z69 on 4/9/2013 9:02:19 AM , Rating: 1
Do you not yet get, that no one cares what you have to say?


RE: What a shame...
By Tony Swash on 4/9/13, Rating: 0
RE: What a shame...
By half_duplex on 4/9/2013 5:22:23 PM , Rating: 2
LOL


RE: What a shame...
By insurgent on 4/9/2013 9:22:29 PM , Rating: 2
Advertising means nothing if you're selling bad products. If the S4 sells a lot it's from advertising and a good product.

People seem to forget that HTC was at the top of their game a couple of years ago, they didn't fall that fast because of Samsung's "advertising", that's an ignorant conclusion. They're failing because of disappointing products that burned consumers, suddenly coming up with the One doesn't mean people will instantly switch especially with Samsung being huge now.

It will take a phenomenal failure on Samsung's part and a phenomenal product from HTC, these two needs to happen for HTC to come back.


RE: What a shame...
By Reclaimer77 on 4/8/2013 9:45:54 PM , Rating: 2
Yup that's the two major deal breakers with this phone. At this point smartphones are basically personal computers. I expect removable storage, just because. We should have it, nuff said.

Also what's alarming to me about the One is how poor it fares in drop tests. Despite HTC claiming it's "unibody", the speaker grills are merely glued on, and will pop off the phone on the first serious drop. I think that's fairly unacceptable.

People really need to get over the stigma that plastic is cheap, and metal is more gooder. I dropped my old S2 on concrete more times than I wish to remember, and it was fine. The only thing that finally killed it was a drop in the toilet.

Some may say get a case for the HTC One, but I don't like wrapping my phone in ugly bulky cases. I see no need to. And wrapping the phone in a case kind of defeats the point of sporting an aluminum phone doesn't it?


RE: What a shame...
By txDrum on 4/9/2013 3:33:50 AM , Rating: 2
I don't see the huge need for personal storage, at least from the point of the average consumer.

The average consumer doesn't know/care about the privacy involved with cloud storage. Skydrive gives you 7GB, Dropbox 2 (really easy to get to 5ish) and google drive another 5 at least, all for free.

I don't know what cloud storage is like on android, but skydrive literally integrates straight into my photos. I have a skydrive "Album", and the whole cloud storage thing makes it much simpler. (You can even set it to upload the pictures when you have wifi, or on cellular, or not at all). Stuff like this will take the place of an SD card. I'm not denying that an SD card is nice, but I'd rather take the aluminum, near flawless construction of the One (with no scuffgate or whatever it was called might I add) and no SD, and use Skydrive, than plastic with an SD card.


RE: What a shame...
By Stuka on 4/10/2013 10:48:37 AM , Rating: 2
I have about had it with SD cards thanks to my SGSII. It has become unusable for app storage due to the phone randomly unmounting it. This has corrupted several apps requiring reinstall, uninstall, install. Even as the photo respository it has become burdensome. Its only redemption comes as movie/music file storage. But even then I think I can get by without it. Until they have a battery that can withstand a ~12hr pounding at full load, it has no meaning to me as a media player, so I am out of excuses for SD expansion.


RE: What a shame...
By Mint on 4/11/2013 7:24:35 AM , Rating: 2
quote:
Until they have a battery that can withstand a ~12hr pounding at full load, it has no meaning to me as a media player

I don't know if the SGSII had some sort of bug, but most smartphone can do way more than that as an MP3 player.

But even for movies, where does this 12hr figure come from? Does it not occur to you that maybe people don't want to determine beforehand what they're going to watch for a even just a couple hours later in the day, and instead would rather carry a library of media with them?


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