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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 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.

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