Revenue barely clears target, roadmap looks sparse for H2, as competitors' new flagship approach

HTC Corp. (TPE:2498) made some aggressive moves this quarter.  Capitalizing on the well-designed but underpublicized HTC One (2013) (M7), it launched the HTC One M8 (2014).  The HTC One M8 shaved off some expensive features like optical image stabilization (OIS) for the camera, while bumping some parts of the spec modestly.  One key piece of good news in Q2 2014 was that HTC's supply chain held up with demand for the One M8 and there were no major delays or shortages.

Looking across the rest of its line HTC generally migrated out of the high end, winding down sales of the HTC One Max phablet, and focusing on midrange devices.  It also sold a $2M USD stake in a Chinese equity firm.

These tactics seemed to pay off.  After bleeding money for a number of quarters, it finally turned a profit.  Its unaudited financials were released [PDF] today for Q2 2014:
  • Revenue: NT$65.06B (~$2.18B USD)
  • Net Profit Before Tax: NT$2.76 (~$92.5M USD)
  • Operating Profit: NT$2.43 (~$81.4M USD)
  • Net Profit After Tax: NT$2.26 (~$75.7M USD)
The net profit was up markedly from a net loss in Q1 2014 (NT$1.88B) and a smaller profit in Q2 2013 (NT$1.25B).  It also beat the analyst estimate of NT$2.09B by a modest 8 percent; where as a year ago the analyst estimate was missed by a mssive margin.

HTC One M8
HTC's One M8 has driven HTC to a bigger profit, but there's concern of a sales slowdown in H2 2014.

But elsewhere there were signs of trouble.  Sales of the One M8 appear to be slowing in the face of Samsung Electronics Comp., Ltd.'s (KRX:005930) (KRX:005935Galaxy S5 and LG Electronics Inc.'s (KRX:066570)(KRX:066575) flagship device, the LG G3.

With a potential Google Play Edition refreshed Galaxy S5 -- the Galaxy S5 LTE-A --  waiting in the wings with a Snapdragon 805 processor (with 3GB RAM) from Qualcomm Inc. (QCOM), 3 GB of DRAM, and a fancy new 2560x1440 pixel QHD (Quad HD) display, HTC has plenty to worry about.  Hardware-wise its flagship device is badly trailing the competition.

Analysts are also concerned with revenue, which just barely scraped above the company's NT$65-70B forecast.  In a research note from Thursday the Goldman Sachs Group Inc. (GS) warned:

We believe 2014 could be the third consecutive year in which the peak quarter is [the second quarter.]

Wanli Wang, a regional analyst with the Malaysian bank CIMB Group (MYX:1023), predicted HTC revenue will slump to NT$45B or lower in Q3 and Q4 2014, as competitors release more impressive devices.  She tells The Wall Street Journal:

As features of Android phones are becoming more homogeneous to consumers, their life-cycle is now at best two to three months. I don't see a clear catalyst for HTC in the second half this year.

In other words, HTC has earned a bit of breathing room by halting its downward decline, but it's still struggling to keep pace with Samsung, LG, and Apple, Inc. (AAPL).

Sources: HTC [PDF; press release], WSJ

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