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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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HTC is awakening but is it too late?
By mustaka on 7/4/2014 4:27:17 AM , Rating: 2
This is what happens when you try and obey the wishes of a handful of enthusiasts. I mean when you intend to listen to the consumer what you will hear is only from those who are enthusiastic enough to bother to brag for high hopes everywhere. Listen to them but don't think they represent the majority. Nice but unrealistic, impractical wishes for high cost qualities. Such as a metal unibody. Which makes removable battery impossible to implement, or external memory. Be practical, be cost effective, and provide goodies as much as possible within the boundaries of the reason. Like Samsung does.

RE: HTC is awakening but is it too late?
By hughlle on 7/4/2014 11:31:59 AM , Rating: 4
The irony is that your claimed improvements are just what a bunch of "enthusiasts" want as well.

Average joe generally doesn't care about expandable storage or a removable battery. Average joe wants a sexy phone they can show around, not the ability to swap out batteries on the go or have 100gb of music on an sd card. Average joe does typically doesn't have the content to fill up a 32gb phone. They typically stream from youtube etc, and don't watch 10gb 1080p films, or require 10,000 mp3's, or have a use case where they must have the ability to change a battery middle of the day. Average joe consumer just wants a phone that does what they want straight out of the box without buying sd cards and batteries and battery chargers etc.

RE: HTC is awakening but is it too late?
By Reclaimer77 on 7/5/2014 3:22:29 PM , Rating: 2
Sorry but the facts don't support anything you're saying. You keep speaking for the "average" person and claiming to know what they care about, when Samsung is outselling Apple and the next three smartphone OEM's COMBINED.

The average person out there is telling us what they want and voting with their wallets. You people can either choose to accept it or keep wailing against that.

Average joe wants a sexy phone they can show around

Right which explains why the HTC One outsold everything. Oh wait.

The HTC One was everything the small but extremely vocal minority of people on the Internet had convinced themselves and a lot of other people that Android desperately needed. A "high quality" (metal) phone that was sexy and stylish and etc etc.

Well when it came time to put money where mouth was, what happened?

"Average Joe" wants a solid phone with expandable storage and removable batteries. Everything else is a niche!

RE: HTC is awakening but is it too late?
By icrf on 7/7/2014 10:06:24 AM , Rating: 2
Just because SGS is popular and it has removable batteries and storage does not mean that those are the reasons people bought them. Correlation does not imply causation.

I suspect it has more to do with marketing, getting carriers in their stores to promote it, and having a critical mass of repeat customers more than any specific features. So long as they don't make a terrible phone, momentum and history will keep people buying Samsung.

On HTC's future, if the Nexus 8 rumors are true, I will definitely buy an HTC-made 8.9" Nvidia K1 (Denver) with boomsound speakers late this year for $400.

By Revton on 7/8/2014 10:51:06 PM , Rating: 2
I couldn't agree more. Anytime I'm in the best buy phone section I always see joe blow first smart phone dad being talked into a Samsung by an employee. I'm sure it helps that Samsung has people educating the staff on location.

I will add a nexus 8 to my steed alongside my m8 this year too. I guess that could help htc next quarter. Sad, it doesn't look good for them, but I don't want their products to stop!

By mustaka on 7/8/2014 7:45:21 AM , Rating: 2
HTC was not like this once, it was quite popular. I loved my HTC HD, like many other millions did. We loved HD2 too. But it was totally affordable (relatively) back then. Then it began gradually increasing the quality believing it would help further increase sales. But that also helped increase the costs and hence prices, and fewer people bought it. So the problem is not why HTC is not growing bigger, but it is why HTC is becoming smaller. It lost a potentially huge fan base, a huge advantage over other competitors due to some fatal strategic decisions. Now they are trying to correct those mistakes but it may be too late.

By retrospooty on 7/4/2014 11:32:03 AM , Rating: 2
HTC has massive cost issues, it has nothing to do with their current lineup's quality or listening to enthusiasts. It was bad already, then the Apple lawsuit made matters worse. Even when they sold a ton of phones, they still often lost money. They need to get cost under control, first and foremost.

Damage is already done
By inperfectdarkness on 7/4/2014 1:24:50 AM , Rating: 3
I blame Apple.

RE: Damage is already done
By ritualm on 7/5/2014 12:53:15 PM , Rating: 3
Nope. Apple can retract all lawsuits from the docket and HTC will still die - because the latter's costs are way too high for a phonemaker. The only time the company ever made money was when everybody and their mom bought HTC phones, and even then the ROI simply isn't there.

When the total BOM for a M8 is higher than that of a G3, there is a huge problem.

By Tewt on 7/4/2014 6:21:37 PM , Rating: 2
Yeah, I would assume so because that Hummer no longer sells as well especially with today's gas prices. Here's hoping HTC has a better 2H 2014 though.

"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer

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