HTC reports another weak quarter, but no cause for worry

Monday 9 April 2012 | 10:45 CET | Market Commentary

HTC released a short report showing its first quarter was far from successful. Both revenues and profits were down sharply, although no figures on phone shipments were announced. HTC said it's in a transitional phase. 

Its profit fell 70 percent from a year earlier to TWD 4.46 billion (USD 151 million), and revenues dropped almost 35 percent to TWD 67.8 billion. While the company did not give any explanation of the figures in the report, CFO Winston Yung said in a conference call that the company suffered from no major handset releases in Q4 2011. He called the first quarter of 2012 a transitional phase. During the quarter there was a small sign of improvement in March, when sales rose 50 percent from the previous month. 

HTC also had a difficult fourth quarter. In the last three months of 2011, profits fell by around a quarter and revenues were down 2.5 percent from a year earlier. 

Down sharply, but not unexpected

The poor results were not exactly a shock. HTC said last October already that performance may weaken due to "uncertainties"about existing models. These could have trouble competing with the latest offerings from rivals, such as the Samsung Galaxy series and Apple's latest iPhone. 

Apple also made it more difficult for HTC last year when it obtained a temporary injunction against HTC phones in the US. HTC lost a ruling in a patent infringement suit brought by Apple, meaning it could no longer sell phones in the US from April. It was able to largely circumvent this, through efforts such as removing certain features form some models, but it's unclear how much damage the ban is causing. At the end of last year HTC had a 20-25 percent share of the US smartphone market. 

Overall, HTC had a rough ride in recent months. In 2010 and 2011, it was showing outstanding results quarter after quarter, thanks to strong sales of its Android handsets. Its share price tripled within 14 months, and sales figures rose four-fold within a year. It was no coincidence then when Google chose HTC in early 2010 to launch a phone in its own series of premium handsets, the Nexus One. 

But as a growing number of manufacturers adopt the Android OS, it's becoming harder for HTC to distinguish itself. Even its own user interface, HTC Sense, is starting to lose some of its shine. At the Mobile World Congress in late February, a senior executive at HTC admitted that Sense is "too complicated" and in future it would focus more on the latest version of Android, Ice Cream Sandwich. The new version of the interface will go back to the basic look seen on earlier handsets such as the Desire, Desire Z and Wildfire S. In addition, HTC will roll out updates to Ice Cream Sandwich on 15 handsets in the coming months. These include eight sold in the US and six on the European market: HTC Desire S, HTC Desire HD, HTC Incredible S, HTC Sensation, HTC Sensation XL and HTC Sensation XE.

New models, positive reception

At the same time HTC is trying to reposition itself with the launch of new top models. In February it unveiled the HTC One X, One S and One V smartphones, which come with features such as 25GB on the Dropbox cloud storage service and complete integration of Beats Audio. In the US, HTC launched this week the EVO 4G LTE, the successor to the EVO 4G released in 2010. The first reviews of these phones are positive (see for example The VergeEngadgetCnet or Tweakers).

HTC has enough cards on hand to make this a successful year still. The new line-up is strong enough to compete with the handset makers that were outpacing the company in the last months of 2011. HTC is no Research In Motion, which seems to be drowning in its own problems, nor is it a Nokia, which is struggling to rebuild its share of the smartphone market. It's also no Samsung, which with its marketing power and very broad portfolio continues to build on the success of the Galaxy series. HTC is only having a little dip, but it will be back this year. 

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