HTC: When good products aren't enough

Summary:HTC showed some stability in the second quarter and touted its latest One device. The problem is that HTC may be merely a one-quarter wonder.

HTC reported a small second quarter profit, appears to have expenses in check and touted how its One (M8) smartphone "continues to impress the market." However, there's a chorus of tech watchers and analysts saying HTC's products won't translate into stability.

First, the results. HTC reversed its three-quarter sales slide, but couldn't show growth compared to a year ago. Meanwhile, HTC's second quarter profit more than doubled what it put up a year ago.

These charts tell the tale:

htcq214a
htcq214b

As for the outlook, HTC projected third-quarter revenue to be between NT$42 billion to NT$47 billion with wide earnings of NT$0.05 to NT$0.69. In other words, HTC expects it will be profitable, but has no clue how well it'll do.

CNET: HTC One M8 Harman Kardon Edition review

HTC One Mini 2 review

The reason: HTC moved a lot of inventory as the reception to the M8 has been positive. Now HTC needs actual sell-through to consumers ahead of Apple's iPhone 6 and new devices from Samsung, which needs a do-over following its Galaxy S5 launch.

HTC CEO Peter Chou said the second quarter was "a positive step that is the result of having focused on delivering the best possible smartphone to the world."

One step may not account for much though. In the best case scenario, HTC's third quarter will get close to flat compared to a year ago.

The concern: HTC's recovery is simply a one-quarter wonder. Daiwa Capital Markets analyst Kylie Huang said:

The disappointing revenue guidance echoes our concerns HTC’s revenue strength in 2Q14 could be a one-quarter wonder due to initial sell-in of new models. We expect sequential revenue and earnings declines from 3Q14 due to stiffer competition from Apple and Samsung Electronics. According our recent supply chain research, the sell-through of HTC’s flagship model, HTC One (M8), is worse than our prior expectation and HTC has started scaling back its component orders from June.

Huang's argument is that HTC has good products, but it's not enough to compete with the scale of Apple and Samsung and a bevy of rivals from China on the low-end of the market.

That take was echoed by other analysts such as KGI analyst Richard Ko.

Where does HTC go from here? It must be tough to be Chou. HTC delivered a strong premium smartphone, but is still at the mercy of Samsung. Should Samsung stumble, HTC has a shot to be a key Android smartphone maker, but still faces competition from vendors such as Lenovo, LG, ZTE and Xiaomi, which is now the No. 5 smartphone maker.

HTC doesn't make the smartphone shipment cut on a global scale, according to Strategy Analytics.

strategy analytics data

Bottom line: HTC's second quarter was a start, but the company will need to deliver on the product and financial fronts in the months ahead just to show it's stable.

Topics: Mobility, HTC, Smartphones

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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