HTC's best move after Q4 outlook: Go white label

HTC's financial picture continues to unravel and the fourth quarter will look much worse than the third. The company needs to go back to the future to save itself.

HTC issued another horrible outlook for the fourth quarter as sales, operating margin and most financial metrics continue to head in the wrong direction.

As for those metrics, HTC's financial health isn't so hot. Revenue was down 48 percent in the third quarter from a year ago. Earnings per share fell 79 percent. Operating profit was down 76 percent. Cash levels fell 45 percent. More worrisome is that it took HTC 48 days in the third quarter to turn over its inventory and a year ago it took 34. It also is taking HTC longer to get paid by its customers.

We'll spare you the gory details, but these two slides from the company's earnings presentation tell you all you need to know about HTC's disastrous third quarter.


And guess what? It gets worse for HTC despite a product refresh. Revenue in the fourth quarter is expected to be NT$60 billion, down from NT$70.2 billion in the third quarter. Operating margins will fall to 1 percent in the fourth quarter from 7 percent in the third.

Add it up and HTC could face a cash flow squeeze in the not-too-distant future. When it comes to strategy, HTC's story is well known. HTC doesn't have the scale and heft to compete with Samsung and Apple. Unless HTC becomes a Windows Phone juggernaut and Microsoft's most valuable partner it's toast. In China, HTC has some momentum, but it has to play the value phone game. 

However, HTC could do a back to the future move. HTC started as a white label manufacturer. It basically made and designed phones for others. Then HTC became its own brand. HTC was hot for a while and a leader of the Android army. Then it got crushed.

Given the financial picture, the most obvious move would be to go white label again. HTC can design well and could ultimately make devices for Microsoft, Google or a bevy of other non-hardware companies getting into the device game. Couldn't HTC ultimately manufacture an Amazon phone?

You get the picture. The reality is that HTC doesn't have a power brand and isn't considered quietly brilliant. Meanwhile, HTC lacks scale. Before HTC's financial picture gets too out of hand, it should ponder going back to its roots.


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