HTC's Q1 outlook stinks: Is Q2 rebound theory wrong?

HTC's Q1 outlook stinks: Is Q2 rebound theory wrong?

Summary: HTC is betting that new products in March can "normalize" its profit margins. The reality may be that HTC's glory days may be gone forever as Samsung and Apple run away from the smartphone pack.

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TOPICS: HTC
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HTC announced weak fourth quarter financial results and a worse than expected outlook for the three months ending March 31. Meanwhile, it's unclear whether new products can get HTC back on firm ground anytime soon.

The fourth quarter results weren't a surprise. HTC telegraphed poor results weeks ago. The first quarter outlook was a bit of a stunner and the magnitude of the shortfall makes HTC's argument for a second quarter surge dicey.

HTC's big theory is that new products in March will save its bacon. These products will result in a second quarter surge that will put HTC back into the race against Samsung and Apple.

First, let's get the HTC results out of the way. The first quarter went down like this:

But it was the outlook that raised eyebrows. HTC projected first quarter revenue between NT$65 billion and NT$70 billion "due to a product transition." Margins and pricing are expected to erode to 25 percent for gross margins and operating margins of 7.5 percent.

Analysts were $NT89.6 billion in revenue for the first quarter.

Also see: CNET:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               HTC disappoints with financial results, forecast

The catch is that HTC expects margins to normalize once it launches new products. In addition, the HTC brand and design will bring momentum back. Indeed, HTC has three new models coming in March---Ville, Edge and Primo) and HTC is trying to ship as many as possible before a new Samsung Galaxy and Apple iPhone hit the markets in May and July, respectively.

Macquarie analyst Daniel Chang highlighted the risks with HTC's second quarter surge theory.

HTC believes its poor 1Q12 margin is temporary and margin will recover to its “normal” cycle in 2Q12. We believe the guidance is a bit optimistic due to ongoing severe competition and product mix change. Although we agree that 2Q12 margin will recover due to improved scale on new models shipment, we disagree that HTC is able to see its operating profit margin back to 2011 level or 15%.

The issue is that HTC will struggle to win a feature race and maintain costs. The second quarter devices may just get HTC back in the game. That position is a far cry from victory.

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Topic: HTC

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9 comments
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  • RE: HTC's Q1 outlook stinks: Is the Q2 rebound theory wrong?

    They make too many different models and release them too quickly.

    I had an iPhone 3GS and was looking for an upgrade. I looked at the iPhone 4, the Samsung Galaxy SII and the htc Sensation. The iPhone 4 felt "wrong" in the hand, the Samsung Galaxy is, well, plastic fantastic, it feels incredibly cheap for a high end phone, the htc feels good and solid in the hand.

    They certainly have a quality feel. If they can focus on a limited product pallette, they stand a chance.
    wright_is
    • RE: HTC's Q1 outlook stinks: Is the Q2 rebound theory wrong?

      @wright_is HTC?
      slickjim
      • RE: HTC's Q1 outlook stinks: Is the Q2 rebound theory wrong?

        @Peter Perry Yep, HTC. I like the look and feel of their devices over the cheap-and-tacky feel of the Samsungs. The iPhone metal and glass feels horrible in the hand - I'm not the only one, most of the people I know with iPhone 3GSs are holding off upgrading, hoping the next generation iPhone will have a better haptic experience.
        wright_is
  • Just another corpse thanks to Apple

    Apple is a killer company.

    Literally.

    It is a sick market. We all lose.
    toddybottom_z
    • RE: HTC's Q1 outlook stinks: Is the Q2 rebound theory wrong?

      @toddybottom_z Corpse, they have the #1 selling Audio Technology on the market (not #1 but #1 selling)... They are putting this tech in the phones and with good headphones the stuff actually worked!
      slickjim
  • HTC still has some life

    They're popular in the modding communities. However, the problem I've seen is that their phones seem to be nearly clones of each other, save for the baseband and the installed apps.

    What's the difference between the EVO 4G and the Sensation? or the Aria? or even the Incredible 2 (apart from screen size and carrier)?

    When all the phones run the same software and sport a very similar candy bar look to the point where the ROM developers can release a single ZIP file that will install on half a dozen different phone models, and the end user needs to hit up Wikipedia to figure out what the hardware differences are...then yes, there's a problem.

    One opportunity that all the phone manufacturers seem to be disregarding is the segment that prefers battery life to weight. If they made an HTC Thunderbolt that could last morning 'til night on a single charge despite heavy usage, there is a market for a phone like that, and the users would be willing to put up with an extra 1/16" inch of girth and another 2oz of weight if the default battery held 4000mAh.

    The other area that HTC could exploit is the 'wannabe modders'. For those not comfortable with rooting their phones and installing modded ROMs, or possibly uncertain of which mobile OS to go with, why not ship a phone that could run either Windows Phone 7 or Android? Sure it'd be a bit more expensive, but they released a phone three years ago that was capable of this - it's called the HD2, and a bunch of volunteers have been able to port both OS's to the phone despite it shipping with WinMo 6.5. To this day, it's still among the most active devices on XDA-Devs. How then, is there not a market for a phone that could run both OS's at the user's request?

    If nothing else, having both slider and slate models on all carriers would be handy - I have a friend who'd buy a G2 tomorrow if it were on Verizon, but there's no phone of that form factor on Verizon to be found at any price.

    HTC can totally pull through if they release phones for customers that the other carriers are overlooking.

    Joey
    voyager529
  • RE: HTC's Q1 outlook stinks: Is the Q2 rebound theory wrong?

    uh...just a summary? Where's the article? Talk about lazy blogging!
    The Danger is Microsoft
    • RE: HTC's Q1 outlook stinks: Is the Q2 rebound theory wrong?

      @The Danger is Microsoft <br>We are investigating some technical problems with this post and are working to restore the full text.
      David Grober
  • The Android market seems to have room for one

    And that one is Samsung. No one else is making any real money off of this stuff. The iPhone is the major money maker, and all that goes to Apple. Perhaps Nokia will be the "third leg" with Windows Phone. I suspect everyone else will eventually just die off.
    x I'm tc