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

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

Summary: 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.

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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.

htc102612a
htc102612b

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.

Topics: Mobility, Smartphones

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8 comments
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  • Too bad

    I really don't understand it. In cellphone stores HTC phones stack up well compared to Samsung devices on a spec by spec basis. With the carrier subsidy there's usually a comparable HTC device selling for the same price as the Samsung phone, and yet Smasung seems to be crushing HTC. Maybe it's the failure of HTC to include an SD card slot in the One X it offers in Verizon, T-Mobile and AT&T sores (The HTC Evo 4G does have one). Given these facts, I'm not sure what HTC could do to make a more attractive product.
    dsf3g
    • .

      I don't think its anything like that. When talking to my less technological mates about phones they all say the same thing... "get an Iphone" or "get a samsung"

      Myself i use a Windows phone and had a samsung one before my Nokia, and people would always be like what phone is that? I would reply that it was a windows phone and they would be like "ahhh its a samsung"

      I think Samsung are just the more reputable brand, so unless your into your phones its either an Iphone or a Samsung.
      danjames2012
    • Agreed

      I agree with your comment about the SD card. I have an HTC at the moment, since I prefer the design over the Samsung phones. If I was getting a phone now, I'd get an S3, partly because of the SD card slot. I'd just have to put up with the ugly (to me) rectangular button below the screen.

      Another reason for not getting an HTC is the frequent "Loading" message when going from applications to the Sense interface. (Currently using the Sensation.)
      DJL64
    • Gimme a Quad Core phone

      A snappy quad core phone would help gain my interest.
      RobertAnthony
  • product really aint the problem...

    HTC lost momentum. Theygot away from not having to market and spend money in the channel because they stayed one step ahead of Samsung. Now Samsung products are as good or better than HTC and the amount of money they spend in the marketplace has pushed HTC to the side. All this talk about fixed memory and batteries is a relatively minor issue. People are walking into the store and asking for Samsung or apple and sales reps take the path of least resistance. Theyneed to win back the enthusiasm of the consumer and the sales rep to win in the marketplace to win.
    casualsuede
  • HTC should do both their own line and white label.

    The 8X is a fantastic piece of hw and way better than samsungs plastic craptastic stuff. They shouyld also pull a nokia and make a nice low end WP7.8 phone for china that looks like the 8X but without the WP8 hw requirements. I dont see them making a surface phone though. Could happen since their buds but MS went on their own for the tablet for a reason and it worked. I'd think theyd be more likely to follow that path for the phone too.
    Johnny Vegas
  • HTC - Give as a nexus like device.

    Give as a nexus like device, without the Nexus restrictions. A 4.3" screen, removable battery, an SD slot, 16/32gb memory, quadcore or fast dual core, 2gb RAM and LTE. Plus the usual bits and good quality headphones and a good camera. Put on vanilla Android 4.1.2 and guarantee timely updates. Maybe a 4.7" model as well. Sell direct. I know it will never happen, but I would buy one.
    Aysgarth
  • No margin

    Problem is, the profit margin is basically zero when you do that. That is why it was correct for RIM to stay away from being an Android clone maker too. There is no profit in making hardware for others or being an Android clone maker, except the top clone maker for now.
    Later, even Samsung will have profit margin reductions.
    Susan Antony