HTC Set to Stage Comeback for Profitable 2014

After suffering net losses, for the first time ever since its listing in Taiwan, of NT$1.6 per share last year, HTC Corp., a Taiwan-based vendor of branded smartphone, is set to stage a comeback by turning profitable this year.

Optimism about Q2At an investor conference held in early May and presided over by its chief financial officer, C.L. Chang, HTC expressed optimism about reversing financial losses for three quarters in a row, by publicizing encouraging growth forecasts for the second quarter of this year.

Chang reported HTC's revenue for the quarter of an estimated at NT$65-70 billion (US$2.167-2.333 billion) for a quarterly surge of 96-111%, and EPS (earnings per share) of NT$2.21-3, compared to a loss of NT$2.28 per share a quarter ago, with a gross profit rate of 21.3-22%. Based on the forecasts, the firm will break even or attain small profits for the first half of the year.

To some extent, HTC's forecasts is turning into reality, given its latest financial report showing  revenue in April totaling NT$22.1 billion (US$736.667 million), up 36% month-on-month or 12.7% year-on-year.

HTC's Performance by Quarter
	Sales Revenue	Operating Profit Margin	EPS
Q3, 2013	NT$47.00 Bn.	-7.43%	- NT$3.58
Q4, 2013	NT$42.89 Bn.	-3.70%	NT$0.38
Q1, 2014	NT$33.10 Bn.	-6.20%	- NT$2.28
Q2, 2014 (forecast)	NT$65-70 Bn.	3.30-4.60%	NT$2.21-3.00

Source: HTC Corp.

Worth mentioning is that the EPS forecast for the second quarter falls short of institutional investors' expectations of over NT$4, due mainly to the expected encroachment caused partly by a middle-to-high-end product mix that may hurt overall margins, and partly by necessary costs for retirement of old products. But, Chang stressed at the conference that HTC is likely to turn profitable in the first half, and will aim for profits for the whole year by enhancing promotion of new products.

Among the brand's newest flagship smartphone model is HTC One M8, which, Chang indicated, has been highly valued by bloggers and consumers ever since debuted in March, and has been promoted in more countries since May. Meanwhile, the middle-end smartphone model, Desire 816, has also hit many markets except China. The two products, the CFO noted, are expected to notably drive the firm's overall sales.

In the face of its major competitors poised to bring new products to the market in the second half of the year, Chang revealed that his company will likely launch a larger-screen edition of HTC One M8, and wearable electronics by the Christmas sale season, to maintain growth momentum and compete.

Chang emphasized that while consolidating its position in the high-end segment of the global market for smartphones, HTC is going to aggressively boost its presence in the middle-end segment this year to build a leading status.

Production OutscoringIn addition to promoting new products, HTC may have also just begun farming out production to contract manufacturers since this spring as part of its comeback strategy.

It is reported that HTC has already contracted Compal Electronics Inc., a Taiwanese electronic manufacturer, and Wintech Group, a China-based handset contract maker, to produce at least three middle-end models of the Desire family, subverting its tradition of having production of its smartphones completely kept in house.

Chang earlier confirmed the news indirectly by saying that HTC is always open to outsourcing production, motivated by not just cost considerations, but also a vision to enhance the overall flexibility of business deployment, though declining to publicize which contract manufacturers have been involved in the outsourcing plan. He said that by doing so, the firm concentrate more on R&D of the new products that call for higher technology requirements to produce; but added that HTC One M8 and Desire 816 are all manufactured in house.

While HTC's recently recovering performance and brightening outlooks have allowed its shareholders to breathe a sigh of relief on a persistent downturn, most of foreign institutional investors, however, have remained suspicious about the firm's prospects in the second half, and conservatively valued its stocks in the bourse. For instance, Hong Kong-headquartered CIMB Securities opines that the company's prosperity in the second quarter is driven simply by sell-in of HTC One M8, and whether it will linger into the second half remains to be seen. Nomura Securities pointed out that the launch of iPhone 6 will surely cast shadow to HTC's overall performance in the second half, not to mention that its gross profits are very likely to be undermined by promotion of tablet PCs and more lower-end smartphones. (SC)