Can HTC Make A Comeback?

Preliminary quarterly results for Taiwanese handset manufacturer HTC reveal the company's net profit in Q113 was just TWD85mn (US$2.8mn) , down sharply from the TWD1bn reported in Q412. From being one of the largest handset manufacturers in the world, HTC has slipped as South Korea's Samsung has taken up the mantle. The company's shares have lost more than half their value over the past 12 months as the manufacturer has struggled to regain its footing. BMI believes the smartphone market will remain tough and HTC will continue to have a bumpy ride.

HTC's Rise And Fall
Revenue and Net Profit (TWDbn)

Part of the blame for the weak Q113 results was put on the delayed launch of its new flagship smartphone, HTC One. A proposed launch in the second half of March 2013 was delayed, which brings HTC's launch closer to Samsung's hotly anticipated new Galaxy device. The Galaxy range of smartphones has propelled Samsung to the top of the market, where it fights for the top spot with Apple. Gartner reports that HTC ranked 10 th in the smartphone market in Q410, a far cry from early 2011 when it pushed Nokia into third place in the total mobile handset market.

HTC is fighting back, changing its marketing strategy and increasing its 2013 digital marketing budget by 250%, as well as doubling its traditional marketing budget. In the key US market, HTC will create 'pop-up showrooms' in large malls to put the device in the hands of more consumers, in the hopes this will help boost sales. While this is not quite enough to turn the company's fortunes around, more aggressive marketing and targeted sales is certainly a step in the right direction. However, this will need to be followed up with a range of devices that capture the imagination of mobile subscribers and encourage users to swap brands.

HTC's diminishing place in the smartphone market has further compounded problems in securing components for its devices. The Wall Street Journal reported an HTC executive had said the company had difficulty getting components as it is not longer considered a tier-one customer. This could further hold back the company's plans to regain its position and the highly publicised delay of the HTC One will do little to improve its standing among consumers.

While BMI believes the HTC One is not enough to fully turn the company's fortunes around, we note HTC's growth in 2010-2011 was remarkable from a little known player to one of the major brands in the market and we do not rule out the possibility that it can make a comeback. However, the crowded marketplace is a challenge for the company and there are new companies eager to take their share of the market. We believe the next few quarters will give a clearer indication of HTC's future, with a takeover a possibility, if the company's performance does not improve considerably.

This article is tagged to:
Sector: Consumer Electronics
Geography: Taiwan, Taiwan, Taiwan, Taiwan

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