HTC faces possibility of first loss in company’s history, missing even pessimistic analyst forecasts

HTC has followed its disappointing Q2 results by issuing revenue and profit warnings for Q3 suggesting the company may make its first ever loss in its 16-year history.

• 3Q revenue is expected to be in the range of NT$50bn to NT$60bn ($1.7 to $2M)
• Gross profit margin is expected to be in the range of 18% to 21%
• Operating margin is expected to be in the range of 0% to -8%

The forecast revenue is below the average of 22 analysts polled by Reuters, and its projected operating margin of between 0 and -8 percent falls below most of the more pessimistic forecasts. Operating margin is essentially net profit margin before taxes, interest payments and dividends. Its operating margin for Q2 was just 1.5 percent.

It’s an ironic position for the company to find itself in not long after launching what we consider to be the best Android handset on the market … 

HTC had already found itself struggling in the mid-market, but the HTC One was the handset that should have changed its fortunes. It was a gorgeous piece of hardware, and should have been ideally placed to take a large chunk of the premium handset market.

Unfortunately, a shortage of camera components delayed the launch by a month. Not a massive delay, but long enough to see Samsung’s S4 launched first. Suddenly, instead of having the premium market to itself, HTC was competing with the flagship handset from a far bigger player.

Poor morale and a series of high-profile departures followed. HTC was also not helping to engender consumer loyalty with its refusal to update the One S.

A recent reorganisation did little to build confidence, and while HTC is promising better things to come from Q4, the language is notably cautious.

We also have plans underway to launch a range of innovative and competitive mid-tier products in the coming months. We hope to regain momentum and market share in these segments in Q4. This will address our challenge of mid-tier products competiveness

Our overall gross margin has been impacted by the relatively higher cost structure, lack of economy of scale and certain provisions needed to facilitate the clearance of aging products in the channel. Actions have been taken and we expect to see improvement in Q4

We are also optimizing our organization, including the improvement of management efficiency and effectiveness.

Fortunes can change quickly in the tech field. Both the Google Play Edition of the HTC One and the HTC One Mini should provide a boost to HTC’s flagging revenues. But with Samsung launching an array of S4 variants, yet more high-end competition on the way from Motorola, and at least one and possibly two new iPhones on the way, it’s clear that HTC is going to need to work very hard indeed to turn things around.