HTC is between a rock and a very hard place. Earlier today the Taiwanese smartphone maker said that revenue in the first quarter would be flat at best, or continue falling by as much as 17% to $50 billion; margins would either hold steady or shrink.
Some 18 months ago, HTC was ruling the roost as one of the world’s top smartphone makers running Android: an 8.8%-global market share, margins of around 30%. Now it’s market cap is down 75%, and margins have fallen to the 21-23% range.
The problem comes from the front and rear. Samsung is increasing volumes for low-end phones while Apple is said to be preparing a cheaper iPhone. Meanwhile low-end vendors from China like ZTE and Huawei are cramming better functionality into their cheaper devices to make cheap, super phones. (See: “Huawei Challenges Samsung With ‘World’s Biggest Smartphone’”)
“HTC, like Nokia, MMI, Sony, LG Electronics, Research in Motion (now renamed BlackBerry) are all sandwiched in the middle, battling for relevance,” said Berenberg analyst Adnaan Ahmad in a note to investors, throwing out a few smartphone volume numbers to illustrate the challenge: “HTC: 7.5 million units (our estimate for the quarter); Nokia: 6.6 million ex-Asha… Sony: 8 million – 9 million; Motorola Mobility 3 million (our estimate); Research in Motion: 7 million; and LG Electronics: 7 million. These compare with Samsung (60 million+ units), Apple (48 million), Huawei (18 million), ZTE (8 million – 9 million) and Lenovo (7 million).”
HTC’s forthcoming device, codenamed the M7, “needs to be on another planet, [and] not just a very good HTC device, for it to drive earnings growth at the company,” he added. HTC recently sent invites to a press event on Feb. 19th and it is widely expected to unveil the new handset on this date, allowing it to steal some press attention ahead of Mobile World Congress a week later.
As for tackling the low-end vendors, HTC’s chief financial officer, Chialin Chang, said on a conference call today that his company would target emerging markets more closely this year, and was ready to offer smartphones priced less than its cheapest phone in China, which costs 1,999 yuan ($320).
That might not be enough. HTC also said it wouldn’t go below 1,000 yuan ($160) for a smartphone — but Garner analyst Mark Hung predicts that competitive pricing pressures and feature integration will see smartphone prices go down to as low as $50 in 2013. “Global, brand-name smartphone vendors must re-examine their product lineups to determine how their low-end offerings are differentiated from the competitive products offered by low-cost vendors,” he said.
Further challenging HTC will be its struggle to pivot into other avenues besides that of making mobile handsets. “Unlike Research in Motion, (a services business and an installed base of clients) and Nokia (Intellectual Property Rights), what value is there in HTC?” asks Berenberg’s Ahmad. “To us it remains the biggest short in handset land.”
“Although the spring M7 launch should help, competition remains a key obstacle to any material operating improvements [for HTC],” wrote Baird Equity analyst William Power, who has a “neutral” rating on the Taiwan-listed stock. “Product differentiation and enhanced marketing efforts are key in its battle against Samsung.”
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