HTC to shift dependence from U.S. market: CEO

Taipei, April 24 (CNA)
Taiwan's HTC Corp. will lean more on the smartphone markets in Europe and Asia in the face of steep competition in the United States, the company's chief executive said Tuesday.

"In the past two quarters, our greatest challenge came from the U.S. market, mainly from the iPhone 4S," HTC CEO Peter Chou told investors during a conference call.

"It's unlikely that the U.S. will account for 50 percent of HTC's sales in the future," he said. "We will try to balance sales in the European and Asian markets," he added.

For example, HTC has introduced its New Desire series in China, which will hit stores from this month priced from 1,999 Chinese yuan (US$317) before subsidies, which the company hopes will bolster its product lineup in the emerging mobile market.

Moreover, HTC has been working with Japan's second-largest mobile carrier, KDDI Corp., on the HTC J smartphone, which will go on sale in Japan through KDDI's 6,000 stores by the end of April.

Unlike older products launched in Japan, the new HTC J will support more localized services such as mobile television and mobile payment in a market dominated by domestic Japanese manufacturers.

To promote these new models and its flagship One series, however, HTC will increase its operating expenses in the April-June period, which might affect the company's second-quarter results, according to Chou.

HTC expects its revenue to reach NT$105 billion (US$3.56 billion) in the second quarter of 2012, up 55 percent from a disappointing first quarter, the company said in a statement.

It expressed hope that its gross profit margin will improve from 25.03 percent in the first quarter to 27 percent in the second quarter, with its operating margin expanding from 7.53 percent to 11 percent.

The Taoyuan-based company reported first-quarter sales revenue of NT$67.8 billion (US$2.3 billion), a drop of 33 percent from the fourth quarter of last year and down 35 percent from the same period of last year.

Its net income tumbled 70 percent year-on-year to NT$4.46 billion in the first three months of this year, while earnings per share dropped 71 percent to NT$5.35.

Jeff Pu, an equity research analyst at Taipei-based Fubon Securities, said HTC's second-quarter shipments could reach 11.5 million units, compared with the market consensus of 11.0 million units.

"Strong March sales of NT$30.9 billion (up 52 percent month-on-month) were driven by only two models of the One series, and it is reasonable to expect the momentum to accelerate in the second quarter when more models are launched," he said.

Pu also said the impact on HTC of Samsung Electronics Co.'s S3 model will be limited considering the sizable smartphone market scale, HTC's earlier launch schedule, effective marketing strategy and improving product line-up.

"Longer term, we note that the competition has not been the direct reason behind HTC's market share; rather it is more due to the competitiveness of HTC's products," he added.

Fubon estimated HTC's revenue to be around NT$105 billion to NT$115 billion, given that the company's revenue grew 24 percent and 37 percent quarter-on-quarter in the third and the fourth quarters of 2010, respectively, despite the launch of the iPhone 4.

In a separate note released that same day, CLSA Asia-Pacific Markets said HTC has "a short window of opportunity" before the launch of Samsung's Galaxy S3 and the iPhone 5 to increase shipments of the One family.

The Hong Kong-based brokerage predicted that HTC's shipments will double from 7 million units in the first quarter of 2012 to 14 million units in the third quarter of this year thanks to its early launch.

"We believe that timing is indeed critical for HTC as the firm will find it hard to compete against the mind-share commanded by Apple and Samsung and against the advertising firepower of Samsung," said Nicolas Baratte, head of technology research at CLSA.

"Besides, we also believe that the risk of consumers switching brands is higher for HTC than for Samsung," he said.

HTC shares closed up 1.16 percent at NT$478.5 that day in Taipei.

(By Jeffrey Wu)
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